• by Thom Forbes  @tforbes, June 1, 2016

Housing prices in March were up 5.2% over a year ago and consumer spending in April rose 1% over the previous month — the steepest rise since August 2009 — making Federal Reserve interest rate hike ever more likely in the coming months, analysts say.

“The economy is supporting the price increases with improving labor markets, falling unemployment rates and extremely low mortgage rates,” said David M. Blitzer, managing director & chairman of the index committee at S&P Dow Jones Indices, in releasing the Case-Shiller Home Price Indices yesterday. “Another factor behind rising home prices is the limited supply of homes on the market. The number of homes currently on the market is less than 2% of the number of households in the U.S., the lowest percentage seen since the mid-1980s.” 

When a home is sold in the U.S., various amounts of income are generated from real estate related industries such as construction costs, real estate brokerage, mortgage lending and title insurance, according to the National Association of Realtors, depending on the state where the transaction occurs. An additional $4,494 is spent on consumer items such as furniture, appliances and paint service, across the board.

The Case-Shiller Home Price Index “has clawed its way back to within 4% of its 2006 peak, a steep rise from the near 30% decline at the bottom in 2012,” write Laura Kusisto and Chris Kirkham for the Wall Street Journal, adding that new-home sales posted their strongest month in more than eight years in April. 

“New home sales jumped 16.6% to a seasonally adjusted annual rate of 619,000 units, the highest level since January, 2008. The percent increase was the largest since January 1992”, Lucia Mutikani reported for Reuters when the Commerce Department data was released last week.

“Consumers are taking the leap and buying the biggest of big ticket items of their lives and this speaks to confidence. The Federal Reserve can raise rates at their June meeting without fear the economy is going to slow,” Chris Rupkey, chief economist at MUFG Union Bank in New York, said at the time.

“But the rise in prices comes amid lingering weakness in some parts of the market,” the WSJ’s Kusisto and Kirkham point out. “Overall sales volume and new construction remain well below their pre-crisis peaks. And a broader collection of figures point to an uneven recovery that has seen a flourishing market at the high end, mainly in big U.S. cities, while the lower end lags.” 

S&P Dow Jones’ Blitzer also observes that “price movements vary across the country,” and affordable homes are is greater demand than those on the high end of the market.

“Home price appreciation came in stronger than expected, with West Coast markets showing some of the largest gains … Zillow chief economist Svenja Gudell said,” Kelsey Ramírez reports for HousingWire. “It remains a tough home buying season for buyers, with little inventory available among lower-priced homes.”

“Chicago real estate appreciated at 1.9% year over year, New York at 2.7%, and Cleveland at 2.8% ...,” Clare Trapasso reports for Realtor.com. “Prices shot up 12.3% annually in Portland, Ore., according to the report. The city was followed by Seattle, at 10.8%, and Denver, at 10%.”

But the escalation is “locking out some first-time buyers, who instead are paying record-high rents,” according to Zillow’s Gudell. “For home buyers looking for a home, the luxury market, including the condo market, are the places to find a better selection and even some price cuts as supply outpaces demand.”

Meanwhile, “consumers pulled their wallets out of winter hibernation in April,” writes Jim Puzzanghera for the Los Angeles Times. “A jump in purchases of motor vehicles and long-lasting durable goods helped fuel the rise.”

“Consumer spending will continue to lead economic growth in 2016, as more jobs and rising wages give households more money to spend,” Stuart Hoffman, chief economist at PNC Financial Services, tells Jim Puzzanghera.

“Lou Crandall, chief economist at Wrightson ICAP, said the latest data had ticked more boxes as policymakers gauge when to lift rates,” reports Sam Fleming for Financial Times. “‘Those who are in favor of a June hike will be more confident in their views as a result of this,’ he said. However he still leaned towards expecting a July move by the Fed because of the uncertainties associated with the U.K.’s referendum” on whether it will remain a member of the  European Union.