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US House Prices Steady

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In the US the Federal Housing Finance Agency has just released the Housing Price Index for the month of March. Month on month this reading is 0.7%, up slightly on the February print of 0.6% and easily ahead of the market expected 0.5% increase. To see a year on year figure for US house price growth we can look at the S&P/Case Shiller Home Price Indices which has also just been published, this is showing annual expansion of 12.4% to the month of March, this represents a slowing of growth when compared to the 12.9% reading experienced in February, market analysts returned an estimate of 11.8% when polled about the likely outcome.

Additional information on the state of the US recovery was also released earlier in the form of the monthly Durable Goods Orders. The April reading has been announced at 0.8%, this is lower than the March reading of 2.5% but easily ahead of the expected contraction of -0.5% estimated by analysts. The Durable Goods Orders Ex-Transportation for the month has been announced as 0.1%, this is down from the 2.1% experienced in March but beats the market consensus for 0.0% expansion.

The recovery continues to be robust in the US economy and markets are estimating that the Federal Reserve will begin to tighten up on interest rates as soon as the first quarter of next year. The historical average for the Feds benchmark overnight rate is 4.25%, we are a long way from that at the moment but mean reversion backed up by the Feds own targets would indicate that over the coming years this rate could rise close to or above 4% should the recovery continue as planned. Bond market predictions however are less bullish, historically these markets have proved very accurate in predicting the long term direction of US interest rates, today they are indicating that the Feds key rate will max out at around the 3.25% level.

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