Increasing Home Prices Good For Sellers
The National Association of Realtors (NAR) reported lower sales of pre-owned homes in February. Would-be buyers were discouraged by rapidly rising home prices. Short supplies of available homes sidelined potential buyers as higher home prices and cash buyers squeeze out buyers who need mortgages to buy homes. Multiple offers resulting in bidding wars have also deterred buyers in high demand markets. According to NAR’s February report, sales of existing homes fell 7.10 percent to their lowest level since November.
NAR has predicted that rapidly rising home prices would eventually damage housing markets. While analysts weren’t certain whether February’s report indicated a temporary lull due to weather and anomalies related to new closing regulations and seasonal influences, NAR Chief Economist Lawrence Yun said, “The main issue continues to be a supply and affordability problem. Finding the right property at an affordable price is burdening many potential buyers.”
During the housing bubble, buyers jumped into the market as speculators or to buy before home prices increased beyond their reach. NAR surveyed renters last week and found that the percentage of renters who believed that it’s currently a good time to buy a home decreased.
Respondents to Fannie Mae’s February Home Purchase Sentiment Index forecasted a 1.70 percent increase in home prices year-over-year. One year ago, respondents expected home prices to increase by 2.50 percent year-over-year. This may suggest that home prices are cooling. This can be expected as the number of buyers declines as home prices become increasingly unaffordable.
New Home Sales Up in February
New home rose in February according to the Commerce Department. Based on a revised reading of 502,000 new home sales in January, February’s reading was 2.00 percent higher than January’s reading, but was 6.10 percent lower than for February 2015.
Builders have held back on increasing construction due to concerns about ups and downs in the economic recovery. Short supplies of labor and available land have also kept home builders from meeting current demand.
Mortgage Rates Trend Lower
According to Freddie Mac, average mortgage rates fell across the board last week. The rate for a 30-year fixed rate mortgage fell by two basis points to 3.71 percent; the rate for a 15-year fixed rate mortgage fell three basis points to 2.96 percent and the rate for a 5/1 adjustable rate mortgage fell four basis points to 2.89 percent.
New jobless claims rose to 265,000 from the prior week’s reading of 259,000 new claims. Last week’s reading matched analyst expectations.
What‘s Ahead This Week
This week’s scheduled economic news includes reports on inflation, pending home sales, Case-Shiller’s Home Price Index reports and government and private sector employment data. Weekly reports on mortgage rates and new jobless claims are also scheduled.
Last week’s economic news included Fannie Mae’s Home Purchase Sentiment Index along with weekly reports on mortgage rates and new jobless claims. The City of Detroit also announced a program to help would-be buyers purchase homes that do not qualify for mortgage loans due to severe damage.
Fannie Mae: Home Buyer Sentiment Index Rises
Fannie Mae’s Home Buyer Sentiment Index (HBSI) gained 1.20 percent for an overall reading of 82.70 percent for February. The index reading is calculated using responses to several questions contained in Fannie Mae’s National Housing Survey. HBSI components include consumer responses to questions about whether it’s a good or bad time to sell or buy a home, consumer expectations concerning whether home prices and mortgage rates will rise, whether respondents expected to keep or lose their jobs, and consumer outlook for their income to significantly increase year-over-year.
The HBSI is designed to assess consumer attitudes about housing markets and their decisions about buying a home.
Mortgage Rates Rise, Weekly Jobless Claims Fall
Freddie Mac reported that average mortgage rates rose across the board last week. The average rate for a 30-year fixed rate mortgage rose four basis points to 3.68 percent; the average rate for a 15-year mortgage rose two basis points to 2.96 percent and the average rate for a 5/1 adjustable rate mortgage was eight basis points higher at 2.92 percent. Discount points averaged 0.50 percent for fixed rate mortgages and 0.40 percent for 5/1 adjustable rate mortgages.
New jobless claims dropped to a five-month low last week with a reading of 259,000 new claims filed as compared to expectations of 275,000 new claims and the prior week’s reading of 277,000 new claims. New claims readings under 300,000 new claims indicate a healthy labor market; new claims readings have held below the 300,000 benchmark for more than a year. The lowest reading of 256,000 new jobless claims occurred in October 2015.
City of Detroit Addresses Problems with Ravaged Homes
The City of Detroit announced a program designed to facilitate the purchase and rehabilitation of vacant and damaged homes that do not meet appraisal requirements for traditional home loans. While many markets have recovered from the Great Recession, housing markets such as Detroit have languished due to the lack of financing options. The program offers mortgages to cover the home purchase and second mortgages up to $75,000 for repairs and renovation. Program administrators say they plan to issue 1000 loans over the next three years. This type of program may help struggling housing markets recover while providing homeownership opportunities to those who could not otherwise afford to buy a home.
What’s Ahead This Week
This week’s scheduled economic events include the National Association of Home Builders/Wells Fargo Housing Market Index, federal reports on housing starts and building permits issued. The Federal Reserve will release its usual post-meeting statement after its Federal Open Market Committee meeting. Fed Chair Janet Yellen will also hold a press conference.
Last week’s economic news included the NAHB Housing Market Index, Commerce Department releases on housing starts and building permits and minutes of the most recent meeting of the Fed’s FOMC meeting.
Home Builder Confidence Falls in February
According to the National Association of Home Builders (NAHB), home builders had less confidence in market conditions for newly built homes. The reading for February was three points lower at 58 than the upwardly adjusted reading for January. Analysts had expected a reading of 59; any reading over 50 indicates that more builders are confident about conditions than those who are not.
Builder confidence was mixed for the three components used to calculate the NAHB Wells Fargo Housing Market Index reading. Confidence in current market conditions was lower by three points to 65, but builder confidence in future market conditions rose one point to 65. The reading for buyer foot traffic in new housing developments hasn’t topped the benchmark of 50 since the peak of the housing bubble; in February, the reading for buyer foot traffic dropped five points to 39.
NAHB Chief Economist David Crowe said that builder confidence is likely to improve in 2016 due to low mortgage rates, stable job markets and pent-up demand for homes. Mr. Crowe also said that shortages of available land and labor were concerns for builders.
Housing Starts,Building Permits Issued Lower
Commerce Department reports on housing starts and building permits issued also showed lower readings for January than for December. Housing starts reached 1.099 million starts in January as compared to an expected reading of 1.165 million starts and December’s reading of 1.145 million starts. Winter weather likely contributed to fewer housing starts.
Fewer building permits were issued in January than in December. January’s reading was 1.202 million permits issued as compared to December’s reading of 1.143 million building permits issued. Building permits issued for single family homes dropped by 1.60 percent to 731,000 permits issued. While lower month-to-month readings for current conditions may seem discouraging, the pace of single-family home building grew steadily during 2015 and is expected to do likewise in 2016.
FOMC Minutes: Policy Makers Eye Economic Developments
Minutes of January’s Federal Open Market Committee meeting indicate that members will closely monitor developing economic conditions as part of any future decision to raise the target federal funds rate from its current range of 0.250 to 0.500 percent. The Fed raised this rate in December, but did not increase the federal funds rate at its January meeting. Fed Chair Janet Yellen emphasized that decisions to raise the federal funds rate were not on a pre-determined course and that developing economic trends would continue to inform FOMC decisions.
Mortgage Rates and Weekly Jobless Claims
Average rates for fixed rate mortgages were unchanged last week according to Freddie Mac. The average rate for a 30-year fixed rate mortgage was 3.65 percent and the average rate for a 15-year fixed rate mortgage was 2.95 percent with Discount points averaged 0.50 percent for both types of fixed rate mortgages. The average rate for a 5/1 adjustable rate mortgage rose by two basis points to 2.85 percent with average discount points at 0.40 percent.
Analysts have consistently cited stronger labor markets as a factor driving U.S. housing markets. New weekly jobless claims dropped last week and added evidence of expanding job markets. 262,000 new jobless claims were filed last week; the reading was lower than expectations of 275,000 new claims and the prior week’s reading of 269,000 new jobless claims. Stable job markets are important to would-be home buyers; as labor conditions improve more buyers are likely to enter the housing market.
This week’s scheduled economic news includes reports on sales of new and pre-owned homes and the Case-Shiller 10 and 20 City Home Price Indices. Reports on consumer sentiment and inflation will also be released.
The Federal Open Market Committee (FOMC) determined that current economic conditions warranted another $10 billion reduction in the Fed’s asset purchases.
Citing improvements in economic indicators including labor markets and national unemployment, committee members said that further tapering of its quantitative easing (QE) asset purchases was warranted. The Fed will now purchase a total of $35 billion monthly in treasury securities and mortgage-backed securities.
While continued reductions in the Fed’s asset purchases could contribute to rising mortgage rates, the FOMC statement said that the Fed’s “sizeable and still increasing” holdings of long-term securities is expected to hold down long term interest rates including mortgage rates.
The FOMC statement included its standard caveat that reductions to QE purchases are not on a preset course and that committee members will continue close analysis of financial and economic news and conditions as part of decisions to change the volume of QE asset purchases.
Committee Monitoring Unemployment, Inflation
Unemployment remains “elevated” according to the FOMC statement. Committee members said that they will continue to monitor unemployment readings, but committee members expect that overall improvement in economic conditions will continue to justify the current target rate for federal funds at between 0.00 and 0.25 percent.
The FOMC statement notes that this “highly accommodative” policy will likely remain in effect for a considerable period after the QE asset purchases conclude.
Committee members continue to monitor the inflation rate, which remains below the FOMC target rate of 2.00 percent. Noting that inflation persistently below the Fed’s target rate could hamper economic growth, the FOMC said that it expects inflation to move toward its target rate within the medium term.
FOMC Releases Forecasts for Key Indicators
FOMC released a table of its forecasts for certain economic sectors. Highlights include a projected reading of 6.00 to 6.10 percent for national unemployment for 2014, and the rate of inflation for personal consumer expenses at between 1.50 and 1.70 percent for 2014. According to its projections, the Fed’s target inflation rate of 2.00 percent is likely to be reached in 2015 or 2016.
Fed Chair Yellen Gives Press Conference
A major theme of Fed Chair Janet Yellen’s press conference was that there is no set formula for Fed decisions concerning interest rates, inflation and tapering its volume of asset purchases. She cited geopolitical risks including conflicts in Europe and developing civil crisis in Iraq as examples of influences on U.S. financial markets, energy supplies and prices.
Ms. Yellen said that while consumer spending has increased, the Fed wants to see wage growth exceed inflation so that consumers would see an actual increase in their incomes. She also cited the Fed’s target inflation rate of 2.00 percent as important to continued economic recovery.
A wide range of opinions among FOMC members about federal interest rates was mentioned by Ms. Yellen as an example of overall uncertainty about the economy and developing economic trends. She cautioned investors to be mindful of this uncertainty.
Mortgage Debt Rises For First Time Since Recession
Last week was relatively quiet concerning scheduled housing-related news, but the Federal Reserve’s financial accounts report, released on Monday, indicated that mortgage debt in the U.S. had increased for the first time since the first quarter (Q1) of 2008.
Mortgage debt increased by a seasonally-adjusted annual rate of $87.4 billion, or 0.90 percent. Mortgage debt remains approximately 12.00 percent below pre-recession levels.
Increasing debt is not often considered good news, but in the case of mortgage debt in today’s economy, it suggests economic recovery in the form of higher home prices and fewer foreclosures.
Another instance of counter-intuitive economic results was released Tuesday. The Bureau of Labor Statistics (BLS) released its Job Openings and Labor Turnover Survey (JOLTS) report for October.
JOLTS indicated that 2.39 million workers quit their jobs in October. This was the highest number of jobs quit since 2008. While this may appear counter-productive to a growing economy, it indicates that workers are leaving their jobs for better positions.
Mortgage Rates Fall, Federal Budget Deficit Shrinks
On Wednesday the U.S. Treasury announced that November’s federal budget deficit had shrunk to -$135 billion from November 2012’s deficit reading of -$172 billion. This represents a year-over-year deficit decrease of 21 percent.
Freddie Mac’s Primary Mortgage Market Survey (PMMS) report provided good news as average mortgage rates fell last week. The average rate for a 30-year fixed rate mortgage fell from 4.46 percent to 4.42 percent. Discount points rose from the previous week’s reading of 0.50 percent to 0.70 percent.
15-year fixed rate mortgage rates fell from 3.47 percent to an average reading of 3.43 percent, with discount points rising from the prior week’s reading of 0.40 percent to 0.70 percent.
The average rate for a 5/1 adjustable rate mortgage dropped from 2.99 percent to 2.94 percent with discount points unchanged at 0.40 percent.
Lower mortgage rates are good news for home buyers facing higher home prices.
Weekly jobless claims rose last week. The previous week’s reading of 300,000 new jobless claims was short-lived as the reading for new jobless claims rose to 368,000 last week and surpassed a consensus of 335,000 new jobless claims.
Financial analysts cautioned that employment data can be volatile during the holidays, and noted that the four-week average of new unemployment claims rose by 6000 to 328,750.
What‘s Coming Up
There are several significant releases set for housing-related news. The NAHB housing market index, Housing Starts, and Building permits indicate how current builder confidence and new construction may impact the supply of available homes.
On Wednesday, the FOMC will issue its usual statement at the conclusion of its two-day meeting. Some analysts expect an announcement concerning the Fed’s quantitative easing policy; Outgoing Fed Chair Ben Bernanke is set to give a press conference after the FOMC statement.
In addition to the weekly jobless claims report and Freddie Mac’s PMMS, Reports on Existing Home Sales and Leading Economic Indicators will also be released.
This week’s economic news commentary has been dominated by the “what ifs” of a government shutdown; opinions of potential consequences are limited only by the number of commentators sharing their opinions.
Unfortunately, more concrete examples of the shutdown were evident last Tuesday and Friday.
The Department of Commerce delayed release of August’s Construction Spending report that were due last Tuesday and The Bureau of Labor Statistics delayed the release of September’s Non-farm Payroll and Unemployment that were due last Friday.
The ADP Employment report for September posted a reading of 166,000 private sector jobs added against expectations of 180,000 new jobs added. September jobs added surpassed August’s reading of 159,000 new jobs added in the private sector.
Mortgage Rates Remain Near Record Lows
Freddie Mac’s Primary Mortgage Market Survey released Thursday brought a third consecutive week of falling mortgage rates. 30-year fixed rate mortgages had an average rate of 4.22 percent down from 4.32 percent the previous week.
The average rate for a 15-year fixed rate mortgage fell by eight basis points from 3.37 percent to 3.29 percent and the average rate for a 5/1 adjustable rate mortgage fell to 3.03 percent from 3.07 percent.
Discount points were unchanged from last week at 0.70 percent for both 30-year and 15-year fixed rate mortgages and rose from 0.50 percent to 0.60 percent for 5/1 adjustable rate mortgage loans.
Weekly Jobless Claims were lower than projected. The reading of 308,000 new jobless claims was better than the 313,000 new jobs expected, but was higher than the prior week’s 307,000 new jobless claims.
What‘s Coming Up Next
This week’s scheduled economic reporting is also subject to adjustment if the federal government’s budget is not resolved. The most recent FOMC meeting minutes are due on Wednesday; if released they are expected to provide details about the Fed’s decision not to change its current quantitative easing program.
Weekly jobless claims and Freddie Mac’s PMMS survey of average mortgage rates are due Thursday. The University of Michigan Consumer Sentiment Index for October is set for release on Friday.
Last week wasn’t kind to stock market investors, but weekly jobless claims fell to an unexpected low of 320,000 new jobless claims filed, the lowest level in nearly six years.
Here is a review of the major events of the week.
Monday: The federal budget for July shows an increase in its deficit to -$98 billion, a deficit increase of $28 billion over June’s figure of -$70 billion. The good news is that the deficit for the first 10 months of the fiscal year is $38 billion less than during the same period of the prior fiscal year.
Thursday: Thursday was a busy day for economic news. The weekly jobless claims report came in lower than expected with 320,000 new jobless claims filed. This was lower than the expected.
While this is a strong sign for the economy that would typically boost stock prices, the markets fell. Analysts cite a good news/bad news scenario in describing what happened. The good news was that jobless claims fell to a new low, but the bad news is that investors feared that this may give the Fed a signal to begin tapering its quantitative easing (QE) program.
The Fed is expected to begin tapering its monthly purchases of $85 billion in treasury securities and mortgage-backed securities as early as next month. The QE purchases are intended to help hold down long term interest rates including mortgage rates.
The fall in stock prices on Thursday and Friday suggested that fear of the Fed ending QE is more compelling than the lowest number of new jobless claims since October 2007.
Freddie Mac reported that the average rate for a 30-year fixed rate mortgage remained unchanged at 4.40 percent with 0.7 percent in discount points. The average rate for a 15-year fixed rate mortgage ticked upward by one basis point from 3.43 to 3.44 percent.
Discount points fell from 0.70 percent the prior week to 0.60 percent last week.
The average rate for a 5/1 adjustable rate mortgage (ARM) rose from 3.19 to 3.23 percent with discount points unchanged at 0.50 percent. The 5/1 ARM provides an alternative to higher fixed rates for borrowers seeking lower mortgage rates and payments.
Friday: Included Housing Starts for July, which came in at 896,000 as compared to expectations of 915, 00 0 and June’s figure of 846,000 housing starts. Building permits issued in July came in at 943,000, and surpassed June’s reading of 918,000 building permits.
Increasing home values, buyer demand and a short supply of available homes were seen as motivating factors for builders to construct more homes.
This week’s schedule of economic news is set to include the Chicago Fed’s National Activity Index on Tuesday. The FOMC minutes will be released on Wednesday along with Existing Home Sales.
Thursday will bring Weekly Jobless Claims, Freddie Mac’s survey of mortgage rates and the FHFA home price index. Friday will finish the week with a New Home Sales report.
The past week brought encouraging economic news from several sources.
The FOMC statement indicated that the Federal Reserve has not set a date for rolling back its quantitative easing program and ADP reported more private sector jobs added than expected.
While weekly jobless claims were fewer than expected, the national unemployment rate remained elevated:
Monday: Pending Home Sales: The National Association of REALTORS reported that sales contracts fell in June due to rising mortgage rates and a tight inventory of available homes.
Tuesday: The S&P Case-Shiller Home Price Indices showed that national home prices increased by 12.2 percent annually.
All 20 cities used in the 10 and 20 city home price indices posted gains in average home prices. Average U.S. home prices remained approximately 25 percent below their peak in 2006.
Consumer confidence dropped in July to a reading of 80.3 as compared to a revised reading of 82.1 in June. Higher mortgage rates and stubbornly high unemployment rates likely contributed to a cooling of consumer enthusiasm.
Wednesday: The Federal Open Market Committee (FOMC) said in its statement that based on its reading of current economic conditions,the committee had not set a date for beginning to reduce the Fed’s monthly asset purchase of $85 billion in Treasury securities and MBS.
The program, known as quantitative easing (QE), is intended to keep long-term interest rates including mortgage rates lower.
ADP reported that job growth for private-sector jobs exceeded expectations for July; the adjusted reading of 200,000 for July beat expectations of 185,000 jobs added and also surpassed June’s reading of 198,000 new jobs added.
The ADP jobs report is viewed by economists as a preview of the Bureau of Labor Statistics’ Non-farm Payrolls and National Unemployment reports, which are collectively known as the “Jobs Report.”
Thursday: Weekly jobless claims came in at 326,000. This was lower than expectations and the previous week’s reading, both of which were reported at 345,000 jobless claims.
Freddie Mac reported that mortgage rates rose, with the average rate for a 30-year fixed rate mortgage coming in at 4.39 percent as compared to last week’s 4.31 percent.
Average rates for a 15-year fixed rate mortgage came in at 3.43 percent over last week’s 3.39 percent. The average rate for a 5/1 adjustable rate mortgage was 3.18 percent and two basis points higher than the previous week’s 3.16 percent.
Friday: The July Non-farm Payrolls report showed that only 162,000 jobs were added as compared to expectations of 180,000 jobs added and June’s reading of 188,000 jobs added. While housing markets are showing strong improvement, high unemployment continues to be a drag on the economy.
The national unemployment rate for July was 7.40 percent and was lower than expectations of 7.50 percent and June’s reading of 7.60 percent.
What’s Coming Up This Week
This week’s economic news includes the Senior Loan Officer Survey set for Monday, the U.S. Trade Deficit and Job Openings reports for June on Tuesday.
On Wednesday, a report on Consumer Credit will be released and the Weekly Jobless Claims will be out Thursday, along with Freddie Mac’s mortgage rates report. No mortgage or related news is scheduled for Friday.