Lee Morof's Real Estate Blog

According to a press release by the Federal Reserve, the Federal Open Market Committee (FOMC), the current target federal funds rate will hold steady at  0.25 to 0.50 percent. Committee members cited positive developments in the U.S economy including jobs growth, stronger labor markets and gradually increasing inflation. In addition, stronger housing sector and household spending were also noted as positive signs for the economy. Committee members cited risks associated with global economic and financial developments as a concern.

FOMC members are guided in decision making by the Federal Reserve’s dual mandate of maximum employment and price stability. Inflation remains below the committee’s longer-term goal of 2.00 percent; FOMC members attributed slow inflation growth to lower energy prices. The Fed described its current monetary policy stance as “accommodative” and expects it to remain so until inflation reaches 2.00 percent.

Analysts said that the Fed has scaled back its forecast for rate increases from four increases to two increases in 2016, but any actions will depend on FOMC review of current and expected domestic and global factors. Fed Chair Janet Yellen previously cited turbulent market conditions as “significantly” tightening financial conditions due to lower stock prices.

Fed Chair Janet Yellen‘s Press Conference

Fed Chair Janet Yellen explained policy makers’ decision not to raise the target federal funds rate in a press conference after the FOMC statement. Chair Yellen responded to media representatives’ questions about FOMC’s views on inflation and unemployment, zero or negative interest rates and uncertainty about China’s economy

Ms. Yellen cautioned against over-emphasis of the relationship between unemployment and inflation as employment rates only modestly impacts tracking inflation indicators as they relate to wages and prices. In her remarks about the decision not to raise the target federal funds rate, Chair Yellen cited uncertainty about China’s economy as a factor in the decision not to raise the benchmark federal funds rate.

The U.S. economy is strengthening as Europe and Japanese economies wane. Chair Yellen indicated that although global economic decisions influence U.S. monetary policy, that U.S. decisions are not based solely on global economic and financial developments.

In response to a question about whether the FOMC has considered the effects of zero to negative interest rates used by Japan and other nations, Chair Yellen said that committee members were not actively considering or discussing negative interest rates in view of improving economic conditions. Ms. Yellen said that Japan incorporated negative interest rates but did not realize the desired effect of increasing inflation.

Media analysts said that a rate increase in April’s FOMC meeting seems unlikely, but with world-wide economic conditions changing quickly, such, forecasts can’t be cast in cement.

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.

What‘s Ahead

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.

Last week’s economic events included weekly releases on new jobless claims, mortgage rates and testimony by Fed Chair Janet Yellen concerning the Federal Reserve’s monetary policy. Here are the details:

Mortgage Rates, New Jobless Claims Drop

Freddie Mac reported that average mortgage rates fell across the board last Thursday, with the rate for a 30-year fixed rate mortgage seven basis points lower at 3.65 percent. The average rate for a 15-year fixed rate mortgage was six basis points lower at 2.95 percent, and the average rate for a 5/1 adjustable rate mortgage was two basis points lower at 2.83 percent. Discount points averaged 0.50 percent for 30 and 15 year fixed rate mortgages and 0.40 percent for 5/1 adjustable rate mortgages.

Lower mortgage rates may encourage first-time and moderate income home buyers to enter the market, although slim supplies of available homes and rising home prices have caused ongoing concerns about affordability in many markets.

Weekly jobless claims were also lower. 269,000 new claims were filed as compared to estimated claims of 280,000 new claims and the prior week’s reading of 285,000 new jobless claims. This was the lowest reading in two months and suggests healthy labor markets as more workers find jobs. Readings lower than 300,000 new jobless claims indicate healthy jobs markets. The four-week rolling average of new jobless claims was lower by 3500 claims at 281,250 new claims filed. Analysts consider the four-week reading as a more accurate indicator of labor markets as it smooths out anomalies in weekly claims.

Yellen Testimony: Fed Won’t Change Course on Rates

Federal Reserve Chair Janet Yellen said that she doesn’t expect interest rate cuts in view of slowing economic indicators. In testimony before the House Financial Services panel, Chair Yellen indicated that although there are signs of slower economic conditions, there was still room for economic growth. She cited a strong labor market and strong consumer and business spending as indicators of economic expansion. Analysts interpreted Chair Yellen’s testimony to indicate that the Fed would not likely raise its target federal funds rate in March.

Chair Yellen said that monetary policy is not on a “preset course”. Federal Reserve press releases consistently state that policy makers review current and developing domestic and global economic trends as part of any decision to raise rates. In view of this, Chair Yellen’s testimony did not cover what could happen if future economic developments influence Fed policy. Recent concerns over volatile financial markets caused by the weakening in China’s economy were cited as examples of “downside risks” that could impact the Fed’s monetary policy.

Readings for Consumer Sentiment suggest that consumers are also watching economic developments. February’s reading decreased to 90.7 as compared to January’s reading of 92.0.

What’s Ahead

This week’s scheduled economic events include the National Association of Home Builders Housing Market Index, federal reports on housing starts and building permits. FOMC minutes and weekly reports on mortgage rates and new jobless claims will also be released.

Last week’s economic events included S&P Case-Shiller’s home price indexes, reports on new and pending home sales and the Fed’s FOMC statement. The details:

Case-Shiller Reports Fast Paced Home Price Growth

According to S&P Case-Shiller Home Price Indexes, U.S. home prices grew at their fastest pace in 16 months in November. Portland, Oregon led the charge with home prices increasing 11.10 percent year-over-year followed by San Francisco, California at 11.0 percent; Denver, Colorado posted a year-over-year gain of 10.90 percent. 14 cities posted home price gains while four cities posted declines in home prices and two cities posted no change on a month-to-month basis.

David M. Blitzer, chairman of the S&P Index Committee, noted that slumping oil prices and a strong dollar were posing challenges to domestic and international homebuyers. In spite of high demand, the supply of available homes continued to drive home prices up in most cities in the S&P Case-Shiller 20-City Home Price Index.

In related news, the Commerce Department reported that sales of new homes jumped to a year-over-year reading of 544,000 new home sales as compared to November’s upwardly revised reading of 491,000 new homes sold and expectations of a year-over-year reading of 506,000 new homes sold as of December. The December 2015 reading was 9.90 percent higher than for December 2014.

Analysts cited a shortage of new homes for driving sales; builders are facing obstacles in hiring and finding suitable land for development. Some builders were said to be targeting high-end buyers which leaves a shortage of homes available for first-time and mid-range home buyers.

The National Association of Realtors® reported a minor gain in pending home sales in December. Pending home sales gauge future closings and mortgage activity. December’s pending sales reading was higher by 0.10 percent month-to-month and posted a year-over-year gain of 4.50 percent. December’s gain represented the 16^th consecutive monthly gain for pending home sales. Analysts had expected a month-to-month gain of 1 percent, but high demand and a slim supply of affordable homes are leaving would-be buyers on the sidelines.

Fed Holds Off on Raising Rate; Mortgage Rates Lower

The Federal Reserve announced its decision not to raise its target federal funds rate on Wednesday; Freddie Mac reported lower average mortgage rates on Thursday. The average rate for a 30-year fixed rate mortgage dropped by two basis points to 3.79 percent; the average rate for a 15-year fixed rate mortgage fell 3 basis points to 3.07 percent. The average rate for a 5/1 adjustable rate mortgage were lower by one basis point at 2.90 percent. Discount points were unchanged at 0.6, 0.5 and 0.5 percent respectively.

What’s Ahead

This week’s scheduled economic news includes reports on construction spending, ADP payrolls, Non-Farm payrolls and the national unemployment rate.

According to statement issued at the conclusion of today’s Federal Open Market Committee meeting, committee members decided against raising the target federal funds rate. Mixed economic conditions, slower economic growth in the 4th quarter and low inflation contributed to the decision against raising rates. The target federal funds rate was raised in December to a range of 0.25 to 1.59 percent after remaining at 0.00 to 0.25 percent for several years. While rising fed rates were expected to cause a hike in mortgage rates, mortgage rates fell after December’s rate hike.

Committee Cites Mixed Data in Decision

While labor conditions and housing markets continue to improve, FOMC members said that further improvement in labor markets and achieving the medium term goal of inflation influenced the committee’s decision not to raise rates. The Federal Reserve has a dual goal of achieving maximum employment and 2 percent inflation. While labor conditions continue to improve, the Committee wants to see further improvement. The inflation rate has stubbornly stayed below 2 percent and lower energy and non-energy import prices caused the inflation rate to fall further in recent weeks. The Fed also downgraded its reading of household spending and business investment growth from “strong” to “moderate.”

FOMC members consider global economic and financial conditions as well as trends and developing news affecting domestic economic and financial developments. Wednesday’s statement emphasized that constant monitoring and analysis of financial and economic readings are significant in monetary policy decisions. Analysts noted that recent economic developments including slowing economic growth in the US and China, along with resulting turbulence in financial markets likely contributed to the Fed’s decision not to raise the federal funds rate.

FOMC Says Policy Decisions to Remain “Accommodative”

Members of the FOMC do not expect marked economic improvement in the short term and said that they expect Fed monetary policy to remain accommodative “for some time.” This suggests that rapid rate hikes are not likely to occur in the near future; the Fed’s commitment to gradual rate increases is expected promote further improvements in labor markets and hold down borrowing rates for consumer credit and mortgages.

The Committee’s vote not to increase rates was unanimous. The next FOMC meeting is set for March 15 and 16. In the meantime, Fed Chair and FOMC Chair Janet Yellen is slated to testify before Congress about the economic outlook on February 10 and 11.

Last week’s scheduled economic reports included the NAHB Housing Market Index, Housing Starts, FOMC statement and Fed Chair Janet Yellen’s press conference. In addition to weekly reports on jobless claims and mortgage rates, inflation reports were also released.

Builder Confidence Slips, Housing Starts Increase

According to the NAHB / Wells Fargo Housing Market Index for December, home builder confidence slipped by one point to a reading of 61 as compared to an expected reading of 63 and November’s reading of 62. December’s reading was three points higher year-over-year. Readings over 50 indicate that more builders than fewer are confident about housing market conditions. December’s confidence reading remained higher than 2015’s average reading of 59.

Components used in comprising the NAHB HMI also slipped in December. Builder confidence in current market conditions fell one point to a reading of 66; the six months sales outlook fell two points to 67 and the reading for buyer foot traffic in new developments also decreased by two points to a reading of 46. The reading for buyer foot traffic has consistently remained below the neutral benchmark of 50 since the housing bubble ended.

While builder confidence eased, housing starts rose in November with 1.17 million starts reported. Analysts expected a reading of 1.14 million starts based on October’s reading of 1.06 million housing starts. During much of 2015, demand for homes accelerated due to slim inventories of available homes; new construction is seen as essential to easing demand.

Fed Raises Interest Rates, Mortgage Rates Higher

The Federal Open Market Committee of the Federal Reserve raised its target federal funds rate from a range of 0.00 to 0.25 percent to a range of 0.25 percent to 0.50 percent. While the Fed’s increase is expected to affect consumer lending rates for auto loans and credit cards more than mortgages, Freddie Mac reported that rates for fixed rate home loans rose last week. The average rate for a 30-year fixed rate mortgage rose by two basis points to 3.95 percent and the average rate for a 15-year fixed rate mortgage increased by three basis points to 3.22 percent. The average rate for a 5/1 adjustable rate mortgage was unchanged at 3.03 percent. Discount points were unchanged for fixed rate mortgages at 0.60 percent and 0.50 percent respectively while average points for a 5//1 adjustable rate mortgage dropped to an average of 0.40 percent.

Weekly jobless claims fell to 271,000 new claims against expectations of 275,000 new claims and the prior week’s reading of 282,000 new claims.

What’s Ahead

Next week’s economic reports include reports on new and existing home sales, consumer spending and consumer sentiment. Weekly jobless claims and Freddie Mac’s mortgage rates report will also be released as scheduled. No reports will be released on Friday due to the Christmas holiday.

Last week’s economic reports included Consumer Price Index and Core index for September, the minutes of the FOMC meeting held September 15 and 17, and weekly reports on mortgage rates and new jobless claims. The details:

FOMC Minutes Hint at Looming Rate Hike as Inflation Lags

Minutes of the Federal Open Market Committee meeting held in September suggest that while Fed policy makers have reservations about low inflation and labor markets, they may go ahead and raise the target federal funds rate from its current range of 0.00 to 0.25 percent. When the fed does raise rates, consumers can expect to see higher mortgage rates as well as loan rates on products such as personal loans and credit cards. FOMC members also expressed concerns over lagging inflation below the FOMC benchmark of 2.00 percent.

September’s Core Consumer Price Index report showed a slight reduction as consumer prices fell by -0.20 percent which matched analyst’s expectations and was lower than August’s reading of -0.10 percent. The reduction in consumer prices was caused by falling fuel prices. The Core Consumer Price Index for September, which does not include readings for energy or food prices, rose by -0.20 percent which exceeded predictions of an 0.10 percent increase and August’s reading of +0.10 percent.

Mortgage Rates Rise as New Jobless Claims Fall

Freddie Mac reported that fixed mortgage rates rose while rates for a 5/1 adjustable rate mortgage held steady last week. The average rate for a 30-year fixed rate mortgage rose by six basis points to 3.82 percent while the average rate for a 15-year fixed rate mortgage rose by four basis points to 3.03 percent. The average rate for a 5/1 adjustable rate mortgage was unchanged at 2.88 percent. Average discount points were unchanged at 0.60 percent for fixed rate mortgages and 0.40 percent for 5/1 adjustable rate mortgages.

New jobless claims fell to 255,000 against expectations of 270,000 and the prior week’ reading of 262,000 new claims. The four-week rolling average of new claims fell by 2250 new jobless claims and reached its lowest level since 1973.

In other jobs-related news, job openings fell from July’s reading of 5.70 million to 5.40 million in August. The Labor Department also reported that the hiring rate and quit rates held steady at 3.60 percent and 1.90 percent.

What’s Ahead

This week’s scheduled economic news releases include The National Association of Home Builders Housing Market Index, September Housing Starts and Existing Home Sales in addition to usual weekly reports on mortgage rates and weekly jobless claims.

Last week’s economic releases included several reports related to housing. The Wells Fargo/NAHB Housing Market Index achieved its highest reading in nearly 10 years. Housing Starts dipped in August and Building Permits issued in August exceeded July expectations. The week’s big news was actually no news. The Fed’s Federal Open Market Committee decided not to raise interest rates. Fed Chair Janet Yellen followed up on the FOMC statement with a press conference and said that the Fed is not yet ready to raise rates, but that a majority of FOMC members are prepared to raise rates before year-end.

Inflation Rate Remains Well Below Fed Benchmark

The Federal Reserve has set a goal of reaching an inflation rate of 2.00 percent as one of several considerations for raising the target federal funds rate that currently stands at 0.00 percent to 0.250 percent. The Consumer Price Index for August fell from July’s reading of 0.10 percent to -0.10 percent in August. Lower prices were driven by lower fuel costs. The dip in consumer costs was the first since January.

The Core Consumer Price Index, which excludes volatile food and energy sectors, was unchanged at 0.10 percent in August, which matches analyst expectations and July’s reading.

NAHB: Home Builder Confidence Hits Highest Level in Nearly 10 Years

The Wells Fargo/NAHB Housing Market Index reached its highest reading since November 2005 with a one-point increase to a reading of 62 in September. Readings over 50 indicate that a majority of builders are confident about housing market conditions. September’s reading was the highest since November 2005, when the NAHB Housing Market Index achieved a reading of 68.

Housing Starts Lower, But Building Permits Rise

The Commerce Department reported that August housing starts fell to a seasonally-adjusted annual reading of 1.13 million starts against projections of 1.16 million starts and 1.16 million housing starts in July. Residential building permits were higher in August with a reading of 1.17 permits issued for residential construction and 1/13 million permits issued in July.

Mortgage Rates Rise

Freddie Mac reported that mortgage rates rose across the board last week. The rate for a 30-year fixed rate mortgage rose by one basis point to 3.91 percent. The average rate for a 15-year mortgage also rose by one basis point to 3.11 percent and the average rate for a 5/1 adjustable rate mortgage also rose by one basis point to 2.92 percent. Discount points averaged 0.60 got 30-year fixed rate mortgages, 0.70 percent for 15-year mortgages and 0.50 percent for a 5/1 adjustable rate mortgage.

What’s Ahead 

Next week’s scheduled economic news includes reports on new and existing home sales, FHFA’s House Price Index, along with regularly scheduled weekly reports on new jobless claims and mortgage rates.

The minutes for the most recent meeting of the Federal Reserve’s Federal Open Market Committee (FOMC) suggest that while committee members won’t specify a date, a rate hike could come sooner than later. Committee members continue to cite concerns over labor markets and other economic factors, but the minutes of the FOMC meeting held July 28 and 29 indicate that a majority of members see a rate change as likely in the near term.

Economic Conditions “Approaching” Readiness for Rate Hike

According to the minutes released Wednesday, the time for raising rates is not hear yet, but a majority of FOMC members feel that the time is approaching when economic conditions will warrant an increase of the target federal funds rate which is currently set at 0.00 to 0.25 percent. When the Fed increases this rate, consumer loan rates including mortgage rates are expected to increase as well.

Achieving maximum employment is one of the Fed’s mandates; labor markets continue to improve as the national unemployment achieved its lowest reading for 2015 as of June, but labor force participation and the unemployment to population ratio have also declined. On a positive note, the number of part-time workers was lower and under-utilization of workers was lower than since the beginning of the year.

Committee members continued to have varied opinions about whether employment rates are low enough to indicate that the Fed’s mandate of “maximum” employment had been achieved.

Inflation remains below the 2.00 percent medium-term goal set by the Fed. FOMC members have consistently indicated that they don’t expect to see inflation achieve the target rate in the near term.

Housing Markets Show Improvement

The minutes noted that while construction of new homes declined in June, new starts increased over the second quarter. Sales of new homes were lower in June, but sales of existing homes increased. Building permits issued suggest the rate of construction is stable but little changed. Pending home sales were stable and suggest little change in completed home sales in the near term.

A jump in multifamily building permits were attributed to an expiring tax credit date, but housing analysts have repeatedly cited the millennial generation as preferring to live and work in large metro areas where housing can be out of reach for all but the top tier of earners. In other economic sectors, the minutes said that auto loans and student loans continued to grow.

The FOMC minutes indicate the same position of FOMC members in recent months; while the national unemployment rate is low, the Fed does not expect to see inflation at the agency’s target rate of 2.00 percent immediately. Committee members note that they will continue to monitor domestic and global financial conditions as part of the fact-finding process necessary for deciding when to the federal target funds rate,

Speculation over when the Fed will move to raise rates has persisted for several months and will no doubt continue until the Fed does decide to raise rates.

This week’s scheduled economic news includes reports on construction spending, a survey of senior loan officers, and reports on labor markets including ADP private sector jobs, the federal government’s reports on non-farm payrolls, core inflation and the national unemployment rate.

Construction Spending Slows, Loan Officers Survey Suggests Growing Confidence

Construction spending fell in June after the May reading was revised upward to 1.89 percent from the original reading of 0.90 percent. Spending for residential construction rose by 0.40 percent, while non-residential construction spending remained flat. The seasonally-adjusted annual outlay for construction was $1.06 billion in June.

Analysts continue to note a trend toward construction of smaller residential units including condominiums and apartments, with an emphasis on rental properties. This supports reports that would-be homebuyers are taking a wait-and-see stance to see how factors including rising home prices, fluctuating mortgage rates and labor market conditions perform.

According to a survey of senior loan officers conducted by the Federal Reserve, mortgage lenders reported that mortgage applications increased during the second quarter and indicating that financial constraints on consumers may be easing. According to the survey of 71 domestic banks and 23 foreign-owned banks, 44 percent of respondents reported moderate increases in loan applications, while only 5 percent of survey participants reported fewer loan applications.

Some banks surveyed reported easing mortgage approval standards, but fewer lenders eased standards than in the first quarter. Further supporting growing confidence among lenders, the Fed survey also reported that large banks were easing consumer credit standards for auto loans and credit cards.

Mortgage Rates Fall, Jobless Claims Rise

Freddie Mac reported that average mortgage rates fell across the board last week with the average rate for a 30-year fixed rate mortgage lower by seven basis points to 3.91 percent; the average rate for a 15-year fixed rate mortgage fell by four basis points to 3.13 percent, and the average rate for a 5/1 adjustable rate mortgage was unchanged at 2.95 percent. Discount points for all loan types were unchanged at 0.60 percent for 30 and 15-year fixed rate mortgages and 0.40 percent for 5/1 adjustable rate mortgages.

Weekly jobless claims rose from the prior week’s reading of 268,000 new claims to 270,000 new claims, which matched analysts’ expectations. In other labor-related news, the government reported a national unemployment rate of 5.30 percent in July; this was unchanged from June’s reading.

The ADP employment report for July showed fewer jobs were available in the private sector. June’s reading showed that private sector jobs grew by 229,000 jobs; July’s reading fell to 185,000 private sector jobs. According to July’s Non-farm Payrolls report, 215,000 new jobs were added in July as compared to expectations of 220,000 jobs added and June’s reading of 231,000 new jobs added.

The Federal Reserve’s Federal Open Market Committee (FOMC) is closely monitoring job growth and inflation rates as it contemplates raising the target federal funds rate. Core inflation grew by 0.10 percent in June; which was consistent with May’s reading and expectations. The FOMC recently cited the committee’s concerns about labor markets and lagging inflation. The Fed has set an annual growth rate of 1.65 percent for inflation for the medium term; this benchmark is part of what the Fed will consider in any decision to raise rates.

What’s Ahead

This week’s scheduled economic reports include reports on retail sales and consumer sentiment in addition to usual weekly reports on mortgage rates and new jobless claims.