Lee Morof's Real Estate Blog

Last week’s economic reports included the National Association of Home Builders Wells Fargo Housing Market Index, Housing Starts for December and the FHFA Home Price Index report for November. The National Association of Realtors® also released its Existing Home Sales report for December.

Freddie Mac and the Department of Commerce released their weekly reports on mortgage rates and new jobless claims.

Builder Confidence Close to Record High, Housing Starts Rise

The National Association of Home Builders (NAHB) reported that home builder confidence slipped by one point in January to an index reading of 57. This was not a significant decline as any reading over 50 indicates that a majority of builders are confident about current housing market conditions. January’s confidence reading remained close to a 2005 peak. 

Housing Starts rose in December to 1.09 million starts as compared to expectations of 1.04 million starts and November’s reading of 1.04 million housing starts according to the Department of Commerce.

December’s annual reading reflected strong home builder confidence and was the highest for housing starts since 2007. Low mortgage rates and improving labor markets were seen as factors contributing to housing construction.

Existing Home Sales Fall, FHFA Home Price Index Gain 

The National Association of Realtors reported that sales of previously owned homes fell to 4.05 million in December, which fell short of 5.08 million expected sales and 4.93 million sales of existing homes in November. Analysts were puzzled at the first drop in sales volume for existing homes since 2010.

Low mortgage rates, job growth and the possibility of less restrictive mortgage requirements were cited by analysts as factors that should have fueled sales of existing homes and should continue to boost home sales as more home buyers enter the market.

FHFA reported that prices of homes associated with Fannie Mae and Freddie Mac mortgages rose 5.30 percent year-over-year in November. This was an increase of 0.90 percent over October’s year-over-year reading of 4.40 percent.

Mortgage Rates, Jobless Claims Lower

Mortgage rates dropped across the board according to Freddie Mac. The average rate for a 30-year fixed rate mortgage fell by three basis points to 3.63 percent with discount points higher at 0.70 percent. The average rate for a 15-year mortgage was five basis points lower at 2.93 percent and discount points higher at 0.60 percent. The average rate for a 5/1 adjustable rate mortgage dropped by seven basis points to 2.83 percent with discount points unchanged at an average of 0.40 percent.

Weekly jobless claims fell from the prior week’s reading of 317,000 new claims filed to 307,000 new claims filed. Analysts had expected a reading of 298,000 new jobless claims filed. Analysts noted that this was the third consecutive reading above 300,000 new jobless claims since July, but the higher readings were attributed to layoffs of seasonal holiday workers.

What’s Ahead

Case-Shiller will release its composite home price index reports; new home sales, consumer confidence and consumer sentiment reports are scheduled along with a customary statement from the FOMC at the conclusion of its January meeting.

The National Association of Homebuilders (NAHB) Wells Fargo Housing Market Index reported that homebuilder confidence in sales conditions for single-family homes declined one point to a reading of 57. The NAHB Housing Market Index measures home builder confidence based on builder opinions of current market conditions, future market conditions and buyer foot traffic in new homes.

Home Builder Confidence Stable for Seven Consecutive Months

January’s index reading of 57 was one point below December’s reading of 58. Any index reading above 50 indicates that more home builders are confident about housing market conditions than not. January’s reading was the seventh consecutive reading above 50. NAHB said that builder confidence in future market conditions slipped by four points to a reading of 60; builder confidence in current housing market conditions was unchanged at a reading of 62 and the reading for buyer foot traffic fell two points for a January reading of 44.

David Crowe, NAHB chief economist, cited improving labor markets, stronger economic conditions and higher consumer confidence as factors that contributed to January’s reading. In addition, analysts said that certain economic trends including higher rents and low mortgage rates may compel more renters to buy homes. Although pent-up demand contributed to buyer interest in recent months, restrictive mortgage credit policies are seen as a deterrent to higher sales volume. Builder confidence in home sales conditions would likely improve if the government can ease lender concerns about providing mortgages to buyers who don’t have strong credit scores.

Housing Market Index Indicates Room for Growth

In spite of strong builder confidence, there’s plenty of room for improvement in markets for new single-family homes. As of November, the sales pace for new homes was approximately 41 percent below the average pace for the last 20 years; housing starts for the same period were approximately 24 percent below the average for the prior 20 years. The Department of Commerce reported that housing starts were 24 percent below the 20 year average. This suggests that while borrowers are confident in housing market conditions overall, they may be taking a conservative approach on building new homes until more buyers enter the market.

This week’s upcoming housing-related reports will help determine the overall climate for housing market growth. Existing home sales and housing starts for December will be released along with FHFA’s home price report for November.

Last week’s scheduled economic news was mixed. Job openings increased and jobless claims increased, and consumer sentiment rose. Mortgage rates fell across the board. Labor market conditions improved and consumer prices fell in large part due to decreasing fuel prices. The details:

Labor Market Conditions Index Suggests Stronger Economy, Jobless Claims Jump

Positive labor market ratings continued to show evidence of strengthening economic conditions. The Federal Reserve’s Labor Market Conditions Index rose from November’s revised reading of 5.50 to December’s reading of 6.10. This index measures 19 economic indicators and rose well above its median reading of 1.90. November’s reading was the highest since May.

The Fed does not comment on month-to-month readings for this index. Job openings increased from November’s reading of 4.80 million to December’s reading of 5.00 million in according to the federal government.

Weekly Jobless Claims jumped to 316,000 as compared to the expected reading of 295,000 new claims and the prior week’s reading of 297,000 new jobless claims. Analysts said that some volatility in new unemployment claims are expected in the aftermath of the holiday season and noted that the latest reading was the highest since September.

Mortgage Rates, Retail Sales Fall

Freddie Mac reported lower average rates across the board. The average rate for a 30-year fixed rate mortgage fell by seven basis points to 3.66 percent; the average rate for a 15-year fixed rate mortgage also fell seven basis points to 2.98 percent. The average rate for 5/1 adjustable rate mortgages dropped by eight basis points from 2.98 to 2.08 percent.

Discount points for a 30-year fixed rate mortgage were unchanged at 0.60 percent, while average discount points for a 16-year mortgage dropped to 0.50 percent from the prior week’s reading of 0.60 percent. Discount points for 5/1 adjustable rate mortgages averaged 0.40 percent as compared to the prior week’s average of 0.50 percent. Lower mortgage rates help increase affordability and support home purchases by first-time and moderate income homebuyers.

Retail Sales for December dropped by -0.90 percent against expectations of -0.20 percent and November’s reading of +0.40 percent. December’s reading for retail sales except autos was lower by-0.10 percent as expected against November’s reading of +0.40 percent.

Last week ended on a positive note with the January reading for the Consumer Sentiment Index beating the expected reading of 95.0 with a reading of 98.20. December’s reading was 93.60.

What’s Ahead

This week’s economic reports include the National Association of Home Builders (NAHB) Housing Market Index, Housing Starts, The National Association of Realtors® Existing Home Sales report, FHFA Home Prices and Leading Economic Indicators. Freddie Mac’s mortgage rates reports and weekly jobless claims will be released as usual.

Last week’s scheduled economic news was mixed. Job openings increased and jobless claims increased, and consumer sentiment rose. Mortgage rates fell across the board. Labor market conditions improved and consumer prices fell in large part due to decreasing fuel prices. The details:

Labor Market Conditions Index Suggests Stronger Economy, Jobless Claims Jump

Positive labor market ratings continued to show evidence of strengthening economic conditions. The Federal Reserve’s Labor Market Conditions Index rose from November’s revised reading of 5.50 to December’s reading of 6.10. This index measures 19 economic indicators and rose well above its median reading of 1.90. November’s reading was the highest since May.

The Fed does not comment on month-to-month readings for this index. Job openings increased from November’s reading of 4.80 million to December’s reading of 5.00 million in according to the federal government.

Weekly Jobless Claims jumped to 316,000 as compared to the expected reading of 295,000 new claims and the prior week’s reading of 297,000 new jobless claims. Analysts said that some volatility in new unemployment claims are expected in the aftermath of the holiday season and noted that the latest reading was the highest since September.

Mortgage Rates, Retail Sales Fall

Freddie Mac reported lower average rates across the board. The average rate for a 30-year fixed rate mortgage fell by seven basis points to 3.66 percent; the average rate for a 15-year fixed rate mortgage also fell seven basis points to 2.98 percent. The average rate for 5/1 adjustable rate mortgages dropped by eight basis points from 2.98 to 2.08 percent.

Discount points for a 30-year fixed rate mortgage were unchanged at 0.60 percent, while average discount points for a 16-year mortgage dropped to 0.50 percent from the prior week’s reading of 0.60 percent. Discount points for 5/1 adjustable rate mortgages averaged 0.40 percent as compared to the prior week’s average of 0.50 percent. Lower mortgage rates help increase affordability and support home purchases by first-time and moderate income homebuyers.

Retail Sales for December dropped by -0.90 percent against expectations of -0.20 percent and November’s reading of +0.40 percent. December’s reading for retail sales except autos was lower by-0.10 percent as expected against November’s reading of +0.40 percent.

Last week ended on a positive note with the January reading for the Consumer Sentiment Index beating the expected reading of 95.0 with a reading of 98.20. December’s reading was 93.60.

What’s Ahead

This week’s economic reports include the National Association of Home Builders (NAHB) Housing Market Index, Housing Starts, The National Association of Realtors® Existing Home Sales report, FHFA Home Prices and Leading Economic Indicators. Freddie Mac’s mortgage rates reports and weekly jobless claims will be released as usual.

Last week’s economic news was dominated by labor reports and FHA’s announcement that it will lower its mortgage insurance premiums in an effort to make homes more affordable for first-time and moderate income home buyers. Mortgage rates fell last week as employment reports showed strengthening job markets. The details:

FHA Lowers Mortgage Insurance Premiums

HUD, the agency that oversees FHA, announced Thursday that it will lower annual mortgage insurance premiums by0.50 percent. The change is expected to become effective toward the end of January; HUD stated in its press release that a Mortgagee Letter outlining the changes will be issued shortly.

FHA borrowers pay for FHA mortgage insurance in two steps; an upfront mortgage insurance premium is charged at loan closing, and also pay an annual mortgage insurance premium that is pro-rated monthly and added to mortgage payments.

FHA’s annual premiums increased five times since 2010 and rose from a rate of 0.55 percent to 1.35 percent. Analysts estimated that the reduction of annual premiums to a rate of 0.85 percent will attract an additional 250,000 borrowers of FHA backed mortgage loans and save borrowers about $900 a year.

The move was applauded by housing industry advocates such as the Mortgage Bankers Association and the National Association of Realtors®, but critics fear that the move could cause a taxpayer bailout if claims on defaulted loans increase.

Under federal law, HUD is required to maintain a specific level of capital reserves for its mortgage insurance program. FHA reserves were depleted during the recession, which caused HUD to raise annual mortgage insurance premiums to replenish its reserves for paying claims on defaulted FHA loans.

Mortgage Rates, Unemployment Rate Drop

Freddie Mac reported that average mortgage rates fell across the board. The rate for a 30-year fixed rate mortgage was 3.73 percent; the average rate for a 15-year fixed rate mortgage was 3.05 percent, a drop of 10 basis points. The average rate for a 5/1 adjustable rate mortgage was 2.98 percent, which was three basis points lower than last week’s average.

Discount points were unchanged at 0.60 percent for 30-year fixed rate mortgages and dropped from 0.60 to 0.50 percent for 15-year mortgages. Discount points were unchanged at 0.50 percent for 5/1 adjustable rate mortgages.

Several labor related reports were released last week. ADP reported that December payrolls for private sector jobs rose by 241,000 jobs in December as compared to November’s reading of 227,000 jobs. The Labor Department’s Nonfarm Payrolls report was lower with a reading of 252,000 jobs added than November’s reading of 353,000 jobs added, but December’s reading exceeded analysts’ expectations of 230,000 jobs added. November’s reading was likely influenced by seasonal hiring.

Weekly jobless claims were lower at 294,000 new claims filed against expectations of 290.000 claims filed and the prior week’s reading of 298,000 new claims filed. The national unemployment rate fell to 5.60 percent against an expected reading of 5.70 percent and November’s reading of 5.80 percent.

While this reading is below the Fed’s target rate of 6.50 percent, the minutes of the Federal Open Market Committee (FOMC) meeting in December indicate that Fed policy makers remain concerned about low inflation rates. Falling oil prices were noted as a primary cause of falling inflation. The FOMC also noted slow improvement in housing markets and again cited tight lending standards as a significant cause.

What’s Ahead

Next week’s scheduled economic news releases include the Consumer Price Index (CPI) and Core CPI, which excludes food and energy. A report on consumer sentiment will also be released in addition to weekly reports on mortgage rates and new jobless claims.

The minutes of the Fed’s Federal Open Market Committee (FOMC) indicate that Fed policymakers aren’t concerned about low inflation rates as an obstacle to raising the target federal funds rate.

The national inflation rate was 1.50 percent for the 13 months ending in October. The inflation rate as reported in the Consumer Price Index (CPI) dropped to 1.25 percent in November.

The Core Consumer Price Index, which excludes food and energy sectors, showed an inflation rate of 1.75 percent. The Fed has repeatedly cited a target of 2.00 percent inflation, but inflation rates have remained consistently lower.

Recent freefall in fuel prices is keeping inflation below the Fed’s target range, although long-term indicators for inflation remained stable.

Fed Says Economy Increasing at “Moderate Pace”

Committee members noted that economic conditions improved at a moderate pace during the fourth quarter and that labor conditions also showed additional improvement. Non-farm payroll reports expanded in October and November and exceeded third quarter growth rates.

The national unemployment rate edged down to 5.80 percent in October and held steady in November. FOMC members established a national unemployment rate of 6.50 percent as a target rate for removing accommodative measures such as its asset purchase program that concluded in October.

Labor force participation rose, while the number of those under-employed in part time jobs declined.

Private sector hiring and quits increased, although job openings remained elevated in November and maintained levels seen in September and October. Stronger labor markets typically support housing markets as more families can afford to buy homes when hiring and employment rates are stable.

Housing Markets Remain Slow; May Inspire Would-be Buyers

The FOMC minutes noted that committee members viewed housing markets as housing starts and building permits saw slight increases. Construction of single-family homes increased while multi-family construction decreased. Ongoing shortages of rentals are seen as a factor driving renters into the housing market.

Sales of new and existing homes rose “modestly” in October. Slowing home sales will likely drive prices down as inventories of available homes increase. Mortgage rates are expected to rise, but analysts don’t expect mortgage rates to rise much beyond five percent, which remains historically low.

In spite of low mortgage rates, the Fed characterized mortgage refinance activity as “subdued” and said tight mortgage credit conditions continue to inhibit mortgage approvals for all but those with “pristine” credit.

Surveys of economic and financial analysts indicated that the Fed may raise its target federal funds rate mid-year instead of initial projections for raising the rate in late 2015. The target federal funds rate is currently 0.00 to 0.25 percent.

Case-Shiller reported that home prices hit their lowest pace in two years. According to the Case-Shiller 20-City Home Price Index for October, home prices fell in 10 cities, rose in eight cities and were unchanged in two cities.

In other news, pending home sales increased and weekly jobless claims rose. The details:

Case-Shiller: Home Price Growth Lowest in Two Years

According to its 20-City Home Price Index, Case-Shiller said that home prices dropped by 0.10 percent to a reading of 4.50 percent year-over-year as compared to September’s reading of 4.80 percent year-over-year. Analysts expected home price growth to drop to 4.70 percent in October.

David Blitzer, chairman of the Index Committee at S&P Dow Jones Indices, said that 2014 could finish on a strong note with price growth accelerating in 2015. Home price growth hasn’t hit double digits since April, but there is encouraging news on the horizon.

More than half of states’ average home prices are set to surpass housing bubble peaks in 2015. Through October, home prices were approximately 15 percent below a 2006 peak. Higher inventories of available homes and lower mortgage rates are seen as stabilizing influences on housing markets, and could also encourage more buyers into the market. 

Pending Home Sales Up, Mortgage Rates Mixed

The National Association of Realtors® reported that November pending home sales rose to a reading of 0.80 percent from October’s reading of -1.10 percent. The seasonally-adjusted index reading for November was 104.8.

Lawrence Yun, NAR’s chief economist noted that steady economic growth and hiring contributed to home buyer confidence. Regional readings for pending home sales were +1.40 percent in the Northeast, +1.30 percent in the South and +0.40 percent in the South. Pending home sales declined by -0.40 percent in the Midwest.

Fixed mortgage rates rose last week. Freddie Mac reported that average rates for 30-year and 15-year mortgages rose to 3.87 percent and 3.15 percent respectively; the average rate for a 5/1 adjustable rate mortgage was unchanged at 3.01 percent.

Discount points for all types of mortgages were unchanged at 0.60 percent for fixed rate mortgages and 0.50 percent for 5/1 adjustable rate mortgages.

Jobless Claims Up

Weekly jobless claims rose to 298,000 new claims against expectations of 290,000 new claims and 281,000 new claims filed the previous week. This was the highest reading since Thanksgiving.

Analysts said that seasonal hiring fluctuations and the volatility of week-to-week claims cause weekly reports to be less reliable than the four-week rolling average of jobless claims, which fell by 250 claims to a reading of 290,750.

Continuing claims fell by 53,000 to a reading of 2.35 million in the week ending December 20. This reading was close to a 14 year low.

Overall, analysts viewed stronger labor markets and economic growth as positive signs for 2015.

What’s Ahead

Next week will resume a full schedule of economic events including construction spending, ADP employment, Non-Farm Payrolls and the national unemployment rate. The Federal Reserve will release the minutes from the most recent meeting of the Federal Open Market Committee (FOMC).

Last week’s economic news included several housing related reports. Housing markets continue to cool as November reports on existing and new home sales fell below expectations. New Jobless claims were lower than expected by 10,000 claims. The details:

Existing and New Home Sales Down, FHFA House Price Index Up

The National Association of Realtors® reported that November sales of existing homes fell to 4.93 million sales against expectations of 5.18 million sales. October’s reading was revised from 5.25 million sales to 5.26 million. This was seen as an anomaly that may have occurred during uncertainty caused by volatile stock markets. Federal Reserve Chair Janet Yellen slow housing markets to tight lending standards in a recent statement.

FHFA reported that October home prices connected with Fannie Mae and Freddie Mac mortgages increased incrementally year-over-year. October house prices increased to 4.50 percent year-over-year as compared to September’s year-over-year house price increase of 4.40 percent.

November sales of new homes fell short of expectations according to the Commerce Department. 438,000 new homes were sold as compared to expectations of 450 new home sales and September’s reading of 445,000 new homes sold. This was the slowest rate of growth in four months.

New home sales declined in three of four regions. Readings for November were -12.00 percent in the Northeast, -6.40 percent in the Southeast, -6.30 percent in the Midwest. Sales of new homes rose by 14.80 percent in the West. Analysts typically caution against reading too much into volatile month-to-month figures, but they are concerned about longer-term sales trends too. Sales of new homes were 1.60 percent lower year-over-year.

The median sale price of new homes was $280,900 in November, which was 1.40 percent higher year-over-year.

Mortgage Rates Up, New Jobless Claims Down

Mortgage rates rose across the board according to Freddie Mac’s weekly survey of average mortgage rates. The average rate for a 30-year fixed rate mortgage increased three basis points to 3.83 percent. The average rate for a 15-year mortgage rose one basis point to 3.10 percent. The average rate for a 5/1 adjustable rate mortgage was six basis points higher at 3.01 percent. Discount points were 0.60 for 30 and 15-year fixed rate mortgages and 0.50 percent for 5/1 adjustable rate mortgages.

280,000 new jobless claims were filed last week, a seven-week low. Analysts expected 290,000 new claims based on the prior week’s reading of 289,000 new claims. The four-week rolling average of new jobless claims also showed improvement with 8500 fewer claims at 290,250 new jobless claims filed. Stronger labor markets are considered good news for housing markets as more consumers can afford to buy homes.

No economic reports were scheduled Thursday or Friday due to the Christmas holiday.

What’s Ahead

This week brings Case-Shiller Home Price reports, Pending Home Sales and Construction Spending. Freddie Mac mortgage rates and Weekly Jobless Claims will be released on Wednesday due to the New Year’s Day holiday on Thursday.

Last week’s scheduled economic events were few but informative. Housing related reports included the National Association of Home Builders/Wells Fargo Housing Market Index for December, which stayed close to a nine-year high reading of 59 in September. December’s reading was 57 and fell two points shy of the expected reading of 59. November’s reading was 58. Readings above 50 indicate that more builders are positive about market conditions than those who are not.

Housing Starts for November were lower according to the Department of Commerce’s report released Tuesday. The reading for November was 1.028 million starts on a seasonally adjusted annual basis. Analysts expected a reading of 1.035 million housing starts based on October’s level of 1.045 million starts.

Fed Confident, but Watchful of Economic Conditions

The Fed’s Federal Open Market Committee (FOMC) released its statement at the conclusion of its final meeting in 2015. Fed Chair Janet Yellen also gave a press conference that primarily supported information contained in the statement. The Fed did not foresee rising the target federal funds rate until mid to late 2015, and said that no changes were likely to be made at the first two FOMC meetings of the year. The target federal funds rate remains steady at 0.00 to 0.250 percent. FOMC members noted improvement in labor markets, but said that housing continued to recover at a slow rate. The Fed repeated its customary statement that FOMC members would monitor ongoing economic conditions and developments as part of any decision to change monetary policy. Chair Janet Yellen affirmed the committee’s position in her press conference.

Mortgage Rates, Jobless Claims Fall

Mortgage rates fell according to Freddie Mac. The average rate for a 30-year fixed rate mortgage was 3.80 percent as compared to the prior week’s reading of 3.93 percent. The average rate for a 15-year fixed rate mortgage was 3.09 percent, which was 11 basis points below the prior week’s reading. 5/1 adjustable rate mortgages had an average rate of 2.95 percent; this was three basis points lower than the previous week. Discount points remained steady at 0.50 percent with the exception of average points charged for a 15-year mortgage, which increased to 0.60 percent.

Weekly jobless claims fell to 289,000 against expectations of 295,000 new jobless claims; expectations were based on the prior week’s reading of 295,000 new claims. Analysts cautioned that weekly jobless claims readings can be particularly volatile during the holiday and early winter season.

What’s Ahead

Economic news scheduled for next week includes the National Association of Realtors® report on November sales of existing homes and November sales of new homes, which is issued by the Department of Commerce. Consumer sentiment, consumer spending and core inflation reports will also be issued next week. No economic reports will be issued Thursday or Friday due to the Christmas holiday.

The Federal Open Market Committee (FOMC) said in its last statement for 2014 that although economic conditions have improved at a moderate pace, the Fed believes that the target federal funds rate of between 0.00 and 0.25 percent remains “appropriate.” While labor markets show expanding job growth and lower unemployment rates, FOMC members noted that housing markets are recovering slowly.

Inflation remains below the committee’s target rate of two percent; this was attributed to lower fuel costs. Household income and business investment were seen as increasing, and the underutilization of workforce resources was described as “diminishing.” These developments indicate better economic conditions for consumers, business and job seekers, as employers picked up the pace of hiring.

Target Fed Funds Rate Unchanged

No year-end changes in monetary policy were made; the Fed issued its usual statement that developing economic conditions would guide the Committee’s decisions concerning the target federal funds rate. The FOMC statement said that changes could be made according to progress toward or away from achieving the Fed’s dual mandate of maximum employment and price stability. No specific date was given for raising the target federal funds rate. The FOMC statement noted that no change is likely as long as the inflation rate remains below the Fed’s longer-term target of two percent.

The FOMC statement was followed by a press conference given by Janet Yellen, fed chair and Chair of the FOMC. 

Fed Chair: Oil Price Influence on Inflation “Transitory” 

Janet Yellen, chair of the Federal Reserve and FOMC, said that she expects lower oil prices to be a transitory influence on inflation, which continues to run lower than the Fed’s target rate of two percent. Media representatives noted that Chair Yellen replaced the phrase “considerable time” with “patient” in reference to when the Fed might raise the target federal funds rate.

Ms. Yellen said that the gross domestic product (GDP) had increased by 2.50 percent over the prior four quarters ending with the third quarter of 2014, and said that the economy continues to grow at approximately the same pace. Concerning falling inflation, Ms. Yellen said that she expected the inflation rate to increase after transitory influences including oil prices dissipate. The Fed Chair said that she perceived lower oil prices to be a positive development for the U.S. economy on net.

In response to questions about when the Fed would raise the target federal funds rate, Chair Yellen said that it would likely occur sometime in 2015 and also mentioned “sometime after the next couple of FOMC meetings. This suggests that mid 2015 may bring a change, but Ms. Yellen repeated the Fed’s oft-stated position that continual review of economic conditions and developing trends would impact any decision to change or not change the federal funds rate.