Sep 23, 2015 | Market Outlook
Sales of previously owned homes dropped in August by 4.80 percent on an annual basis for the first time in four months; the dip was likely caused by rising home prices. August sales were reported at a rate of 5.31 million; July’s rate was 5.58 million sales of previously owned homes.
Sales of existing homes have risen 6.20 percent year-over-year; stronger labor markets and low mortgage rates were seen as contributing factors. Although economists expect the Federal Reserve to raise its target federal funds rate before year end, home sales are expected to stay strong through 2016. A Fed rate hike would mean that lending rates for consumer credit and mortgage loans would increase.
Analysts noted that July sales of pre-owned homes hit a post-recession high and characterized August’s lower reading as a “hiccup.” Month-to-month readings often reflect volatility caused by transitory influences; analysts typically rely on month-to-month rolling averages to track trends in housing markets.
Home Sales Thwarted by Slim Supply of Available Homes
Low inventories of homes for sale are likely keeping sales of previously owned homes from achieving their potential. In August, there were 2.29 million homes on the market, which represents a 5.20 month supply under current market conditions. August’s volume of available homes was 1.70 percent lower than for August 2014.
The national median sale price for a home was $228,700 in August; this represents a year-over-year increase of 4.70 percent.
First-time Buyers Getting Back in the Game
First-time home buyers accounted for 32 percent of existing home sales in August as compared to a normal reading of 40 percent of existing home sales. Investors purchased 12 percent of pre-owned homes sold in August as compared to a post-recession high of 25 percent. Less competition from investors should allow more owner-occupant buyers to purchase homes without being priced out of bidding wars.
On another positive note, distressed sales of pre-owned homes comprised only 7 percent of sales, this is a strong indication that the tide of post-recession foreclosures is ending.
FHFA House Price Index Also Shows Higher Home Prices
FHFA, the agency that oversees Fannie Mae and Freddie Mac, reported that home prices of homes associated with mortgages owned or backed by the two government-sponsored entities rose by 0.60 percent in July as compared to June’s reading of 0.20 percent. Home prices were up 5.80 percent year-over-year in July, which is 1.10 percent below the peak index reading of 2007 and was near the November 2006 index reading.
Year-over-year home price readings for the nine census divisions were all positive and ranged from + 2.20 percent in the New England division to +9.40 percent in the Mountain division. Month-to month house prices ranged from -1.20 percent in the New England division to +1.60 percent in the Mountain division.
Sep 21, 2015 | Market Outlook
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.
Sep 18, 2015 | Market Outlook
The National Association of Home Builders (NAHB) / Wells Fargo Housing Market Index reported that home builder confidence rose by one point to a reading of 62 for September. This was the highest reading since November 2005, when the NAHB reported a reading of 68 for home builder confidence. Any reading above 50 indicates that more builders are confident about housing market conditions than those who are not.
NAHB notes that builder confidence has been growing at a moderate pace since July 2014; this is in line with economic conditions in general. Relatively low mortgage rates and stronger labor markets are helping would-be buyers with their decisions to buy homes now.
FOMC Statement and Fed Chair Press Conference: No Rate Hikes Yet
The minutes of the Federal Open Market Committee of the Federal Reserve revealed that Fed policymakers have decided to wait on raising the target federal funds rate, which is currently set at 0.00 to 0.25 percent. While the FOMC statement indicated that policy makers acknowledge moderate progress in economic growth, a majority did not feel that the economy is ready to withstand a rate hike. When the Fed does raise rates, consumers can expect to see higher mortgage rates as well as increases in lending rates for credit cards and loans.
FOMC members said that housing markets were growing at a steady but moderate pace, but that inflation was lagging below the Fed’s benchmark 2.00 percent level due to transitory effects of lower energy and import prices. The Fed expects that inflation will reach its 2.00 percent goal over the medium term and will not likely raise rates until FOMC members are confident that inflation will rise as expected.
FOMC members continued to assert that any decision to raise rates will be based on close review of domestic and global financial and economic trends and will not be based on meeting the Fed’s dual mandate of achieving maximum employment and an inflation rate of 2.00 percent.
Committee members also said that economic conditions could continue to warrant keeping the target federal funds rate below normal levels for the longer term.
Fed Chair Janet Yellen gave a press conference after the FOMC statement concluded. She addressed questions about the Fed’s decision not to raise rates and said that concerns over global developments contributed to Fed policy makers’ decision not to raise rates. Ms. Yellen explained that a stronger U.S. dollar has caused deflationary pressures and increased competition for U.S. exports. The Fed isn’t overly concerned about global conditions at present, but changing circumstances could change the Fed’s likely intention to raise rates before year end.
Sep 14, 2015 | Market Outlook
A short week after the Labor Day Holiday provided a slack schedule for economic news. Bloomberg reported that residential investment for the second quarter of 2015 represented 3.34 percent of the Gross Domestic Product. Compared to the long-term average reading of 4.56 percent, analysts said that the Q2 15 reading suggested pent-up demand in the housing market that could help propel the economy through any setbacks that could occur when the Fed raises rates.
Pent-Up Housing Demand a Plus when Fed Raises Rates
Job openings rose in July to 5.75 million as compared to June’s reading of 5.32 million. This is a positive indicator for the economy and for the housing sector, as consumer confidence in terms of buying a home typically relies on stable employment and a strong labor sector.
While economic indicators are looking good for housing construction, analysts note that a shortage of construction workers could affect construction of new residential units. Analysts said that children born during the 1980’s will lead the next wave of first-time home buyers, with millennials following. This trend could last for the next 10 to 15 years and is expected to bolster housing markets.
More lenient mortgage lending requirements and rising confidence among home builders were also cited as positive indicators for housing.
Mortgage Rates Mixed
Freddie Mac reported that average fixed mortgage rates rose by one basis point to 3.90 percent for 30-year fixed rate mortgages and 3.10 percent for 15-year mortgages. The average rate for a 5/1 adjustable rate mortgage fell by two basis points to 2.91 percent. Average discount points for a 30-year fixed rate mortgage were unchanged at 0.60 percent and rose to 0.70 percent for 15-year fixed rate mortgages and to 0.50 percent for 5/1 adjustable rate mortgages.
Job Openings Rise as Weekly Jobless Claims Fall
July job openings rose to 5.75 million from June’s reading of 5.32 million; this was the highest number of available jobs since records have been kept. Analysts said that the high number of job openings clearly indicate that the labor force is not able to supply the workers needed by employers. Jobs available range from professional to service related work; this suggests a universal trend rather than hiring challenges within specific job areas.
Hiring activity fell in July to 4.98 million from June’s reading of 5.18 million. July separations also fell, which suggests that employers are having problems finding skilled workers and are holding on to experienced workers.
Weekly jobless claims fell to 275,000 from the prior week’s reading of 281,000 new jobless claims.
What’s Ahead
Next week’s scheduled economic reports include Retail Sales, Consumer Price Index and Core CSI along with the NAHB Wells Fargo Housing Market Index, Commerce Department reports on housing starts and building permits. The Fed’s Federal Open Market Committee will issue its customary statement on Wednesday, followed by highly-anticipated press conference by Fed Chair Janet Yellen.
Sep 8, 2015 | Market Outlook
Last week’s economic news included reports on construction spending, private and public sector employment data and a report from the Fed indicating that any move to raise interest rates may be delayed. The details:
Construction Spending Meets Expectations, Beige Book Indicates Wage Pressures
Analysts said that construction is gaining strength and could soon be the strongest sector of the economy. Construction spending for July met growth expectations of 0.70 percent as compared to June’s reading of 0.10 percent. The Commerce Department reported that this reading translated to a seasonally adjusted annual rate of $1.98 trillion, which was the highest rate of spending in the construction sector since May 2008.
Residential construction spending was up 10.80 percent year-over-year in July, with both single-family and multifamily construction posting double digit gains.
The Federal Reserve issued its Beige Book report last Wednesday, which indicated that wage pressures in many of the 13 Fed districts could cause rising inflation, which the Fed has cited as a component in any decision to raise the federal funds rate. The Fed has set a benchmark of 2.0 percent inflation as an indication for raising rates, but doesn’t expect to see this reading in the short term.
Higher wages increase consumers’ discretionary spending, which would contribute to more hiring and increasing demand for goods and services.
Mortgage Rates, Weekly Jobless Claims Higher
Freddie Mac reported that average mortgage rates rose across the board last week. The rate for a 30-year fixed rate mortgage rose by five basis points to 3.89 percent; the rate for a 15-year fixed rate mortgage wash higher by three basis points and the rate for a 5/1 adjustable rate mortgage also rose by three basis points to 2.93 percent. Average discount points were unchanged at 0.60 for fixed rate mortgages and 0.40 percent for 5/1 adjustable rate mortgages.
Weekly jobless claims rose to 282,000 new claims against last week’s reading of 270,000 new claims and expectations of 275,000 new jobless claims. While this was the highest reading for new jobless claims in since late June, the reading for new weekly jobless claims has remained below the 300,000 benchmark for the last six months.
The four-week rolling average of new jobless claims rose by 3250 new claims to an average of 275,500 new claims. Analysts said that layoffs are declining and that workers who lose their jobs are finding new employment quickly.
Continuing jobless claims fell by 9000 to a reading of 2.26 million for the week that ended August 22.
ADP Employment Rises, Non-Farm Payrolls, National Unemployment Rate Fall
Private sector payrolls increased by 190,000 jobs in August as compared to July’s reading of 170,000 jobs according to ADP. This supports the trend of stronger hiring seen by economists in recent weeks. The government reported that Non-farm payrolls, which include public and private sector jobs, fell to 173,000 jobs against July’s reading of 245,000 jobs.
The Commerce Department reported that the national unemployment rate dipped to 5.10 percent in August against expected reading of 5.20 percent and July’s reading of 5.30 percent. The declining unemployment rate further supports economic growth and stronger labor markets.
What’s Ahead
This week’s economic reports include job openings, the usual weekly reports on new jobless claims and mortgage rates and a report on consumer sentiment.
Aug 31, 2015 | Market Outlook
Last week’s economic news included several reports related to housing. The Case-Shiller 20-City Home Price Index for June rose to 4.50 percent as compared to May’s reading of 4.40 percent. Denver, Colorado was the only city to post double-digit year-over-year growth. FHFA also released its House Price Index for June. Home prices for properties associated with mortgages owned or backed by Fannie Mae and Freddie Mac rose at a year-over-year rate of 5.60 percent in June as compared to May’s reading of 5.70 percent.
New Home Sales, Pending Home Sales Rise in July
Commerce Department data revealed that new home sales increased in July to a year-over-year reading of 507,000 against expectations of 510,000 new home sales and June’s revised reading of 481,000 new homes sold. The original reading for June was 482,000 new homes sold. New home sales provided a strong indicator of recovering housing markets as July’s reading was 25 percent higher than it was one year ago.
Pending home sales moved into positive territory in July after June’s reading of -1.80 percent. Pending home sales for July grew by 0.50 percent. Pending home sales are an indicator of future closings, so this is good news as the peak buying and selling season wanes.
The national median home price rose to $285,900 in July, which was two percent higher year-over-year.
Mortgage Rates, New Unemployment Claims Fall
Mortgage rates fell across the board last week. Freddie Mac reported that the average rate for a 30-year fixed rate mortgage fell by none basis points to 3.8r percent; the rate for a 15-year fixed rate mortgage also fell by nine basis points to 3.06 percent. The average rate for a 5/1 adjustable rate mortgage was four basis points lower at 2.90 percent. Discount points for fixed rate mortgages were unchanged at an average of 0.60 percent and fell from an average of 0.50 percent to 0.40 percent for 5/1 adjustable rate mortgages.
Weekly jobless claims were also lower last week with 271,000 new claims filed as compared to expectations of 271,000 new claims filed and the previous week’s reading of 277,000 new claims filed. Last week’s reading was the 25th consecutive week of new jobless claims readings under the benchmark of 300,000 new claims filed; this is the longest stretch for new jobless claims under the 300,000 new claims benchmark in more than fifteen years.
New jobless claims rose by 1000 new claims to a seasonally adjusted average of 272,500 according to the four-week average. Analysts note that the four week average smooths out volatility that can occur with week-to-week readings.
What’s Ahead
This week’s scheduled economic reports include the Federal Reserve’s Beige Book report, ADP and the federal Non-farm Payrolls reports. The national unemployment rate will be released along with regularly scheduled reports on mortgage rates and new jobless claims.
