Feb 2, 2015 | Market Outlook
Last week’s economic reports included Case-Shiller 10 and 20-City Home Price Index reports for November along with new and pending home sales for December. Freddie Mac reported on average mortgage rates and new jobless claims dipped unexpectedly. The details:
Case-Shiller: Home Price Growth Slower in November
Case-Shiller’s 20-City Home Price Index for November indicated that home prices continue to slow across the nation. Seasonally-adjusted annual home price growth slowed to 4.30 percent from October’s reading of 4.50 percent. Slowing momentum in year-over-year home price growth placed downward pressure on month-to-month readings. Several cities, including Atlanta, Georgia, Boston Massachusetts and Cleveland Ohio reported lower home prices in November as compared to October. Chicago, Illinois surprised analysts with a -1.10 percent drop in home price growth for November. Although mortgage rates have fallen in recent weeks, analysts cited tough mortgage approval standards, lower demand for homes and growing inventories of available homes as factors contributing to sluggish housing markets.
New and Pending Home Sales: Mixed Readings
New home sales jumped to a seasonally-adjusted annual reading of 481,000 sales in December against expectations of 455,000 sales and November’s revised reading of 431,000 new homes sold. The original reading for November was 438,000 new homes sold. New home sales were 8.80 percent higher in December year-over-year. The median price of new homes was $298,100 in December, which was an increase of 8.20 percent year-over-year.
Pending home sales reflected sluggish market conditions in December with pending sales lower by -3.70 percent as compared to November’s reading of +0.60 percent. This lull will likely impact completed sales as pending sales generally forecast completed sales within the next 60 days. The National Association of Realtors® said that home prices rose in some areas as supplies dwindled. Fewer homeowners list homes for sale during the fall and winter months than during spring and summer. Analysts also said that home sales trends rely on the willingness of homeowners to list their homes and move up. Although the economy continues to grow, homeowners can impact supplies of available homes if they wait to move up to larger homes.
Mortgage Rates Rise, New Jobless Claims Fall
Freddie Mac reported that average mortgage rates rose last week. The average rate for a 30-year fixed rate mortgage was three basis points higher at 3.66 percent; the average rate for 15-year mortgages rose by five basis points to 2.98 percent, and the average rate for a 5/1 adjustable rate mortgage was 2.86 percent. Discount points fell to 0.60 percent for 30-year mortgages and 0.50 percent for 15-year mortgages. Discount points were unchanged at0.40 percent for 5/1 adjustable rate mortgages.
New jobless claims fell to 265,000; this was lower than the expected reading of 296,000 new jobless claims and the prior week’s reading of 308,000 new jobless claims. Analysts said that the short work week likely contributed to the drop in weekly jobless claims, which was the largest drop in new jobless claims since November 2012. As labor markets improve, more consumers can afford to buy homes. January’s Consumer Confidence Index rose more than expected in January with a reading of 102.9 against expectations of 96.90 and December’s reading of 93.10.
What’s Ahead
This week’s scheduled reports include Construction Spending, Personal Income, Core Inflation, and several employment reports including ADP Payrolls, Non-Farm Payrolls and the national unemployment rate. Freddie Mac’s mortgage rates report and new unemployment claims will be released on Thursday as usual.
Jan 26, 2015 | Market Outlook
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.
Jan 21, 2015 | Market Outlook
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.
Jan 20, 2015 | Market Outlook
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.
Jan 12, 2015 | Market Outlook
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.
Jan 8, 2015 | Market Outlook
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.
