Will the FOMC Address the Lousy GDP?

It’s Fed day.  Their monetary policy statement will be read in two hour’s time.  It will be interesting to see if they address the GDP report released this morning at 0.1%, well below the 1.0% expected and WAY down from the 2.6% seen Q4 of 2013.  GDP is, in my opinion, the biggest measure of economic activity in any country.  The Fed has a target growth rate for GDP at 2-2.5% per year so this one really stinks.  Will they continue to taper their bond purchases by another $10B going forward?  We’ll know in a couple of hours and see how the markets react.

Why prices are UP

The Commerce Department reports that the home ownership rate in the US is currently at an 18 year low of 65%.  Since 2008 there have been almost 5 million homes foreclosed, though the velocity is slowing down significantly.  There were 43,000 foreclosures in February this year, a 15% decline from the same time last year.  As a result, there are fewer existing homes for sale.  At the same time, builders are selling fewer, though higher priced homes to keep labor costs down and profits up. This is driving home prices upward; Case Shiller shows values are up 12.9% Y-O-Y in their 20 cities analyzed. March showed a peak increase of 13.7%.

Supply and Demand

The number of New Home Sales plunged 14.5% from last month to 384K per annum, well below the 455K units forecast to be sold. This is the lowest reading since last July, and combined with the lower Existing Home Sales volume released yesterday has number nerds across the country jabbering on about a another downturn in the housing market.

Just like the lesson we learned about supply and demand in our high school economics class, fewer available homes for sale has helped drive up prices 12.6% since last March.  The median sales price for a home in Anytown, USA is $290,000

Rent V. Own

RealtyTrac just published this chart showing the monthly cost of renting versus owning a home across the country.  As of today, rents in Salt Lake County are more expensive than the average mortgage payment by about $30.  As a result of the gigantic student populations at either end of University Parkway, Utah County’s rents are $200 less expensive than in Salt Lake County.  The average mortgage payment is $133 higher that the average rent in Happy Valley.  With an average appreciation rate of 5% on a $229,900 median sales price home, you stand to gain $11,500 is just the first year of home ownership, or roughly 1000% return on your $133 investment into your future.  Don’t be a renter.

Higher Rates Ahead

The outlook for Manufacturing is bright and sunny this beautiful spring morning. The Philly Fed survey comes in at 16.6, almost double the expected number. For this index, 0.0 represents the break even point, so a reading of 16 is very optimistic indeed.

Initial Jobless Claims show 304,000 Americans filed for Unemployment for the first time last week.  This is lower than the 312,000 expected.

These two bits of data indicate economic growth and put upward pressure on interest rates.

Thirty year FHA loans are still at 3.75% and Conventional loans are a bit higher at 4.25%. Fifteen year rates are 3.375% (APR will be higher, depending on the loan and down payment amounts, and amortization term–as closing costs and the presence of mortgage insurance affect each loan differently.)

Another Dip in New Construction?

After taking a mild dive last month, Housing Starts are up 3% in March to an annualized rate of 946,000 new units, missing expectations but still a positive.  On the other hand, Building Permits fell 2.4% so next month’s Starts might not look so pretty.  This is surprising to me given that builders had a rough winter, existing inventory is down, and the spring home buying season is in full swing.

Happy Tax Day everyone!

The Consumer Price Index rose 0.2% in March, double the analysts expectations, but right in line with policy makers’ target increase to keep inflation growing at 2.0-2.5% per year.

NAHB Housing Index is still below the “contented” line of 50, measuring a 47 in March.

While I was in San Diego last week, MBS staged a little rally.  Trading days saw a lot of volatility and Conventional loans benefitted at the end of the week, dropping 1/8% in interest rate.

Long live the American Worker

The official Jobs Report released today shows that while the Unemployment Rate remained at 6.7% and new job creation slowed to 192,000, the Labor Participation Rate rose a fraction of a percent to 63.2%.  More Americans working means a more vibrant economy.  An expanding economy is great news for our country even if it results in higher interest rates.  So take advantage of your
good fortune and buy a new home 🙂

Buy now, or pay more later

“The U.S. economy is still considerably short of the two goals assigned to the Federal Reserve by the Congress” of low and stable inflation and maximum sustainable employment.”” –Janet Yellen.  That statement by the Chair of the Federal Reserve yesterday sent Stock and Bond prices up in the late afternoon.  But Bonds are at the top of a falling channel, meaning that mortgage interest rates are rising if they don’t break out here.

CoreLogic reported that home prices rose 0.8% from January to February, and 12.2% since last February.  This month marks the 24th consecutive month for price increases.  This is great information to pass on to your clients who are putting off buying a home.  That same house will cost them a lot more money this time next year.