Existing Home Sales

The monetary authority of the United States, the Federal Reserve, meets 8 times a year to discuss the economy and adjust monetary policy to promote maximum employment and maintain price stability (inflation).

The Fed, led by Chairman Jerome Powell, met this past Wednesday and decided to leave the Fed Funds Rate unchanged at 2.50, as expected. They also issued their Monetary Policy Statement which includes their outlook on the economy and its interest rate forecast.

Overall the Statement was “dovish”, meaning stimulative to the economy. They forecasted slower US growth, and inflation running beneath their target, which led to them forecasting no more rate hikes for the remainder of 2019. This was a nice surprise to the financial markets.

The Fed, inflation, and higher interest rates are not an immediate threat. This continues to push stocks higher and long-term bonds, like mortgage bonds, to one-year highs. This helps bring home loan rates to one-year lows.

Bottom line: The spring housing market could be one of the best in years thanks to a solid economy, relatively low rates, a positive wealth effect thanks to the rise in stocks and a Federal Reserve that said rates are not likely to rise anytime soon, if at all.

After the Fed lifted bond prices last week with a dovish Monetary Policy Statement, the markets in the upcoming week will have to deal with a bevy of economic data.

The big report will be Friday’s Core PCE (Personal Consumption Expenditures price index). This report measures price changes for household goods and services, and is the preferred method for the Fed when measuring consumer inflation in the United States.

Last week, the Fed said inflation will continue to remain low, and the non-threat of higher inflation is one of the factors leading to the complacency and calm in the financial markets.

However, inflation can grow quickly and a trend worth following is rising wages, which is currently sitting at 3.4% year-over-year, and the highest levels in ten years.

As wages rise, people have more disposable income which creates a higher demand for goods and services, thereby driving prices higher.

Remember that inflation is the driver of long-term rates like mortgages – not the Fed. So, if inflation remains low, as many expect, then rates will also remain low. If inflation ticks higher, home loan rates must go higher as well.

Reports to watch:

  • Housing data will be plentiful with Tuesday’s S&P Case-Shiller Home Price Index, Housing Starts and Building Permits.
  • Pending Home Sales will be released on Thursday.
  • Consumer Confidence will be delivered on Tuesday with Consumer Sentiment on Friday.

Source: Vantage

Related Articles

There are rumors that our Fed is considering an idea to abandon its present 2% target rate for inflation in favor of a floating target where inflation would be allowed to rise above 2% for some time before considering hiking rates. This comes with two consequences that mortgage lenders, real estate…
Read More of the post Changes That Could Affect Rates

U.S. bond yields and home loan rates ticked modestly higher this week as the world watches the U.S. and China have their first serious talk since July. There is a growing sentiment that the U.S. and China will agree to some short-term measures like a postponement of tariffs, while the…
Read More of the post Fed Rate Cut Coming — But Don’t Wait

Recession fears were back in full swing this past week, thanks to the weakest manufacturing report since June 2009, which was the last month of the Great Recession. Manufacturing makes up 12% of our economy, while consumer spending makes up nearly 70%. So even though the consumer remains strong, markets…
Read More of the post Slowing but Growing

Good news is typically bad news for bonds and home loan rates. That has not been the trend of late, and certainly not this past week. Durable Goods Orders is a report which shows buying demand for products with a life cycle beyond 4 years — think cars, washing machines…
Read More of the post The US Economy Remains “Durable”