Housing Analysis

Last week’s economic news came from a variety of sources. Most significant was the Fed’s Federal Open Market Committee statement after its meeting ended Wednesday. The statement indicated that the Fed saw moderate economic growth. FOMC did not taper its purchase of MBS and Treasury securities.

The FOMC statement announced the committee’s intention to closely monitor economic and financial developments “in the coming months,” which suggested that the FOMC is taking a wait-and-see position on reducing its $85 billion monthly asset purchases.

Mortgage Rates, Jobless Claims Fall

The Fed’s asset purchase program, also known as quantitative easing, was implanted in 2012 with a goal of stabilizing mortgage rates and other long-term interest rates.

The National Association of REALTORS® reported that pending home sales fell by 5.60 percent in September. Uncertainty over the FOMC’s decision concerning tapering its asset purchases during its September meeting and concerns over a then potential government shutdown.

These were noted as primary reasons for the drop in pending home sales, which are measured by signed real estate contracts. Pending Home Sales are used for estimating future closings and mortgage loan activity.

Tuesday’s economic reports included the Case-Shiller Home Price Indices for August. Home prices increased by 12.80 percent year-over-year in August as compared to 12.30 percent year-over-year for August 2012. August’s reading shows a dampened pace of rising home prices.

The Conference Board, a research organization, reported that consumer confidence fell from a reading of 80.2 in September to 71.2 in October. A reading of 75.00 was expected, but consumer confidence crashed as the government shutdown and its consequences diminished consumer and investor confidence.

According to ADP, a payroll administration firm, private-sector payrolls came in well shy of the expected 150,000 new jobs with a reading of 130,000 jobs. October’s reading was also lower than September’s reading of 145,000 new jobs.

Weekly jobless claims brought good news; new jobless claims came in at 340,000 and fell by 10,000 new claims from the previous week’s 350,000 new jobless claims. Expectations had been for 335,000 new jobless claims.

Freddie Mac reported that average mortgage rates fell. The rate for a 30-year fixed rate mortgage dropped by three basis points to 4.10 percent, with discount points down from 0.80 percent to 0.70 percent.

The average rate for a 15-year mortgage fell by four basis points to 3.20 percent, with an uptick in discount points from 0.60 percent to 0.70 percent. The rate for a 5/1 adjustable rate mortgage dropped by four basis points to 2.96 percent with discount points unchanged at 0.40 percent.

What‘s Coming Up

There is no housing or mortgage economic news scheduled this week other than Freddie Mac’s PMMS due on Thursday.

Reporting for this week includes Leading Economic Indicators, Weekly Jobless Claims, Non-farm Payrolls and the National Unemployment Rate will be posted. The University of Michigan’s Consumer Sentiment Index will be released Friday.

This week’s economic reports are expected provide a general gauge of the economy and information about how consumers are responding to recent economic events and news. 

Federal government agencies issued reports that were delayed by the government shutdown; and Freddie Mac reported that average mortgage rates fell for all types of loans it reports. The National Association of REALTORS issued its Existing Home Sales report on Monday. While 5.30 million home sales were expected an annual basis, September’s reading fell short at 5.29 million sales.

August’s reading was adjusted from an original reading of 5.48 million, which equaled July’s reading. Higher mortgage rates and home prices were cited as contributing to the slip in September’s sales.

The Bureau of Labor Statistics issued the Nonfarm Payrolls report for September on Tuesday. September’s reading indicated that only 148,000 jobs were created as compared to economists’ expectations of 185,000 jobs and August’s reading of 173,000 new jobs.

National Unemployment Rate Dropped 

Analysts indicated that the modest reading for September was caused by uncertainty over the government shutdown, and also indicated that the economy is growing, but continues to experience ups and downs. The national unemployment rate for September fell from August’s reading of 7.30 percent to 7.20 percent.

According to the Commerce Department, construction spending rose by 0.60 percent in August as compared to expectations of 0.50 percent and July’s revised reading of 1.40 percent, of which 1.20 percent represented spending on residential construction. The Federal Reserve characterized residential construction as growing at a “moderate pace” in September.

The Federal Housing Finance Agency reported that August sales of homes connected with Fannie Mae and Freddie Mac grew by 8.50 percent on a seasonally adjusted year-over-year basis. This represented monthly growth of 0.30 percent and was the smallest rise since September 2012.

Good News! Mortgage Rates Fall

Thursday brought encouraging news with Freddie Mac’s Primary Mortgage Market Survey. Average mortgage rates fell across the board with the average rates for a 30-year fixed rate mortgage falling from last week’s 4.28 percent to 4.13 percent. 

The rate for a 15-year fixed rate mortgage dropped from 3.33 percent to 3.24 percent, and the rate for a 5/1 adjustable rate mortgage dropped from 3.07 percent to 3.00 percent. Discount points rose to 0.8 percent for 30 and 15-year fixed rate mortgages and stayed steady for 5/1 adjustable rate mortgages at 0.4 percent.

Weekly Jobless claims were higher than expected at 350,000 new claims; analysts had expected 337,000 new claims. The latest reading was below the prior reading of 362,000 new jobless claims.

The University of Michigan’s Consumer Sentiment Index was released Friday with some telling results. October’s reading 73.2 from September’s revised reading of 77.5. A reading of 74.8 had been expected based on September’s original reading of 75.2. Consumers interviewed for the October CSI indicated that the federal government was the major factor in lower confidence in the economy.

What’s Coming Up

A number of federal agencies are still delaying their reports. Next week’s scheduled economic news includes the Case-Shiller Housing Market Index, Consumer Confidence report and ADP’s Employment Report. Weekly Jobless Claims and the Freddie Mac PMMS will be issued Thursday. 

Existing home sales for September fell by 1.90 percent from August’s revised reading of 5.39 million sales to 5.29 million sales. Economists had expected 5.30 million sales for September, so a slow-down in existing home sales had been anticipated.

The National Association of REALTORS cited higher home prices and mortgage rates as factors contributing to fewer sales of previously owned homes.

Home Prices Easily Outpaced Income Growth

According to Lawrence Yun, NAR’s chief economist, home prices “easily outpaced income growth.” Consequently, affordability has fallen to a five-year low. Mr. Yun also indicated that a government shutdown was expected to affect home sales in October.  

NAR also cited a “notable increase” in federal flood insurance premiums as a deterrent to homebuyers in flood zones. The premium increase was set for October 1. 

There is some good news. The NAR reported that existing home sales had increased from 4.78 million in September 2012. As compared to the reading for September 2013, this was an annual increase of 10.70 percent in existing home sales.

This increase represented the 27^th consecutive month for increasing sales of existing homes on a year-over-year basis.

Higher National Median Home Price

According to the NAR report, the national median home price increased by 11.70 percent to $199,200 as compared to one year ago. This was
the 10^th consecutive month of double-digit year-over-year increases in existing home prices.

NAR estimated that it would take five months to sell the 2.21 million previously owned homes currently available, which indicates that available existing homes remain in short supply.

Sales of distressed properties rose to 14.00 percent share of existing home sales, up from August’s share of 12.00 percent. August’s level was the lowest share of distressed properties sold since NAR began tracking monthly sales of distressed properties in October 2008. Sales of distressed properties during September included 9.00 percent foreclosed properties and 5.00 percent short sales.

Distressed properties typically sell for less than market value; fewer distressed properties included in existing homes for sale would contribute to higher prices. September’s percentage of distressed sales is down by 10 percent year-over-year.

Last week’s economic news was dominated by the Federal Reserve’s decision not to taper its $85 billion in monthly securities purchases.

Fed Chairman Ben Bernanke noted in a scheduled statement after the Federal Open Market Committee meeting that economic conditions were not yet adequately improved to withstand any decrease in the federal quantitative easing program.

The Fed also reaffirmed that the target federal funds rate would remain at 0.00 to 0.25 percent until the national unemployment rate reached 6.50 percent and inflation reaches 2.00 percent.

The national unemployment rate was 7.30 percent and the Fed projects that inflation will remain under 2.00 percent through 2015.

In both the FOMC statement and his press conference, Chairman Bernanke repeatedly emphasized that the Fed would take no action to reduce QE until the economy strengthens. No automatic reduction of QE purchases would take place without full consideration of the nation’s economy.

The QE program is intended to keep long-term interest rates low, and the announcement that QE would not be tapered brought mortgage rates down after they had increased by more than one percent since May.

Builder Confidence High, Mortgage Rates Lower

The National Association of Home Builders/Wells Fargo Housing Market Index for September revealed that home builder confidence in housing market conditions remained stable at 58; a reading of 59 was expected. Readings over 50 indicate that more builders are confident about market conditions than not.

Housing starts for August did not reflect the high level of builder confidence and fell short of expectations at 891,000. Expected housing starts were estimated at 921,000. There was good news in that August’s reading surpassed the July reading of 883 housing starts. Building permits for August also dropped to 918,000 against expectations of 955,000 and July’s reading of 954,000 building permits.

Higher labor and materials costs and concerns over tight mortgage credit and rising mortgage rates likely contributed to the lower than expected readings for housing starts and building permits.

Freddie Mac’s Primary Mortgage Market Survey reported that average mortgage rates dropped across the board on Thursday. The average rate for a 30-year fixed rate mortgage fell by seven basis points to 4.50 percent with discount points moving from 0.80 percent to 0.70 percent.

The average rate for a 15-year fixed rate mortgage fell by five basis points from 3.59 percent to 3.54 percent with discount points unchanged at 0.70 percent.

The average rate for 5/1 adjustable rate mortgage was lower by 11 basis points to 3.11 percent. Discount points were unchanged at 0.50 percent. This provides a break for home buyers who’ve been faced with rising mortgage rates and home prices amidst a shortage of available homes in many areas.

This Week

Economic news scheduled for this week includes the Case/Shiller Home Price Index for July, the FHFA Home Price Index also for July. New home sales and the pending home sales index will be released.

Freddie Mac will release its weekly summary of average mortgage rates and weekly jobless claims will also be released Thursday. The week will end with consumer related data including personal income and consumer spending for August along with the University of Michigan’s consumer sentiment index for September.