1. Home
  2. Blog
  3. Industry Insider
  4. Powell: Fed ‘Not Even Thinking About Raising Rates’ – Real Estate Market Update
GDP Strong in 4th Quarter – Market Update - Quicken Loans Zing Blog

The great news if you’re a real estate agent is that there are plenty of positive signs that things are headed in the right direction at this point. Sectors of the economy are starting to reopen across the country and people are taking tentative steps back toward normalcy, or at least some semblance of it.

We’re certainly moving forward as a nation. However, the Federal Reserve, led by Chairman Jerome Powell, issued notice last Wednesday that economic recovery is going to take a while. We’ll start with that development and its implications for the real estate market.

The Big Story

The Fed concluded its latest 2-day meeting on economic policy on June 10. At the conclusion, they left short-term rates where they are in a range between 0% – 0.25%. Investors were already expecting no change, so that was pretty ho-hum. Instead, all eyes were focused on the statement and projections for the future.

Like all the recent statements that have been made by the Fed as the trajectory of COVID-19 has unfolded, they said that the virus was having a major impact in areas from inflation to employment and overall economic activity. After a record-long expansion, the economy is expected to shrink 6.5% before rebounding at growth rates of 5% and 3.5% in 2021 and 2022. While we still won’t be back where we were because we’re starting from a lower point, that’s somewhat encouraging.

Unemployment projections paint a different picture. In 2020, the unemployment rate is expected to reach 9.3% and 5.5% by 2022. That’s an uptick from where unemployment was in the 3% range mere months ago. Inflation also is very weak, with prices on the consumer side actually falling 0.1% in May overall. With people not driving, there have been downward price pressures on things like gasoline as well as auto insurance, even as other spending areas are showing low to moderate increases.

In terms of real estate, there’s a silver lining here. In the projections and the post-meeting press conference, Powell said that in order to support continued economic recovery, the Fed was “not even thinking about raising rates.” Although it would be a mistake to say there’s a direct correlation, longer-term rates for things like mortgages do tend to follow the general trend in short-term rates set by the Fed. This should continue to support low mortgage rates which have spurred a real interest in home buying.

News You Can Use

Let’s take this opportunity to examine some of the key data the Fed and other market observers are looking at when it comes to the housing market and other important areas of the economy. Analysis of this data was compiled with the help of Econoday.1

MBA Mortgage Applications

We usually don’t make a big point of highlighting data points that come out weekly here, because they can be volatile and don’t mean anything special a month later, but in this case, there’s something that agents should be particularly interested in. First, purchase applications were up 4% for the week, but more importantly, they’re up 21% compared to the same week a year ago. This should be particularly encouraging given that last year we were in a much better economic position than we are right now as a nation. Yet, there’s still a ton of interest in housing.

One possible explanation for this is that people have spent a lot of time in their houses over the past few months. Being stuck inside them for so long has possibly made them see the flaws in their current abodes. Perhaps they’ve realized they need more space. On the flip side, they may have come to the conclusion that they don’t need the space they thought they needed.

There’s also a sign that low mortgage rates continue to support this environment, with the average 30-year fixed mortgage rate down 8 basis points on the week to 3.3% in the survey.

Housing Starts

Housing starts were up 4.3% in May to come in at a seasonally adjusted annual rate of 974,000. On the downside, this is 23.2% below where they were at this time last year, but it’s an encouraging sign that construction is continuing. Any supply that can be had in the market right now is good.

Speaking of a housing supply, completions painted a less rosy picture, down 7.3% to a seasonally adjusted annual rate of 1.115 million. The good news is that, while still down compared to last May by 9.8%, the difference isn’t quite as bad as it is on the start side. Single-family completions were down 9.8% for the month at 791,000. It is worth noting that this number can be volatile in revisions because there relatively high margins of error here.

Ending on a good note, permits to build homes were up 14.4% to 1.22 million, which is 8.8% below where it was last year at the same time, but it does show real interest in building homes. Additionally, unlike the categories mentioned so far, the margin of error is only 1.1% here, so anyway you look at it, these are robust gains. Additionally, an 11.9% gain in authorizations for single-family homes was included, coming in at 745,000.

Housing Market Index

Builder confidence in the housing market grew for the first time in a couple of months in a report covering June. The composite index came in at 58. For those unfamiliar, any the number above 50 indicates growth. It’s also a 21-point uptick from May numbers.

Breaking down the numbers, traffic of people doing walk-throughs was up 22 points to come in at 43, which is still relatively low, but it’s also not very far off where readings were before recent highs in this number. On the single-family side, present sales of homes were up better than 21 points to come in at 63. Meanwhile, all in future sales over the next 6 months was up 22 points to a relatively good-looking level of 68.

Consumer Price Index (CPI)

As briefly mentioned above, overall inflation fell in May by 0.1% and prices have only risen 0.1% for the year. However, there is some positive news here for the housing market in particular. Shelter prices were up 0.2% overall. Encouragingly, this included an uptick of 0.3% in the cost of homeownership as well as rent. This shows that there is strong demand in the market.

Gross Domestic Product (GDP)

In the second preliminary estimate for the first quarter released in May, the data showed that the economy shrunk by 5%, down from a fall of 4.8% in the first estimate from April. However, there was some good news of particular interest to this group of readers.

Residential investment was one of the positive areas, up 0.66%. Prices were also up 1.4% across all sectors of the economy in the first quarter on a seasonally adjusted basis, up 0.1% from the first estimate. Additionally, while real consumer spending still fell, it was only down 6.8% as opposed to 7.6% in the first estimate.

Pending Home Sales Index

Released at the end of May, these numbers cover April, so they’re a bit older, but pending home sales did fall by 21.8% to 69. This generally doesn’t mean good things for May existing home sales numbers, but we’ll see.

S&P Corelogic Case-Shiller HPI

Both these and the FHFA numbers coming next were released at the end of May, but cover March. So if anything, they cover the very beginning of the lockdown in the U.S. However, home prices across the 20-city index were up 0.5% on a seasonally adjusted basis and 1.1% overall. Since last March, prices have risen 3.5%. Although there are indications that prices might be hanging in there based on other data, it will be interesting to see how these numbers are affected going forward.

FHFA House Price Index

The FHFA index was up just 0.1%, which is the lowest level of growth seen in more than 4 years and well below expectations for a 0.6% increase. However, the year-to-year price increase is registering much higher than the S&P index, up 5.9%.

Consumer Confidence

Consumer confidence was up 0.9 points in May to come in at 86.6. According to this index, buying plans for homes in the near future are the lowest they’ve been in 6 months. However, as we’ve seen, applications aren’t bearing that out.

Additionally, there’s an expectation for a 0.8% uptick to 6.2% in terms of inflation in this reading. The data also doesn’t support that to this point, but it will be interesting to see how prices move and the economy continues to trend moving forward.

New Home Sales

New home sales in April were up 0.65% to a seasonally adjusted annual rate of 623,000, which is well below a high in January of 774,000 units. Builders also heavily discounted in order to get to that number as prices were down 6.4% from February at $309,900, which means steady decreases. This is at odds with the existing home market.

Your buyers should see plenty of supply in the market, so that is a positive. Relative to sales, supply is at 6.3 months.

Existing Home Sales

Existing home sales were down 17.8% on the month of April to come in at 4.33 million. This represented a 17.2% drop compared to the prior April. It’s the lowest level in almost 9 years. However, given where we were at the time this data covers, analysts say that still represents a fair amount of deals being done.

What’s more, there are signs that sellers are retaining optimism because prices haven’t fallen. They were up 2.2% on the month at $286,800, which is a record high. Part of the reason for this was that supply did fall 1.3% to 1.47 million. However, because people were under lockdown, supply actually increased to 4.1 months relative to sales.

Mortgage Rates

Mortgage rates were relatively in the latest data release from Freddie Mac. These are very near historical lows. Whether your clients are looking to purchase or refinance, it’s a great time for them to be able to do so. Take advantage.

The average rate on a 30-year fixed mortgage with 0.9 points paid in fees was 3.21%, up 3 basis points on the week. Rates are down from 3.82% at the same time last year.

Looking at shorter terms, the average rate on a 15-year fixed mortgage was flat at 2.62% with 0.8 points paid. This is fallen from 3.24% last year.

Finally, the average rate on a 5-year treasury-indexed, hybrid adjustable rate mortgage (ARM) with 0.4 points paid was unchanged for the week. It’s also fallen from 3.51% at the same time a year ago.

Hopefully this has helped you gain some knowledge you can impart to your clients. If they’re ready, it can be a great time to get started. For even more resources, give our real estate agent resources page a look!

1 Important Legal Notice: Econoday has attempted to verify the information contained in this calendar. However, any aspect of such information may change without notice. Econoday does not provide investment advice, and does not represent or warrant that any of the information is accurate or complete at any time. Copyright 2020 Econoday, Inc. All rights reserved.

This Post Has 2 Comments

    1. Hi Hala:

      Since this is a public comments section, I am removing your contact information. I have sent your information over to our Client Relations Team. However, if you want to begin the application process, you can apply online or call (888) 980-6716 to speak to a Home Loan Expert. Thanks!

Leave a Reply

Your email address will not be published. Required fields are marked *