Last week’s economic reports indicated a mix of economic news. Standard & Poor’s released its Case-Shiller 20 City Home Price Index showing that August home prices rose, but the often revised New Home Sales showed a disturbing drop in September, especially in the northeast. The FOMC Minutes were also released, but little clues were provided as to when the Fed would raise the overnight federal funds rate, which has an effect on consumer and mortgage loans.
In August we saw 18 or the 20 cities Standard & Poor’s tracks with its Case-Shiller report showing the average home price rose, with Denver, Colorado and San Francisco, California posting year-over-year double digit increases of 10.70 percent. Portland, Oregon closely followed with a year-over-year gain of 9.40 percent. All of which makes these cities un-affordable to most home buyers. On the opposite spectrum were cities like Chicago, Illinois and Washington, D.C. where year-over-year gains came in only at 1.90 percent and New York City with a year-over-year gain of just 1.80 percent.
The Commerce Department said last week that new-home sales slumped 11.5 percent in September to a seasonally adjusted annual rate of 468,000, the lowest level since November of 2014 and September’s drop ended a two-month streak of accelerating sales. Higher home prices were seen by analysts as contributing to a lag in New Home Sales in September. On average, home buyers can purchase a previously owned home at around 35 percent less than a comparable new home. The slowdown has yet to hit sales of existing homes as drastically, but the September pullback in newly built properties was severe. Purchases of new homes dropped in the Midwest, South and West, but plummeted a stiff 61.8 percent in the Northeast!
The Commerce Department reported late last week that pending home sales dropped -2.30 percent as compared to August’s reading of -1.40 percent. Fewer home sales in September are consistent with spring and summer being peak buying season. However, I included several links in the New Homes Sales blog post last week pointing to real concerns about cooling economic trends, as factors that are likely to contribute to slower than normal home sales in the coming months.
The Federal Reserve hinted in its release of the most recent FOMC minutes that we could see a December rate hike. Say what they will about an improving economy that merits a rate increase to line the pockets with the 1 percent, the only people seeing an improving economy are those who don’t live on Main Street, but reside on Wall Street.
Many economists have been trying to predict when the Federal Reserve will raise its overnight federal funds rate, which is currently set at 0.00 to 0.25 percent. The Federal Open Market Committee of the Fed indicated in its post-meeting statement that rates could be raised in December, when the committee meets for the final time in 2015. Early in the year, many officials thought the Fed would raise rates by June, but a first-quarter economic slowdown stayed their hands. This summer a number of officials pointed to September, but expectations in financial markets for a move by then declined in August, as the economic outlook shifted. Stock prices fell, the dollar rose and yields on risky bonds increased amid uncertainties about China’s economy and other emerging markets. If you read our blog post on New Home Sales, you’ll see things haven’t gotten any better around the world, if not worse and a rate increase is the last thing we need right now. When the Fed does raise rates, mortgage rates and other consumer lending rates can be expected to increase as well.
October Consumer Sentiment decreased to a reading of 97.6 as compared to an expected reading of 101.6 and September’s reading of 102.6, suggesting consumers are increasingly wary of economic conditions as well as potentially higher interest rates.
Freddie Mac reported that the average rate for a 30-year fixed rate mortgage fell by three basis points to 3.76 percent. Discount points were unchanged at an average of 0.60 percent. The average rate for a 15-year fixed rate mortgage was unchanged at 2.98 percent. The average rate for a 5/1 adjustable rate mortgage was also unchanged at 2.89 percent. Average discount points were 0.60 for fixed rate mortgages and 0.40 percent for a 5/1 adjustable rate mortgage.
Jobless claims were slightly higher with a reading of 260,000 new claims filed against expectations of 265,000 new claims and last week’s reading of 259,000 new claims filed.
What’s Ahead for the Week?
We’ll get reports on Construction Spending, ADP Payrolls, the Non-Farm Payrolls report and the National Unemployment report, along with our weekly reports from Freddie Mac on mortgage interest rates and new jobless claims.
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