No Surprises from Fed

Joe Manglardi
Loan Officer
Prospect Mortgage 

Joe Manglardi

Headlines about the U.S. election caused some volatility for mortgage rates over the past week. The Fed meeting and U.S. economic data had little impact. Mortgage rates ended the week a little higher.

Investors have been reacting to fresh news about the two presidential candidates. For the most part, news that favors a Clinton victory has been good for stocks and bad for bonds. News that favors a Trump victory has had the opposite effect. Investors are not comfortable with uncertainty, so volatility related to the election is likely to continue.

As was widely expected, the U.S. Fed made no policy changes on Wednesday. The Fed statement suggested that Fed officials are closer to raising the federal funds rate than they were at the last meeting on September 21. According to the statement, Fed officials are waiting for "some further evidence" of continued improvement in the economy. According to futures markets, investors think there is over a 70% chance for a rate hike at the December meeting, nearly unchanged from before the release of the Fed statement.

The statement also noted that inflation has increased "somewhat" since earlier in the year. The recently released core PCE price index, the inflation indicator favored by the Fed, was 1.7% higher than a year ago, matching expectations. Core PCE has been climbing at a very slow pace in recent months. According to the Fed statement, Fed officials expect that inflation will rise to their target level of 2% "over the medium term."

Source: MBS Quoteline

Single-Family Home Sales Rise to Highest Level in Almost 9 Years
Dwindling supply opens door for new construction growth

The U.S. Census Bureau and the U.S. Department of Housing and Urban Development recently announced that sales of new single-family houses in July 2016 were at a seasonally adjusted annual rate of 659,000 — the highest level since October 2007. This is 14 percent above the revised June rate of 579,000 and 32.3 percent above the July 2015 estimate of 498,000. 

While the industry revels in this recent spike, home supply continues to dwindle. According to Reuters, at July’s sales pace it would take 4.3 months to clear the supply of houses on the market, the fewest since June 2013, and down from 4.9 months in June. It is commonly held that a 6-month supply shows a market to be in equilibrium.

Enter new construction
While the sales of new single-family homes shows excellent growth, Mike Kelly, SVP, Construction Lending at Prospect Mortgage, points out that “as much as we’ve had great growth and momentum over the last three years, we still aren’t even back to the 20-year historical norm. We’ve been at a consistent 12 percent to 16 percent increase over the last several years and we are at 654,000. Yet, the average is somewhere between 780,000 and 1 million per year over the last 20 years. Everyone is excited about new construction housing doing well; yet, we are not even back to historical normal levels, which speaks to high probability and the need for continued growth in the new construction market over the next three to five years.”

In a recent NAR article, NAR Chief Economist Lawrence Yun said, “Severely restrained inventory and the tightening grip it’s putting on affordability is the primary culprit for the considerable sales slump throughout much of the country last month. Realtors® are reporting diminished buyer traffic because of the scarce number of affordable homes on the market, and the lack of supply is stifling the efforts of many prospective buyers attempting to purchase while mortgage rates hover at historical lows.”

“If there are already too few homes in America for the numbers of people who want to buy, how do you fix that?” said Kelly. “You build more homes.”

Prospect Mortgage’s New Construction Division
“New construction is a huge opportunity to build our way out of this inventory issue over the next three to five years,” said Kelly. “So if you haven’t yet, you should jump aboard and learn more about Prospect’s new construction platform and all the capabilities we have to help our Real Estate Agent partners sell more homes.”

For more information about the New Construction market or Prospect’s New Construction platform, please contact me today.

Informational materials for Builder and Real Estate Professionals Only. Materials are not intended for use by or distribution to consumers as defined by Section 1026.2 of Regulation Z, which implements the Truth-In-Lending Act.” LR 2016-816C