Is More Fed-Led Stimulus On Its Way?

May 18th, 2012 by Michael Metz

FOMC minutesThe Fed­eral Open Mar­ket Com­mit­tee released its April 2012 meet­ing min­utes this week, reveal­ing a Fed­eral Reserve in the ready in the event addi­tional mon­e­tary stim­u­lus is needed.

The Fed Min­utes func­tion much like the min­utes from a busi­ness meet­ing; or, con­do­minium asso­ci­a­tion meet­ing, for exam­ple. It’s a detailed review of the con­ver­sa­tions and debates between FOMC mem­bers, and is typ­i­cally pub­lished 3 weeks after a Fed­eral Reserve meeting.  

The Fed Min­utes is a follow-up state­ment on the FOMC’s more well-known, post-meeting press release. It’s also much more lengthy.

Whereas the April 25, 2012 press release totaled 444 words, the Fed Min­utes spanned 6,618. 

Those extra words are impor­tant, too, because the detail offered within the Fed Min­utes lends insight into how our nation’s cen­tral bank views the U.S. econ­omy, its strengths and weak­nesses, and its threats.

From the Fed Min­utes, some of the Fed’s com­ments includes :

  • On employ­ment : Unem­ploy­ment may remain ele­vated through 2014
  • On hous­ing : Tight under­writ­ing is “hold­ing down” the hous­ing market
  • On rates : The Fed Funds Rate should remain low until late-2014

There was also sub­stan­tial talk about Europe and its role in the U.S. econ­omy. Notably, U.S. finan­cial insti­tu­tions have been actively reduc­ing their Euro­pean expo­sure to con­tain dam­age in the event of a full-blown eco­nomic cri­sis abroad.

This has had the net effect of low­er­ing mort­gage rates. Mort­gage bonds often ben­e­fit from eco­nomic uncertainty.

In addi­tion, because sev­eral Fed mem­bers acknowl­edged a will­ing­ness to add new stim­u­lus to the U.S. econ­omy, mort­gage mar­kets are account­ing for the pos­si­bil­ity it could hap­pen. It’s unclear whether stim­u­lus would be added after the Fed’s next meet­ing, or at some point later in the year, or at all.

The FOMC has its next sched­uled meet­ing June 19–20, 2012.

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Single-Family Housing Starts Powers Ahead

May 17th, 2012 by Michael Metz

Housing StartsThe new con­struc­tion hous­ing mar­ket con­tin­ues to improve.

One day after the National Asso­ci­a­tion of Home­builders reported a 5-year high in home­builder con­fi­dence, the U.S. Cen­sus Bureau reports that single-family hous­ing starts rose 2 per­cent for the sec­ond straight month last month.

In April, on a seasonally-adjusted, annu­al­ized basis, the gov­ern­ment reports 492,000 single-family hous­ing starts. A “hous­ing start” is a home on which ground has broken.

In addi­tion, March’s single-family hous­ing starts were revised higher. What was pre­vi­ously reported as a three per­cent loss was re-measured and changed to a 0.2% gain.

The April tally marks a six per­cent increase over the one-year mov­ing aver­age and, along with the March revi­sion, sug­gests that the spring­time hous­ing mar­ket may have just been seasonal. 

In March, a num­ber of reports sug­gested a hous­ing retreat :

  • Exist­ing Home Sales slipped 3%
  • New Home Sales slipped 7%
  • Home­builder Con­fi­dence fell 4 points

Since then, though, low mort­gage rates and afford­able home prices appear to have sus­tained the new con­struc­tion mar­ket, which now appears poised for a strong 2012. 

As one mark of proof, active buy­ers of newly-built homes nation­wide are sched­ul­ing “model home” show­ings at the fastest pace since 2007. The burst of foot traf­fic high has builders upping their sales expec­ta­tions for the next 6 months.

A sce­nario like this would nor­mally lead new home prices higher, but the pres­sure for prices to rise may be off­set by the amount of new home sup­ply com­ing online.

In addi­tion to a rise in Hous­ing Starts, the Cen­sus Bureau also reports that, in April, the num­ber of Build­ing Per­mits for single-family homes rose 2 per­cent to move to its second-highest level since March 2010 — the month pre­ced­ing the end of the 2010 fed­eral Home buyer tax credit.

86 per­cent of homes break ground within one month of per­mit issuance.

It’s unclear whether hous­ing is on a steady path higher, but there’s a grow­ing body of evi­dence that sug­gests the mar­ket bot­tom has already passed.

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Homebuilder Confidence Moves To 5-Year High

May 16th, 2012 by Michael Metz

NAHB HMI Home­builder Con­fi­dence is on the rise once again.

After a brief dip in April, the National Asso­ci­a­tion of Home­builders reports that the Hous­ing Mar­ket Index rose 5 points in May to 29. The increase marks the sharpest climb in home­builder con­fi­dence on a month-to-month basis in 10 years, and raises the index to a 5-year high.

The Hous­ing Mar­ket Index is scored from 1–100. Read­ings above 50 indi­cate favor­able con­di­tions in the single-family new home mar­ket over­all. Read­ings below 50 indi­cate poor conditions.

The HMI has not been above 50 since April 2006.

The Hous­ing Mar­ket Index itself is a com­pos­ite read­ing as opposed to a straight-up home­builder sur­vey. The pub­lished HMI fig­ure is a com­pi­la­tion of the results of three spe­cific ques­tion­naires sent to NAHB mem­bers monthly.

The sur­vey ques­tions are basic :

  1. How are mar­ket con­di­tions for the sale of new homes today?
  2. How are mar­ket con­di­tions for the sale of new homes in 6 months?
  3. How is prospec­tive buyer foot traffic?

This month, builders are report­ing strong improve­ment across all three sur­veyed areas. Cur­rent home sales are up 5 points; sales expec­ta­tions for the next six months are up 3 points; and buyer foot traf­fic is up 5 points to its high­est point since 2007.

With mort­gage rates low and home prices sup­pressed, the mar­ket for new homes is gain­ing momen­tum, a con­clu­sion sup­ported by the New Home Sales report which shows ris­ing sales vol­ume and a shrink­ing new home inven­tory nationwide.

The basics of supply-and-demand por­tend higher new home prices later this year — a poten­tially bad devel­op­ment for buy­ers of new homes nation­wide. With demand for new homes ris­ing, builders may be less likely to make sale price con­ces­sions or to offer “upgrade pack­ages” to buy­ers of new homes.

If you’re shop­ping for new con­struc­tion , there­fore, con­sider mov­ing up your time frame. Home afford­abil­ity is high today. It may not be tomorrow.

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