Monday Morning Cup of Coffee takes a look at news coming across HousingWire's weekend desk, with more coverage to come on bigger issues.
We learned at last week’s Federal Open Market Committee meeting that the Federal Reserve won’t likely be raising interest rates until June at the earliest and more likely into the third quarter.
Markets nonetheless viewed this announcement as relatively dovish, because the Fed indicated that they will likely raise rates more slowly than had been anticipated.
As pointed out in a note from the Mortgage Bankers Association, on average over the past 45 years, the federal funds target has been set to approximately equal the growth rate of nominal Gross Domestic Product.
When set higher than this, a recession typically followed. When set lower, inflation tended to accelerate, or bubbles in the stock market or home prices became a concern. This target has been near zero since 2008, even as the economy has recovered.
The dovishness of the Fed kept the 10-year yield in the anticipated 1.9%-2.2% range, according to Chris Flanagan at Bank of America/Merrill Lynch.
However, in spite of this, securitized products did not deliver on expected positive performance, as spreads widened.
“The recent plunge in the economic surprise index is reminiscent of the plunges in 2008, 2011 and 2012 that were followed by major policy responses by the Fed,” Flanagan says in a client note. “There may be weather effects at work in recent economic data. Nonetheless, similar to the earlier surprise index plunges we think this instance will be followed by a ‘whatever it takes’ response from the Fed.
“As a result, we remain patient in looking for more spread tightening in both agency [mortgage bonds] and securitized products credit in the months ahead. This week's widening, or any additional widening over the next couple of weeks, represents opportunity to add to positions in our view. Don't fight the Fed,” he said.
On Monday we will see the existing home sales report for February from the National Association of Realtors. Existing home sales collapsed 4.9% in January to their lowest rate in nine months, falling well below analyst expectations, led by a massive drop in western region.
All major regions experienced declines in January, with the Northeast and West seeing the largest. Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, fell 4.9% to a seasonally adjusted annual rate of 4.82 million in January from an upwardly-revised 5.07 million in December.
Declines with the West were the deepest, at minus 7.1%, which makes it hard to blame on weather. Declines hit both single-family homes, at minus 5.1%, and condos, at minus 3.5%, so it’s not a millennial/older buyer thing, either.
Price concessions didn't help last month's sales with the median down 4.1% to $199,600.
Speaking of prices, on Tuesday the Federal Housing Finance Agency will roll out its house price index. House prices rose 1.4% in the fourth quarter of 2014 according to the Federal Housing Finance Agency house price index.
That was the fourteenth consecutive quarterly price increase in the purchase-only, seasonally adjusted index. FHFA’s seasonally adjusted monthly index for December was up 0.8% from November. House prices rose 4.9% from the fourth quarter of 2013 to the fourth quarter of 2014.
Later that same morning, we’ll see what the Census Bureau has to say about new home sales. New home sales were little changed in January at a 481,000 annualized pace and edging down only 0.2%, managed to hold onto December's big surge when sales jumped 8.1% to 482,000.
January's hold was centered in what is by far the largest region, the South, where sales rose 2.2%. Sales slipped 0.8% in the West which was second, and a very distant second, in size to the South – and also not a weather issue since the West saw a mild January climate.
Inventory has been on the thin side for the last 5 years but, at 218,000 units now on the market, was the highest since March 2010. But relative to sales, inventory still looks thin at 5.4 months which may encourage builders to step up activity.
Finally Friday may – we emphasize may – see a hit in what will be the final revision to the fourth quarter GDP. Early warnings signs are flashing red.
GDP fourth quarter growth was revised down in the second revision. The economy grew 2.2% in the fourth quarter compared to the advance estimate of 2.6%. Final sales of domestic product were revised up to 2.1% from the initial estimate of 1.8%. Final sales to domestic purchasers were revised up to 3.2% from 2.8%.
No banks were reported closed the week ending March 20, according to the FDIC.