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CCL Market Update: Housing Market, Federal Reserve Policy, Mortgage Rates

Recent reports regarding the housing market are continuing to tell of the lack of first time buyers, especially in the new home market. The housing market index slowed by 2 points in March to an 8-month low of 53, and within that index, current sales went down 3 points this month to a 5-month low of 58. Analysts suggest that many potential first-time buyers are no longer seeing a home purchase as an appealing lifelong investment.

Housing starts saw a significant decline in February, down a monthly 17% from January. Single-family units fell 14.9% in February following a 3.9% drop in January, and Multi-family units fell 20.8% after an increase of 7.9% in January. On a positive note, housing permits saw a 3% gain in February, and were up 7.7% from the same time last year.

Bringing more optimism to the housing reports, U.S. foreclosures fell in February to the lowest rate in nearly 9 years; foreclosures in February declined by 4.3% from January, and 9.4% from February 2014.

The Fed released their much anticipated policy announcement on Wednesday. As many economists predicted, the Fed eliminated the word “patient” regarding their approach to raising rates. The removal of this word was thought to be a clear signal to markets that interest rate increases would occur as early as April. However, the Fed changed its classification of the economy, stating that “economic growth has moderated somewhat,” and is no longer “solid,” as it was in January. Changes were also made to various economic forecasts which temporarily confused the markets and ultimately dampened expectations for rate increases this year. The Fed now predicts:

  • Economic growth will be much slower through 2017 than it predicted in December. It now foresees growth of roughly 2.5% this year and next, down from 2.8% and 2.75%, respectively. Growth will then slow to about 2.2% in 2017, down from 2.4%.
  • Even with slower growth, unemployment will keep falling. The Fed now forecasts that the unemployment rate will be about 5.1% at year-end, down from its previous estimate of 5.25%. Next year, it will drop to 5% and in 2017 to 4.95%.
  • Inflation will be even lower this year, between 0.6% and 0.8%, down from the 1% to 1.6% it forecast in December. But Fed policymakers didn’t cut their outlook as much in later years; they still project that inflation will be near their 2% target in 2016 and 2017.

The Bloomberg Consumer Comfort Index reported weakening outlooks for the US economy this month. Only 30% of Americans that were surveyed said the economy was improving, the smallest percentage since November, while 43% viewed the economy as unchanged. Americans’ outlooks for the economy were previously holding at a 4-year high, but were likely effected by stagnant wages, and struggling retail sales and housing starts.

Mortgage Rates

Following the Fed’s meeting, national mortgage rates fell across the board. There is speculation that rate increases will not occur until late this year or even early next year, although the Fed chair did not rule out an earlier rate increase. Freddie Mac’s weekly mortgage market survey reported a 30-year fixed rate of 3.86% on March 12, decreasing to 3.78% on March 19. 15-year fixed rates went from 3.10% on March 12 to 3.06% on March 19.

Locally, conventional loan programs all saw a decrease in rates for the week ending March 20, with the exception of the 15-year fixed which remained unchanged. The 30-year fixed displayed the largest decrease, going from 3.875% (3.915% APR) to 3.750% (3.789% APR), a decrease of about 1/8 of a percentage point. Similarly, government loan programs, with the exception of the 30-year FHA, all decreased over the last week. The largest drop was found in the FHA 203k, decreasing by about 1/8 of a percentage point, while the Manufactured FHA only decreased by 0.002% APR.

Take advantage of these low rates for your home purchase or refinance today! Give us a call at 805.543.LOAN.

Written by Central Coast Lending - Go to Central Coast Lending's Website/Profile