Federal Reserve Report Cites “Rebounded” Housing Market

HousingWire

Low mortgage rates and strong job market are supporting sales, Fed says.

The housing market was the bright spot in the Federal Reserve’s monthly economic snapshot released on Tuesday.

Overview of the October 2019 Snapshot
  • Real consumer spending growth softened in August. Real expenditures on services were essentially flat and nondurable goods spending grew only slightly, while real durables expenditures rose solidly.
  • Real business equipment spending remained sluggish in 2019Q2, and its growth over the first half of 2019 was well below its pace in 2018. New orders of nondefense capital goods excluding aircraft fell modestly and were below shipments in August, indicating continued weak near-term momentum.
  • Housing activity indicators displayed further gradual improvement in August. Single-family housing starts and permits have rebounded over the past three months. New and existing home sales rose in August. A still-strong labor market and low mortgage rates could continue to provide support to housing.
  • Payroll growth was moderate in September, and a touch softer than that in August. The unemployment rate fell to its lowest level since 1969, the labor force participation rate was unchanged, and the employment-to-population ratio ticked up again. Labor compensation growth appears to have softened.
  • Core PCE inflation firmed but remained below the FOMC’s longer-run objective.
  • U.S. equity indices declined over the past month, while implied volatility rose. The nominal 10-year Treasury yield was roughly unchanged on balance, rising earlier in the month but declining subsequently. The market-implied expected policy rate path was below that from around the September FOMC meeting. The broad trade-weighted dollar index rose slightly.

While consumer spending “softened,” business equipment spending was “sluggish,” and payroll growth has been “moderate,” the housing market has “rebounded,” the Fed said.

“Housing activity indicators displayed further gradual improvement in August,” the report said. “Single-family housing starts and permits have rebounded over the past three months. New and existing home sales rose in August. A still-strong labor market and low mortgage rates could continue to provide support to housing.”

Under the sub-head “Favorable mortgage rates spur the housing market,” the Fed pointed to August’s 7.1% gain in new-home sales to 713,000 at a seasonally adjusted and annualized pace, which was 18% above the year-earlier month. And, the Fed cited the 1.2% gain in existing home sales in August that put the sales pace 2.9% above a year earlier.

The report also singled-out homebuilding for mention. Housing starts jumped 12.3% in August, the highest level since June 2007, the Department of Commerce reported last month.

“It appears that single-family starts are finally beginning to respond to the steep decline of mortgage interest rates that has occurred over the past year,” the report said. “Single-family housing starts rose 4.4% in August, the third consecutive monthly increase, and are now up 3.4% on a year-over-year basis.”

The downside for the housing market has been the shortage of homes for sale, the report said.

“Favorable labor market conditions and a substantial decline in mortgage interest rates continue to act as positive forces,” the report said. “Inadequate inventories in affordable price ranges continue to be a drag on sales and to fuel home-price increases.”

The average U.S. rate for a 30-year fixed mortgage was 3.61% in September after declining for 10 consecutive months, according to Freddie Mac. It was the lowest monthly average since April 2016 when it was the same.