Monthly Mortgage Market Trends

So what’s going on with the housing market? This market is keeping experts and economists scratching their heads.  Warren Buffet was on CNBC last week saying he didn’t understand why the housing market wasn’t better because there are a lot of good things going on in the economy. The second ½ of 2018 shook the market and had both buyers and sellers scared. I don’t need to spend any time on this as I have reviewed it several times. But some of that trails into the beginning of this year. Solds have been down and appreciation limping into 2019. Buyers are scooping up new inventory as soon as it comes on the market keeping months of inventory low but we are still historically light on both inventory and new listings.  So what’s going on?

I want to talk about two things … the “Wealth Effect” and “Quantitative Easing” and how they affect housing.

Wealth Effect

We wrapped up 2018 with the stock market taking a beating, dropping over 20%. During this same time, unemployment was reaching a 50 yr low, job creation in Colorado was up 2.4% and income was up 1%. The 4th quarter GDP numbers were released at the end of February showing a strong 4th quarter 2018 of 2.6% growth. This rounded out 2018 at 3.1% annual growth.. the first time the GDP was over 3% for the year in 10 years. This all sounds blissful. Yet... spending was down .5% and savings rate also increased to one of the highest levels we have seen in quite some time. This is what’s called the wealth effect. When people are seeing their investments go down in the stock market and appreciation slowing down in their biggest asset, i.e. their home; their spending levels slow down.  

2019 has shown a swift rebound in the stock market now back up over 18% from it’s loss… which will increase consumer confidence and spending. Mortgage purchase applications came out this past week up 6% week over week and 3% year over year. Low interest rates will also continue to support homebuyers.  As you know, from December through February our interest rates have retreated to where they were a year ago… 4.35% national average with a half point origination.  

Quantitative Easing

So where do we expect interest rates to go this year? Some big news was released mid-February from Federal Reserve meeting January 30th stating they intend to stop reducing the Federal Reserve asset holdings later this year. What does this mean? Through the FED’s Quantitative Easing efforts, they amassed a $4.5 Trillion balance sheet. They did this after the great recession to spur the economy and keep rates low. After they stopped buying bonds, they continued to reinvest the proceeds that fell off their balance sheet of about $50B a month. We all know what happened when they dropped that number from 50 to 40 to 30, 20, 10, then 0 in October 2018… our mortgage interest rates went up dramatically, a full percentage point.  Stopping the reinvestment reduces the Fed’s balance sheet roughly $50B each month. Now, the Fed came out saying they think both rate hikes and balance sheet normalization is coming to an end. Their goal is to keep their balance sheet at $3.5T. Right now it is slightly under $4T. This means later this year, we will probably see the FED repurchasing mortgage backed securities.. great news for you and your buyers as this will keep mortgage interest rates low. 

Wrap-up

Let’s wrap up this month’s market trends review with a few numbers showing how strong we are right now.. 

• Mortgage purchase applications are up 6% the last week of February which puts us up 3% year over year
• NAHB (National Association of Home Builders) sentiment is back up to 62 in February after being down for 3 straight months
• Core Inflation staying below the Federal Reserve goal number of 2% at 1.9%, good news since inflation is the arch enemy of interest rates
• Active inventory is up year over year again; in January it was up 52%; February is up 47.33%
• Under contracts is up 15.64% month over month and 10.65% year over year
• Months of inventory is holding at just under 2 months (1.92) and the median home is holding at $400k

This is an exciting market for those of us in the business and the clients we serve! If you want to stay ahead of the changes and continue building wealth in real estate… call me! This is exactly where our team excels!  

Nicole Rueth
The Rueth Team of Fairway Mortgage  

Previous Market Trends

• January 2020
• February 2020
• March 2020
• April 2020
• May 2020
• June 2020
• July 2020
• August 2020
• September 2020
• October 2020
• November 2020
• December 2020
• January 2021