Blog posted On July 30, 2018
The Federal Open Market Committee (FOMC) will meet Tuesday and Wednesday of this week and release an announcement following the meeting on Wednesday afternoon. The Fed is not likely to raise interest rates following this meeting, the market expects the next rate hike to take place later this year. The National Association of Realtors (NAR) will release its pending home sales index on Monday. The S&P CoreLogic Case-Shiller home price index comes out on Tuesday.
The pending home sales index tracks changes in the number of homes that are under contract but not yet closed. Typically, it takes four to six weeks for a contract to close. Pending home sales are used to predict future housing market activity. In May, pending home sales declined 0.5% month-over-month and 2.2% year-over-year marking the fifth straight month of annual declines. The NAR attributed the decline to a low supply of for-sale inventory. At the current sales pace, it would take approximately 4.1 months to exhaust available inventory. A balanced market typically has about a six month supply.
The Case-Shiller home price index is based on the changes in the value of homes involved in two or more sales transactions across twenty major metropolitan areas throughout the country. Home prices have been on a steady trend of appreciation as limited for sale inventory pushes prices higher. In April, the index appreciated 0.3% month-over-month and 6.4% year-over-year. Gains were driven by Seattle, San Francisco, and Las Vegas each posting double-digit annual increases. Only New York City saw a month-over-month decline of 0.6%, possibly an impact of new tax laws.
When an FOMC meeting is not followed by a press conference or release of new economic and policy projections, like the “blue dots,” it is unlikely to be a market-moving announcement. Some issues the Fed is expected to address at this meeting include the relatively flat yield curve, international trade policy, lack of wage growth with the increase in actual labor market participation, and global growth outside of the US.
More construction activity is needed to replenish housing inventory, and home builders’ outlook is relatively positive. July’s National Association of Home Builders’ housing market sentiment index read 68, and any reading above 50 is considered positive. Home buyers actively looking for a new home can improve their chances of getting an offer accepted by partnering with the right mortgage lender. Transaction time is critical in today’s busy housing market.