Market Recap: Existing Home Sales Improve, New Home Sales Slip, and FOMC Hikes Rates
Average mortgage rates did not move much in either direction this week. In a highly anticipated move, the Federal Open Market Committee (FOMC) voted to raise the benchmark interest rate .25 bps. Existing home sales rebounded, but new home sales fell slightly.
Existing home sales or resales turned around in February, snapping back from their two-month streak of declines. Despite the shortage of listings, existing home sales are up 3.0% month-over-month and 1.1% year-over-year to a seasonally adjusted annual rate of 5.54 million. Home buyers are undeterred by rising rates, and many are looking to lock low interest rates before more rate hikes. National Association of Realtors (NAR) chief economist Lawrence Yun, spoke on the tight market, “homes for sale are going under contract a week faster than a year ago […] To fully satisfy demand, most markets right now need a substantial increase in new listings.”
As expected, the FOMC voted unanimously to raise the benchmark interest rate to a targeted level of 1.5% to 1.75%. From the meeting, the Fed upgraded its economic outlook and maintained its projection for two more rate hikes for 2018. Sustained job growth and confidence from corporate tax cuts have bolstered business activity, but inflation has yet to reach the targeted rate. In the post-meeting statement, the FOMC wrote, “the economic outlook has strengthened in recent months.”
New home sales declined in February, down 0.6% month-over-month to a seasonally adjusted annual rate of 618,000. Regional data was mixed, with the Northeast and South leading the way with strong gains and the West and Midwest scaling back. Although job growth and consumer confidence are strong, rising rates and home price appreciation are outpacing wage growth and hurting affordability, especially for first-time home buyers.
The housing market continues to grapple with inventory concerns. Buyer demand outpacing supply is proving to be more of an impediment than rising interest rates. Following years of near-zero interest rates, post-economic recovery, this week’s rate hike is marginal and not expected to greatly influence borrowing habits. Gradual interest rate hikes are expected to continue as the economy expands at a moderate pace.
Sources: Bloomberg, Bloomberg, CNBC, MarketWatch, MarketWatch, Mortgage News Daily