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Market Forecast: FOMC Meeting, Case-Shiller Home Price Index, and New Home Sales
Posted On September 24, 2018
The Federal Open Market Committee will meet this Tuesday and Wednesday and markets are pricing in a rate hike. Sustained economic growth, a healthy labor market, and strong consumer spending have all pushed the inflation rate toward the Federal Reserve’s benchmark and support the case for raising the benchmark interest rate. In other housing news, the S&P CoreLogic Case-Shiller home price index will come out on Tuesday and the National Association of Realtors’ new home sales report comes out on Wednesday.
The Case-Shiller home price index tracks changes in the value of homes involved in two or more sales transactions across twenty major metropolitan areas throughout the country. Though the data lags by one month, it is used to gauge home price appreciation trends. Home price appreciation has started to decelerate this year. In today’s busy market, many homes are selling in a matter of days and has allowed for sustained home price appreciation. In June, the 20-city index increased a seasonally adjusted 0.1% month-over-month and a not seasonally adjusted 6.3% year-over-year. Gains were driven by Seattle, Las Vegas, and San Francisco, each posting double-digit annual gains.
New home sales count the sales of newly constructed homes and make up a smaller share of real estate transactions than existing home sales. Despite a recent increase in construction activity, and strong buyer demand, new home sales fell 1.7% month-over-month in July to a seasonally adjusted annual rate of 627,000, the lowest level in almost a year. Annually, however, sales were up 12.8% from July 2017.
The Federal Open Market Committee will host its semi-annual monetary policy meeting this week, following be a press conference with Federal Reserve Chair Jerome Powell on Wednesday. The market expects a quarter-point interest rate increase following this meeting. Economists will be tuned into the ensuing press conference to find out if the Federal Reserve will continue on its pace of gradual rate hikes. The current trajectory has been to reach rate normalization which now brings up the question, where is the neutral rate?
Mortgage rates tend to trend upward when the market expects an interest rate hike. If the Fed does raise the benchmark interest rate next week, mortgage rates will likely react. Home buyers or homeowners who are on the fence about a new home purchase or refinance may be inclined to make a move before further rate hikes.