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Market Recap: Fed Raises Rates, New Home Sales Spike, Home Prices Appreciation Slows
Posted On September 28, 2018
This week, the Federal Open Market Committee (FOMC) voted to raise the federal benchmark interest rate for the third time this year. Federal Reserve Chair Jerome Powell cited a strong labor market and continued economic expansion as reasons for the rate hike. In housing news, new home sales jumped, and home price appreciation slowed.
The S&P CoreLogic Case-Shiller home price index increased a seasonally adjusted 0.1% month-over-month and 5.9% year-over-year. Again, Las Vegas, Seattle, and San Francisco led the charge, each with double-digit annual gains. Home price appreciation has started to decelerate in recent months as mortgage rates rise. Redfin reports more than 25% of home sellers dropped their listing prices in early September, as the market grows increasingly competitive. Managing director and chairman of the index committee at S&P Dow Jones Indices, David M. Blitzer concluded, “rising home prices are beginning to catch up with housing.”
New home sales, or the sales of newly constructed homes, exceeded expectations in August, rising 3.5% month-over-month and 6.9% year-over-year to a seasonally adjusted annual rate of 629,000. At the current pace, it would take 6.1 months to exhaust current available inventory, the first time this figure has exceeded six months in months. The median sales price for a new home inched up 1.9% from one year ago to a price of $320,200.
The FOMC met on Tuesday and Wednesday of this week and voted to raise the benchmark interest rate to a level of 2-2.25%. The move increased the likelihood of a fourth rate hike this year. Long-term, economists expect three additional interest rate hikes in 2019 and one in 2020. From Chair Powell’s press conference, “Our economy is strong. These rates remain low, and my colleagues and I believe that this gradual returning to normal is helping to sustain this strong economy."
The FOMC raises interest rates during periods of economic expansion, thus rising interest rates are a sign of economic strength. The unemployment rate is at a record low and consumer confidence is at an all-time high. Raising interest rates will gradually influence mortgage rates and increase the cost to borrow money. Though rates are likely to continue rising, today’s rates are low by historic standards. Home buyers who are on the fence may want to consider making real estate moves now, before additional rate hikes.