Minnesota Real Estate Today News!
Home builders are gaining confidence in current and future market conditions for new homes, but continue to see below-average foot traffic in new homes.
The reading for May's National Association of Home Builders (NAHB) /Wells Fargo Housing Market Index (HMI) increased by three points to a reading of 44 as compared to April's revised reading of 41. The HMI measures builder confidence in current sales conditions for newly built homes, buyer foot traffic in new homes and builder expectations for future sales conditions.
Builder Confidence In Future New Home Sales Highest Since February 2007
The HMI reading for current sales conditions for newly built homes rose from 44 to 48. The reading for buyer foot traffic in new homes rose from 30 to 33, and builder confidence in future sales of new homes rose from 52 to 53, which is the highest reading posted for builder expectations since February 2007.
A reading of more than 50 indicates that more builders consider housing markets good than bad.
NAHB Chairman Rick Judson noted that home builders are facing challenges including rising costs for building materials, lots and labor as supply chains recover from the recession. He also said that builders took note of “urgency” among home buyers wanting to take advantage of low mortgage rates, but who are facing a dwindling supply of available homes.
Regional Housing Market Index Unchanged Except In West
HMI readings for three of the four geographical regions used in the HMI survey of builders remained unchanged with the Northeast at 37, Midwest at 45 and South at 42.
The reading for the West declined by five points to 49, and likely reflects the shortage of building space and available new homes for sale. The regional HMI figures are calculated as a three-month rolling average.
In some areas of the West, home sellers are again receiving multiple offers for homes, a clear indication of diminishing inventories of homes for sale.
As an example, the Sacramento Bee recently reported the dilemma of builders faced with fewer available construction-ready lots alongside an increasing demand for homes. As inventories of both new and pre-owned homes shrink, demand for homes is growing as buyers take advantage of low mortgage rates.
With builders feeling confident about the future and poised to ramp up their home building efforts, it is a great time to consider buying or selling a home in Minneapolis.
Contact your trusted real estate professional to discuss your options right away to take advantage of this exciting opportunity.
BOB ELLIOT - REALTOR®, Certified Residential Specialist CRS, Graduate REALTOR® Institute GRI, Certified Distressed Property Expert® CDPE, National Association of REALTORS® e-PRO. Over 20Yrs Local Industry Experience! Direct: 612 578 6162.
Mortgage rates rose last week with average rates a 30-year fixed rate mortgage rising from last week's 3.35 percent to 3.42 percent with buyers paying all closing costs and 0.7 percent in discount points.
Average rates for a 15-year fixed rate mortgage rose from 2.56 percent to 2.61 percent with buyers paying their closing costs and 0.7 percent in discount points.
Freddie Mac also reports that average rates for a 5/1 adjustable rate mortgage rose from 2.56 percent last week to 2.58 percent with buyers paying their closing costs and 0.5 percent in discount points.
Here are noteworthy points from last week's economic news:
Monday: In spite of improving economic conditions, a majority of participants in the Senior Loan Officer Opinion Survey on Bank Lending Practices indicated that their lending institutions would not be relaxing residential mortgage lending standards. Lenders perceive a significant risk in terms of being required to absorb losses incurred on defaulted mortgage loans.
Mortgage owners including Fannie Mae and Freddie Mac, along with mortgage insurance companies can require mortgage lenders to buy back defaulted loans or make them whole for losses related to foreclosed and otherwise defaulted mortgage loans.
Tuesday: CoreLogic reported an increase of 1.9 percent in national home prices for March. This news represents the 13th consecutive increase and a year-over-year increase of 10.5 percent.
Home prices were boosted by strong increases in the West; Nevada posted a 22.2 percent gain from last March and California posted a 17.2 percent year-over-year gain.
CoreLogic predicted a year-over-year increase of 9.6 percent for home prices for April, with a monthly increase of 1.3 percent increase expected between March and April.
Thursday: Weekly jobless claims brought good news as they came in at 323,000; this was lower than expectations of 335,000 new jobless claims and the 327,000 new jobless claims reported in the prior week.
Friday: The Treasury Department reported that the federal budget has a surplus of + $113 billion for April. This was $54 billion higher than for April 2012 and the highest monthly surplus since April, 2008.
Increasing home values and federal budget surpluses, along with falling consumer debt pointed the way toward overall as well as personal economic recovery last week.
What's Coming Up
This week brings a couple important economic reports affecting the real estate industry including the Home Builders Index on Wednesday and the Weekly Jobless Claims and Housing Starts numbers released on Thursday.
The Consumer Sentiment and Leading Indicators reports will round out the week on Friday. Consumer Sentiment is important in terms of housing markets and mortgage lending; consumers typically don't buy homes or move up to a larger home if they aren't feeling secure about economic conditions.
This week's economic data may provide further evidence of a stronger U.S. economy as well as a snapshot of retail spending and consumer costs.
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RealtyTrac recently reported that national foreclosure filings are down while foreclosure filings are seeing marked increases in some states.
There are two systems for foreclosing residential real estate in the United States; judicial and non-judicial foreclosure. The states individually decide which foreclosure process will be followed in their state.
Click Here To Download An Overview Of The Foreclosure Process
Judicial foreclosure requires action by the courts because the mortgage is not written including a "power of sale clause". Judicial foreclosure proceedings generally take longer than non-judicial processes due to this court involvement.
A log-jam of delayed judicial foreclosures are beginning to move through backlogged courts with the result of higher numbers of foreclosures started, foreclosure auctions scheduled, and properties either sold to third parties at foreclosure auctions or repossessed by mortgage lenders.
In states allowing non-judicial foreclosure, the matter may be handled outside of the judicial system as the mortgage is written with the power of sale clause which allows the lender to take control of the mortgaged property to satisfy the outstanding lien.
Here are highlights of April's foreclosure report:
Nationally, 144,790 foreclosure filings were made in April, a decrease of 5 percent compared to March and representing an annual decrease of 23 percent year-over-year.
Overall, April's residential foreclosure activity was at its lowest since February 2007. About one of every 905 U.S. housing units had a foreclosure filing during April.
Due to the aforementioned backlog of judicial foreclosures, scheduled foreclosure auctions hit a 30-month high in April rising by 22 percent between March and April.
Some states had markedly higher rates of foreclosure sales scheduled in April 2013 as compared to April 2012. Examples include Maryland (+199 percent), New Jersey (+91 percent), Ohio (+73 percent), Oklahoma (+57 percent), and Florida (+55 percent)
Foreclosure auctions scheduled in non-judicial states were 7 percent lower in April as compared to March, and were an encouraging 43 percent lower in April 2013 as compared to April 2012; this was the lowest reading for non-judicial foreclosure sales scheduled since December of 2005.
Non-judicial foreclosure sales were impacted in some states as the result of legislation affecting foreclosure procedures. Affected states included Arkansas, California, Nevada, Oregon and Washington.
70,133 U.S. homes went into foreclosure in April 2013, which is 40 percent lower than for March 2013 and 28 percent lower than during April 2012.
With home values increasing and large numbers of delayed foreclosures clearing the books, this data offers further evidence that the U.S. real estate market is steadily improving. As more foreclosures are removed from the housing inventory, home prices should continue to stabilize and increase in the Minneapolis/St Paul area.
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Mortgage rates fell last week and approached or reached record low levels.
According to Freddie Mac, the average rate for a 30-year fixed rate mortgage (FRM) fell from 3.40 percent to 3.35 percent. Average rates for a 15-year FRM moved from 2.61percent to 2.56 percent.
Average rates for a 5/1 adjustable rate mortgage (ARM) fell to 2.56 from last week's average of 2.58 percent Discount points for last week's mortgage rates ranged from 0.7percent for 30 and 15 year FRM loans to 0.5 percent for a 5/1 ARM.
Rock-bottom mortgage rates can offset the impact of rising home prices.
Last Week Was A Strong Showing For The US Economy
Last week's economic news provided further indications of economic recovery, with housing related reports contributing to overall confidence in a stronger economy.
Highlights of last week's news include:
Monday: Pending home sales moved up to 1.50 percent in March from February's -1.07 percent. This reading also surpassed Wall Street's forecast of 0.90 percent for March.
Tuesday: The Case-Shiller Home Price Index for February reported that the national average home price had increased by 9.3 percent year-over-year between February 2012 and February 2013. By comparison, the average national home price between January 2012 and January 2013 increased by 8.1 percent year-over-year. Rising home prices are contributing to the economic recovery, but in some areas demand for homes exceeds supply, which also contributes to rising home prices.
Wednesday: The Federal Open Market Committee (FOMC) issued its scheduled statement after its meeting concluded. Committee members noted signs of an improving economy, and cited housing markets as a leading contributor to the recovery. The FOMC statement also indicated that economic conditions were not sufficiently improved for the FOMC to change or cease the Federal Reserve's quantitative easing policy. The Fed's goal for its current quantitative easing program is keeping long-term interest rates including mortgage rates low.
Thursday: The weekly Jobless Claims Report brought better-than-expected news with new jobless claims coming in at 324,000, less than the expected reading of 345,000 new jobless claims and also higher than the previous report's reading of 342,000 new jobless claims.
Friday: The Bureau of Labor Statistics issued its monthly “Jobs Report,” which consists of the Non-farm Payrolls Report and the national Unemployment Rate. Again new jobs added exceeded expectations for April with 165,000 jobs added against expectations of 135,000 new jobs added. April's reading also surpassed the March reading of 138,000 new jobs.
The unemployment rate dropped to 7.5 percent as compared to a consensus of 7.6 percent and last month's reading of 7.6 percent. To put this reading in perspective, the FOMC has targeted an unemployment rate of 6.5 percent as a benchmark for adjusting its current policies including quantitative easing.
What To Look For This Week
This week's economic events include latest Jobless Claims report on Thursday. It will be interesting to see if this week's reading will be lower than last week's reading of 324,000 new jobless claims.
On Friday, the Federal Budget will be released; this could influence financial markets depending on what programs and services are cut or reduced.
Wednesday's Federal Open Market Committee (FOMC) statement indicates the Federal Reserve's commitment to keeping long term interest rates and inflation under control.
The Fed will continue monitoring inflation, but does not expect inflation to rise more than 0.50 percent above its target rate of 2.00 percent over the next one to two years.
Ongoing monitoring of inflation and unemployment, as well as developing economic news, will guide the Fed in its future determinations concerning policy for its present iteration of quantitative easing (QE3).
Currently, the Fed purchases $85 billion of treasury securities and mortgage –backed securities each month with the goal of keeping long-term interest rates lower.
This includes mortgage rates, which can assist homebuyers with qualifying for mortgage loans in an environment of increasing home prices. Other goals include stabilizing the labor market, and limiting inflation.
Job Growth To Be Determining Factor On Fed Interest Rate Action
The statement also noted that the Fed will keep its interest rates between 0.00 and 0.25 percent, until the Fed sees the national unemployment rate fall below 6.50 percent.
While noting that the housing sector is improving, the Fed stated concerns about ongoing high unemployment rates. Jobs are a key aspect to supporting the economy, as 70 percent of the U.S. economy involves the purchase of goods and services by consumers.
The Fed also repeated its position to evaluate the efficacy of its quantitative easing program; if the agency finds that the program is not achieving their desired objectives, changes to the program can be expected.
While a clear majority of FOMC members voted to keep current policies intact, one member voted against this course of action citing the potential for continued quantitative easing at current levels to fuel inflation.
The bottom line for today's statement is that the Fed continues its "wait and see" position concerning quantitative easing and low federal interest rates.The committee also re-asserted its intention to gradually reduce quantitative easing when it's time for a change.
In addition, the Fed is committed to monitoring a wide range of economic data with an eye toward adjusting its policies in the best interest of economic recovery.
Housing markets continue to improve according to the S&P Case Shiller Home Price Indices released April 30 for February's data.
The Indices consist of a 10-City Composite Index and a 20-City Composite Index with housing markets for each city reported based on a three-month rolling average of home prices.
Case Shiller Posts Highest Growth Rates Since 2006
The data released yesterday comprised the Indices' highest growth rates since May 2006.
For the 12 months between February 2012 and February 2013, the 10-City Composite Index reports that average home prices posted a gain of 8.6 percent and average home prices for the 20-City Composite Index grew by 9.3 percent on a non-seasonally adjusted basis.
All 20 cities posted a year-over-year gain for at least two consecutive months.
The 10-City Composite Index grew by 0.4 percent between January and February, while the 20-City Composite Index grew by 0.3 percent for the same time period.
16 of the 20 cities reported rising annual growth rates for home sales between January and February 2013, while four cities including Detroit, Miami, Minneapolis and Phoenix saw decreases between -0.1 and -0.4 percent in annual home prices between January and February 2013 readings.
Longer-term readings provide a more positive light, as with the example for Phoenix, Arizona.
The month-to-month reading of annual home prices indicated a decrease, but the reading for Phoenix year over year indicates a + 23.0 percent increase in average home prices.
Ten Metro Areas Gain Double Digits Over Past Year
10 cities posted double-digit year-over-year growth rates; they include Atlanta, Detroit, Las Vegas, Los Angeles, Miami, Minneapolis, Phoenix, San Diego, San Francisco and Tampa.
San Diego and Tampa have joined the double-digit cities in February with average home prices increasing for each city of just over 10 percent.
Phoenix, San Francisco, Las Vegas and Atlanta posted the highest year-over-year gains in average home prices.
Three older cities, New York, Boston and Chicago posted the lowest year-over-year rates in average home price readings.
Atlanta and Dallas achieved the highest annual growth rates since the inception of the 10-City Composite (1991) and the 20-City Composite (2001).
Improving Housing Markets Seen As Beacon Of Economic Recovery
Improving housing markets are considered a leading indicator of overall economic recovery as home ownership typically increases wealth and leads to more spending.
Economists note that while current news for housing markets is good, average home prices remain at 2003 levels, which can be very good for new home buyers.
Shortages of available homes in some areas and news that apartment construction is increasing can impact availability and ultimately, the sale of single-family homes.
fell again last week and are again near record lows.
According to Freddie Mac, the average rate for a 15-year fixed rate mortgage did achieve a record low of 2.61 percent as compared to 3.1 percent one year ago.
The average rate for a 30-year fixed rate mortgage fell to 3.40 percent and near the record low of 3.31 percent.
Low mortgage rates are helping homeowners with refinancing and are boosting housing markets as more buyers can qualify for mortgage loans.
Home Values Continue To Rise
Last week's economic news was mixed; The Federal Housing Finance Agency, which oversees Freddie Mac and Fannie Mae, released its Home Price Index for February.
According to this index, home prices increased by 0.7 percent between January and February, and increased by 7.1 percent year-over-year on a seasonally adjusted annual basis.
According to the National Association of REALTORS®, existing home sales for March fell short of the expected 5.03 million and came in at 4.92 million existing homes sold on a seasonally adjusted annual basis.
This reading was also 0.7 percent shy of February's reading of 4.95 million existing homes sold.
Some homeowners may be taking a wait-and-see stance as they wait for home values to continue rising.
Employment Numbers Gaining Steam
Weekly jobless claims fell to 339,000 and were short of the consensus of 351,000 and the prior week's 355,000 jobless claims filed.
As more workers gain employment, those able to buy homes increases.
The economy in general also benefits as households gain income they can use for purchasing goods and services.
Consumer Sentiment rose by 2.1 points to 76.4 over the March reading of 72.3 percent.
April's reading also surpassed expectations of 74.0 percent.
As consumers gain confidence in the economy, they are generally more likely to buy homes and make other major purchases that contribute to the U.S. economy.
Coming Up this Week
This week's economic news calendar includes several reports that impact the housing sector as well as the general economy:
- Monday: Personal Income, Consumer Spending and Pending Home Sales reports are due for release.
- Tuesday: The Case Shiller/Wells Fargo Home Price Index for February and Consumer Confidence for April will provide data concerning national and regional home prices and indicate how consumers view the economy.
- Wednesday: The customary statement by the Federal Open Market Committee (FOMC) is set for release at the conclusion of its meeting. The ADP Employment Index for April and Construction Spending for March provide data on jobs and trends in construction spending.
- Thursday: Weekly Jobless Claims report
- Friday: The Non-farm Payrolls Report and Unemployment Rate for April, collectively known as the Jobs Report, will be released.
While we can't predict what will happen with mortgage rates, some industry analysts indicated that they expect rates to remain low in the near-term.
These lower rates should continue to support growth in the Minneapolis/St Paul real estate market for home buyers and sellers as well as those looking to refinance their home.
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Mortgage rates fell for the third consecutive week.
According to Freddie Mac, the average rate for a 30-year fixed rate mortgage fell by two basis points to 3.41 percent as compared to last week's 3.43 percent and 3.90 percent year-over-year.
The average rate for a 15-year fixed rate mortgage was 2.64 percent as compared to last week's 2.65 percent and 3.13 percent year-over-year.
Falling mortgage rates were attributed to reduced consumer spending.
Last week's economic news includes the NAHB Wells Fargo Housing Market Index (HMI), with a reading of 42 for March.
This is four points below investor expectations and two points below February's results.
A reading of 50 or above indicates that more of the builders surveyed have a positive outlook.
March results were impacted by builder concerns over tight builder credit, a lack of available lots and increasing construction costs.
Housing Starts Increased In March
More good news for housing arrived Tuesday when the U.S. Department of Commerce issued its monthly Housing Starts report.
Housing starts for March came in higher than anticipated at a seasonally adjusted annual rate of 1.04 million, against a consensus of 933,000 and also beat February's reported 968,000 housing starts.
Housing starts rose by 7 percent over February, and rose 47 percent over March 2012, the highest year-to-year increase since 1992.
The Federal Reserve issued its Beige Book Report which is compiled from reports by the 12 districts of the Federal Reserve.
5 districts reported moderate economic growth, 5 districts reported modest growth, and 2 reported slight economic growth.
Based on the data contained in the Beige Book Report, economists are not expecting the Fed to make changes to its current quantitative easing (QE) program of purchasing $85 billion monthly in bonds and MBS; this may help mortgage rates remain steady; when MBS prices fall, mortgage rates typically rise.
What's Coming Up Next
The National Association of REALTORS® releases its Existing Home Sales report for March today.
The consensus is for 5.03 million homes sold on a seasonally adjusted annual basis, and against February's 4.98 million existing homes sold.
Tuesday brings more housing news with the FHFA Home Price Index for February; FHFA is the federal agency overseeing Fannie Mae and Freddie Mac.
The U.S. Department of Commerce releases its New Home Sales for March on Tuesday.
The consensus is 421,000 new homes sold against February's reading of 411,000 new homes sold.
Thursday's Weekly Jobless claims are expected to come in at 351,000 as compared to last week's 352,000.
Employment is a key factor in terms of consumers buying homes and qualifying for mortgage loans.
An open house gives you a great opportunity to look more closely at Minneapolis/St Paul real estate you might be interested in buying.
It also affords you the chance to chat with the owner or real estate agent so you can bring up any issues or hesitations you have with the home.
Knowing what to ask can be difficult, so below are examples of questions to ask at the next open house you attend.
Why has the seller decided to sell now?
If you ask why the seller is moving, you could learn valuable information to help determine your offer -- or possibly whether or not you want to buy the home.
Knowing whether the owners are about to go into foreclosure, have experienced trouble in the neighborhood, or if they've retired and completely paid off the home can help you understand how urgently they need to sell their property.
Has the seller had any other offers?
Don't forget that you are not only negotiating with the seller for a price, you are also competing with other potential buyers.
It really helps to know what you are up against.
It is important to understand that you might not get a 100% straight answer to this question as most sellers know that competition - or perceived competition - can cause a potential buyer to move forward more quickly and at a higher price.
If you're comfortable in this discussion, you might want to try and see if you can find out the details of any other offers.
Does the property have special ownership costs?
Ask the agent or owner about the other costs associated with owning the property, such as Home Owners Association fees within a condo complex or a gated community.
It's important to know about these extra expenses in advance so you can make an informed offer.
You may also want to ask about any pending litigation concerning the property. Litigation is not always a deal killer, but it's better to know the details before you sign closing documents.
What furniture and appliances are being sold with the house?
Most of the time, a seller will include their major appliances such as the refrigerator, stove and dishwasher with the home, but this isn't always the case.
If you don't already have these items, it's important to know whether they are included in the purchase price.
Is there anything else that you want to leave with the home?
This is an important question to ask. Especially if there are specific things in the home that you have a strong interest in.
Perhaps there is custom art work or a pool table that fits perfectly in the game room.
The seller may be eager to part with those items and include them in the sale of the home or sell them at a large discount.
The open house is a great opportunity to learn more about a home before making the decision to buy it, so be sure you ask the right questions.
Have more questions speak to a Certified Residential Specialist
The National Association of Home Builders (NAHB) Wells Fargo Housing Market Index (HMI) report for April shows that builder confidence slipped by two points to a rating of 42 from the March reading of 44.
The Housing Market Index (HMI) measures home builder confidence in market conditions for newly built single family homes.
A reading of more than 50 indicates better than average confidence, while readings below 50 indicate that home builders have concerns about current market conditions.
NAHB Housing Market Index Results For April
Home builders expressed concern over a gap between a growing demand for homes and builders' ability to meet the demand for new homes as housing market conditions improve.
Top concerns cited by home builders surveyed include:
- Availability of construction credit
- Construction costs rising faster than home values
- Restrictive mortgage lending rules impacting would-be home buyers
Supply chains for building materials and available developed lots are also impacting home builder confidence, as they have been lagging behind increasing demand for homes since the recession and will need more time to catch up.
Six Month Confidence Forecast Strongest Since February 2007
While builder confidence fell on a month-to-month basis, home builders have a more positive outlook for the next six months.
The builder confidence reading for the next six months came in at 53 for April, which is the highest reading since February 2007.
In terms of demand for newly built homes, the home builders surveyed said that a shortage of existing homes, low mortgage rates and increasing consumer confidence are expected to improve the market for existing homes.
Consumer confidence is important to all facets of the home building and mortgage lending industries.
Buying a home is typically the largest investment that consumers make, and their confidence in the economy plays a role in their decisions about when or if they buy a home.
Regional readings for housing markets are based on a three month rolling average.
Results for April were unchanged or lower in all four regions as compared to the rolling average reported in March:
- Northeast: The reading of 38 is unchanged from March.
- Midwest: The reading declined by two points to 45.
- South: April's reading declined by four points to 42
- West: April's reading declined by three points to 55, but remains in positive territory.
Regional readings reflect conditions impacting only a specific area of the U.S.
Recent examples include the impact of Hurricane Sandy in the Northeast, and an ongoing lack of land available for home construction in the West.
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Mortgage rates saw little change last week amidst mixed economic news.
Treasury auctions held on Tuesday, Wednesday and Thursday saw weak demand; this could have been caused by the FOMC minutes that were released on Wednesday.
The minutes indicated that some FOMC members supported ending the current quantitative easing (QE) program within a few months.
The Fed is currently purchasing $85 billion monthly in bonds and Mortgage Backed Securities.
If the QE program is ended, demands for bonds and MBS will decline, which usually raises mortgage rates.
Employment Numbers Show Promise For Housing Market
Thursday's jobless claims offered some positive news for the Minneapolis real estate market.
Jobless claims fell to 346,000, which is well below Wall Street's estimate of 365,000 jobless claims and the prior week's report of 385,000 jobless claims.
As more people find work, more families become able to buy homes.
Demand for homes will boost the housing market, which is already expanding in many areas.
While higher home prices are good for the economy, higher mortgage rates may be likely to follow.
This potentially presents a "double-edged sword" to home buyers with little financial flexibility.
Slower Retail Sales Largely Due To Autos
Retail Sales, which represent approximately 70 percent of the U.S. economy, moved from February's level of 1.1 percent to -0.4 percent in March.
Expectations were for 0.0 percent change.
The Retail Sales report exclusive of the volatile automotive sector was nearly identical except for the February's reading of 1.0 percent.
These reports suggest that while the economy is improving in some areas, it has a way to go before it has truly recovered.
What's Coming Up Next?
This week, investors will be paying attention to the Consumer Price Index (CPI) and the closely-related Core CPI, which is nearly identical except for its excludes the more volatile food and energy sectors.
These reports will be released on Tuesday for March, with little change expected for the CPI and no change expected for the Core CPI as compared to February.
The CPI is considered an important indicator of inflation.
Unexpected changes in inflationary growth can cause rapid and volatile responses in the financial markets.
Wednesday brings the Fed's Beige Book, which presents key economic data for each of the Fed's 12 regions.
Investors watch the Beige Book for signs of the Fed's position on economic policy during the upcoming FOMC meeting.
Jobless claims will be released Thursday with the expectation of 350,000 claims filed as compared to last week's 346,000 jobless claims.
The minutes for the Federal Open Market Committee (FOMC) meeting held March 19 and 20 were released on Wednesday April 10, 2013.
These periodic meetings by the FOMC cover a wide ranging group of topics that impact the overall economy in the United States.
The decisions made and acted upon from the FOMC meetings often sway the real estate and residential financing markets.
Some highlights of the recent FOMC minutes for the March meeting include:
Jobs and Unemployment Gaining Steam
The unemployment rate fell to 7.7 percent in February.
While lower than the average unemployment rate for Q4 2012, the rates of long-term unemployment and part-time employment for economic reasons saw little change, and both measures remained high.
This suggests that the economy is improving in some areas, while others including employment are not so quick to recover.
Housing Markets Looking Robust
U.S. housing markets continued to improve during the inter meeting period, but construction of new housing faced obstacles including tighter credit and in some areas a lack of available building space.
While housing prices are improving, employment rates and wages will also need to expand for consumers to keep pace with rising home prices.
Some of the Fed Meeting participants continued to be very positive about the prospects of the real estate sector noting rising home prices and demand.
At the same time, an overall tone of restraint and caution was expressed regarding the continuing purchase of Mortgage Backed Securities (MBS).
Any slowing in the Fed's commitment to their previous levels of MBS purchases may create upward pressure on St Paul home mortgage interest rates.
Personal Finances and Consumer Confidence
Household expenditures rose modestly during January and retail sales, excluding auto sector, increased at a strong pace in February. Sales of light autos also rose.
Household wealth also increased for homeowners due to increases in home values, which is good news for current homeowners and may be an incentive for new home buyers to move forward and purchase real estate.
Recovering Economy Leads Toward Government Spending Pull Back
The FOMC minutes suggest that the Fed is not likely to end its quantitative easing (QE) program immediately, but the first quarter of 2014 was cited as a potential date for the program to end.
Gradual decreases in the Fed's purchases of bonds and mortgage backed securities are expected before QE ends, and this could cause mortgage rates to rise as MBS prices fall.
When you make a real estate investment in Minneapolis/St Paul real estate, it's important to consider your options for turning a profit even before you write an offer.
It might be best to rent out the property to cover your mortgage and build equity providing the home cash-flows with solid rents and demand.
Or, you could fix up the home and flip it so that you can sell it quickly for a larger amount than you invested.
Both strategies may be appealing options, so here are some important factors to consider before making your decision.
Flipping May Lead To Short Term Profits
Flipping a house can be tricky, so you will want to have enough experience to know what you are doing, or work with an experienced advisor who can guide you around the most common pitfalls.
If you are thinking about fixing and flipping a house, you will need to have enough capital to invest in the property so you can make the required improvements and repairs.
Many people find themselves short of working capital after closing on the new purchase.
It is important to factor in carrying costs, or monthly mortgage payments while fixing the home, into your overall budget.
Do your research so you'll know what renovations will have the most impact on the value of your real estate.
You will also need to know if the market in the area will support your new price point.
Make sure your flip property is in a very buyer-friendly community for your best chances of a positive return.
Renting Is The Buy And Hold Strategy For Investment Real Estate
Flipping a house gives you quick cash, but renting it out instead may give you monthly cash flow and a potentially larger long-term profit if the property appreciates over time.
If you don't mind being a landlord and you have the time to screen for reliable renters, then renting out the property might be a better option for you.
This option also means that you will have the home later on in case you want to live in it.
Of course, don't forget to factor in additional upkeep costs, such as repairs, utilities and property taxes.
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Investment real estate has consistently been considered a solid way to get your money working for you.
Whether you rent out or flip your investment property will depend on whether you are interested in a long-term real estate investment or a short-term project.
Last week's economic news includes several factors that drove U.S. mortgage rates lower.
The Bank of Japan announced that it would increase its purchase of bonds by $1.4 trillion over the next two years.
This news caused yields on Japanese bonds to fall, which made U.S. bonds more appealing to international investors, that in turn increased MBS prices and caused mortgage rates to fall.
Bumpy Employment Numbers Support Lower Interest Rates
Other significant economic news involves an unexpected drop in the number of new jobs created last month.
The Bureau of Labor Statistics (BLS) Nonfarm Payrolls Report issued Friday indicated that 88,000 jobs were added in March, which fell considerably short of the expected 190,000 jobs added as well as the 236,000 jobs added in February.
Average hourly earnings remained flat against February, which indicates another stall in U.S. economic growth.
Expanding employment sectors for March included professional and business services and healthcare, while retail jobs decreased.
Jobless claims increased last week in concurrence with lower than expected jobs added for March.
New jobless claims came in at 385,000 and were higher than expectations of 345,000 new jobless claims and the prior week's jobless claims of 357,000.
The monthly unemployment rate fell from 7.7 percent to 7.6 percent, but this isn't encouraging news.
According to the BLS, the unemployment rate fell due to workers leaving the work force instead of workers finding jobs.
Next week, Treasury Auctions will be held Tuesday, Wednesday and Thursday.
On Wednesday, the Federal Reserve will release FOMC minutes.
Fed Continues Monthly Bond Purchases
Investors and analysts review the minutes for predicting future economic developments and also for gauging the Fed's sentiment about how or if changes should be made to the current quantitative easing program (QE).
The current QE program involves the Fed's monthly purchase of $85 billion in bonds and MBS is intended to keep long-term interest rates including mortgage rates low.
Retail Sales will be released Friday, and as indicated by falling job numbers in the retail sectors, analysts are expecting no growth for March in either report.
Global news concerning North Korea and the European Union economic situation could also move U.S. markets up or down depending on the nature of the news.
While not encouraging in terms of an economic recovery, these events show that the recovery is proceeding with ups and downs; this doesn't provide investors a clear picture and may cause them to seek safe haven in bonds.
The good news for Minneapolis homeowners is uncertainty and low expectations of the financial markets typically help keep mortgage rates lower.
Last week, the S&P/Case-Shiller Index showed home prices gaining 8.1 percent during the 12-month period ending January 2013, marking the largest year-over-year increases since the summer of 2006.
The Case-Shiller Index measures changes in home prices by tracking same-home sales throughout 20 housing markets nationwide; and the change in sales price from sale-to-sale.
Detached, single-family residences are used in the Case-Shiller Index methodology and data is for closed purchase transactions only.
All 20 Case Shiller Index Markets Show Growth
Between December 2012 and January 2013, home values rose in all 20 Case-Shiller Index markets, with previously-hard hit areas such as Phoenix, Arizona leading the national price recovery.
Another notable gainer was New York, which posted the first year-over-year increase following 28 straight months of negative annual returns.
The top three yearly “gainers” for as of January 2013 were:
- Phoenix, Arizona : +23.2 percent
- San Francisco, California : +17.5 percent
- Las Vegas, Nevada : +15.3 Percent
Other year-over-year double digit gainers in home value were Atlanta, Detroit, Los Angeles, Miami, and Minneapolis.
Broader Numbers Support Widespread Housing Recovery
These strong annual home value increases continue to support the overall housing recovery.
There have been year-over-year double digit increases in home building permits and new housing starts as of February 2013 as well.
And foreclosure filings have fallen to only three-fourths of their previous annual levels.
It should be noted, however, that the Case-Shiller Index is an imperfect gauge of home values.
First, as mentioned, the index tracks changes in the detached, single-family housing market only. It specifically ignores sales of condominiums, co-ops and multi-unit homes.
Second, the Case-Shiller Index data set is limited to just 20 U.S. cities. There are more than 3,000 cities nationwide, which illustrates that the Case-Shiller sample set is limited.
And, lastly, the home sale price data used for the Case-Shiller Index is nearly two months behind its release date, rendering its conclusions somewhat out-of-date.
That said, the Case-Shiller Index joins the bevy of home value trackers pointing to home price growth over the last year.
A good next step for getting up-to-date home values in the Minneapolis/St Paul area is to contact a qualified, licensed real estate professional.
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