Minnesota Real Estate Today News!
Last week brought a variety of housing related news. Highlights included the
S&P/Case-Shiller Home Price Index for July, which showed a 12.40 percent
year-over-year increase in national home prices. This was up from 12.10 percent
The FHFA Housing Price Index reading traces home prices on properties
securing mortgages owned or backed by Fannie Mae and Freddie Mac. The
year-over-year reading for July showed an increase of 8.80 percent as compared
to a year-over-year reading of 7.80 percent in June.
Rising mortgage rates and rising home prices have caused some buyers to leave
the market, while others are jumping in before mortgage rates move higher.
Pent-up demand for homes and short supplies of homes for sale are expected to
sustain buyer interest and home prices.
The Consumer Confidence Index for September fell to 79.70 percent for
September as compared to August's reading of 81.80 percent, but was slightly
higher than the expected reading of 79.50 percent.
Sales Of New Homes Surpass Expectations
Sales of 421,000 new homes in August surpassed expectations of 420,000 sales
and the revised number of 390,000 sales of new homes in July. A short supply of
existing homes for sale is attracting buyers to new homes.
Freddie Mac's weekly Primary Mortgage Market Survey provided good news as
average mortgage rates fell. The average rate for a 30-year fixed rate mortgage
was 4.32 percent as compared to last week's 4.50 percent.
The average rate for a 15-year fixed rate mortgage was 3.37 percent as
compared to last week's reading of 3.54 percent. Discount points were unchanged
at 0.70 percent. The average rate for a 5/1 adjustable rate mortgage was 3.07
percent, which was four basis points lower than last week. Discount points were
unchanged at 0.50 percent.
Pending home sales fell by 1.60 percent in August as compared to July; the
National Association of REALTOR cites higher home prices and mortgage rates
along with depleted supplies of available homes as reasons for fewer signed
contracts in August.
The West reported a drop of 1.60 percent in pending sales and the Midwest
reported 1.40 percent fewer pending sales in August. The Northeast came out
ahead with 4.00 percent more pending home sales in August.
Weekly jobless claims were reported at 305,000 new jobless claims as compared
to expectations of 327,000 new jobless claims and the prior week's reading of
310.000. The Federal Reserve recently cited the national unemployment rate of
over seven percent as a clear indication that employment levels are not
Next Week's Economic News
While few housing and mortgage related reports are set for release next week,
the calendar should provide indications of overall economic conditions. On
Tuesday, Construction Spending for August will be released. Wednesday brings the
ADP employment report for September. This report tracks private sector jobs.
Thursday brings Freddie Mac's PMMS report of average mortgage rates and the
weekly jobless claims report.
The federal Non-farm Payrolls and National Unemployment Reports for September
are set for release on Friday.
Home prices were still gaining in July, but for 15 of 20 cities included the
S&P Case-Shiller 10 and 20-city Home Price Indices, the pace of increasing
home prices is slowing down. National home prices rose by 1.80 percent in July
as compared to 2.20 percent in June.
Home prices grew by 0.60 percent from June to July on a seasonally-adjusted
basis. This was the lowest month-to-month gain since September 2012.
David Blitzer, index committee chairman of S&P Dow Jones Indices, said
that higher mortgage rates are hitting the housing market. Mr. Blitzer noted
that mortgage rates rose by more than a percentage point between May and the
Federal Reserve's statement last week.
The Fed was widely expected to reduce its monthly bond purchases from $85
billion to $75 billion, but the Fed decided not to reduce its bond purchases as
the economy has not recovered sufficiently.
Mortgage Rates Fall
High home prices and unemployment are making it difficult for first-time and
moderate income buyers to compete; buyers sitting on the sidelines are
eventually expected to add to the demand for homes.
Mortgage rates fell after the Fed's announcement, but Mr. Blitzer said that
the drop in mortgage rates would likely have a temporary impact on housing. He
said that the rate of increase [in home prices] may have peaked.
Conditions contributing to the run-up in home prices include a shortage of
available homes and pent-up demand among home buyers. As of July, home prices
for the Case-Shiller 20-city index increased by 12.40 percent
year-over-year; this was the highest annual rate of increase since home prices
peaked in 2006.
Home prices in the Case-Shiller 10-city index increased by 12.30 percent
annually. In spite of the rapid price gains, July home prices remained 21
percent below their pre-recession peak.
Home prices in all 20 cities included in the 10 and 20 city indices increased
on a month-to-month basis, with home prices increasing by 1.80 percent for the
20 city index and by 1.80 percent for the 10 city index.
Home Prices Show Strong Recovery
Las Vegas, Nevada had the highest annual gain in home prices for July with a
28 percent increase. Las Vegas was one of the cities hardest hit by the
recession. Annual home prices for San Francisco, California rose by 25 percent,
and New York City had the lowest annual growth rate for home prices at 3.50
The Federal Housing Finance Agency, which oversees Fannie Mae and Freddie
Mac, released its home prices report for properties securing mortgage loans
owned or backed by Fannie and Freddie. The annual growth rate for home prices
was 8.80 percent as of July, but remains 9.60 percent lower than the peak growth
rate reported in April 2007.
Sales of existing homes reached their highest volume in almost six years in
August. The National Association of REALTORS reported Thursday that sales of
existing homes rose 1.70 percent in August to a seasonally-adjusted annual rate
of 5.48 million existing homes sold.
This was the highest number of existing home sales since February of
August's results exceeded estimates of 5.20 existing homes sold, which was
based on July's unrevised reading of 5.39 million existing homes sold.
The NAR also reported that the national median home price increased to
$212,100 in August. This represents a year-over-year increase of 14.70 percent
and was the largest annual increase in the national median home price since
Sales concentrated in areas with higher home prices contributed to this
significant increase in the national median home price.
Homebuyers Increase Despite Higher Home Rates
The reading for existing home sales in August suggests that homebuyers are
not shying away from higher home loan rates; it may also indicate that the
recent shortage of existing homes for sale is beginning to ease.
August's higher number of existing home sales was attributed to home buyers
anxious to lock in lower loan rates in an environment of rising mortgage rates.
Also, economists had expected the Federal Reserve to begin reducing its monthly
securities purchases, which did not happen.
Had the Fed tapered its securities purchases, long-term interest rates
including mortgage rates, would likely have continued rising. The Fed may have
decided not to reduce its monthly securities purchase in an effort to slow
rising mortgage rates.
The average rate for a 30-year fixed rate mortgage has increased by more than
one percentage point since May. Home buyers may respond to rising mortgage
rates by delaying their home purchase to see if mortgage rates will fall, or
they may rush to buy a home before rates go higher.
Mortgage Rates Affect Home Buyers In Three Ways:
1. As rates increase, monthly house payments also rise,
which can impact affordability for first-time and moderate income buyers.
2. National unemployment rates remain higher than the
Federal Reserve's target rate of 6.50 percent. While home prices are increasing
and other facets of the economy are showing improvement, jobless claims remain
higher than average.
3. Mortgage credit requirements are strict; this keeps some
would-be buyers from qualifying for a home loan.
These factors are offset by high demand for homes and short supplies of
available homes and developed lots in some areas.
Last week's economic news was dominated by the Federal Reserve's decision not to
taper its $85 billion in monthly securities purchases.
Fed Chairman Ben Bernanke noted in a scheduled statement after the Federal
Open Market Committee meeting that economic conditions were not yet adequately
improved to withstand any decrease in the federal quantitative easing
The Fed also reaffirmed that the target federal funds rate would remain at
0.00 to 0.25 percent until the national unemployment rate reached 6.50 percent
and inflation reaches 2.00 percent.
The national unemployment rate was 7.30 percent and the Fed projects that
inflation will remain under 2.00 percent through 2015.
In both the FOMC statement and his press conference, Chairman Bernanke
repeatedly emphasized that the Fed would take no action to reduce QE until the
economy strengthens. No automatic reduction of QE purchases would take place
without full consideration of the nation's economy.
The QE program is intended to keep long-term interest rates low, and the
announcement that QE would not be tapered brought mortgage rates down after they
had increased by more than one percent since May.
Builder Confidence High, Mortgage Rates Lower
The National Association of Home Builders/Wells Fargo Housing Market Index
for September revealed that home builder confidence in housing market conditions
remained stable at 58; a reading of 59 was expected. Readings over 50 indicate
that more builders are confident about market conditions than not.
Housing starts for August did not reflect the high level of builder
confidence and fell short of expectations at 891,000. Expected housing starts
were estimated at 921,000. There was good news in that August's reading
surpassed the July reading of 883 housing starts. Building permits for August
also dropped to 918,000 against expectations of 955,000 and July's reading of
954,000 building permits.
Higher labor and materials costs and concerns over tight mortgage credit and
rising mortgage rates likely contributed to the lower than expected readings for
housing starts and building permits.
Freddie Mac's Primary Mortgage Market Survey reported that average mortgage
rates dropped across the board on Thursday. The average rate for a 30-year fixed
rate mortgage fell by seven basis points to 4.50 percent with discount points
moving from 0.80 percent to 0.70 percent.
The average rate for a 15-year fixed rate mortgage fell by five basis points
from 3.59 percent to 3.54 percent with discount points unchanged at 0.70
The average rate for 5/1 adjustable rate mortgage was lower by 11 basis
points to 3.11 percent. Discount points were unchanged at 0.50 percent. This
provides a break for home buyers who've been faced with rising mortgage rates
and home prices amidst a shortage of available homes in many areas.
Economic news scheduled for this week includes the Case/Shiller Home Price
Index for July, the FHFA Home Price Index also for July. New home sales and the
pending home sales index will be released.
Freddie Mac will release its weekly summary of average mortgage rates and
weekly jobless claims will also be released Thursday. The week will end with
consumer related data including personal income and consumer spending for August
along with the University of Michigan's consumer sentiment index for
Home builder confidence was unchanged for September according to the National
Association of Home Builders/Wells Fargo Housing Market Index HMI released
Tuesday. After four months of rising confidence, September's HMI reading came in
at 58, which was not far from expectations of a reading of 59.
August's reading of 58 was revised from 59. Readings over 50 indicate that
more builders view housing market conditions as being positive than
Housing Market Index Readings Rise
Components of September's HMI include readings for home builder views of
current market conditions, which maintained August's reading of 62. The
September reading for buyer foot-traffic rose to 47 from 46 in August.
Builder expectations for housing market conditions within the next six months
slipped from a reading of 48 in August to 45 for September. Lower expectations
for market conditions within the next six months likely take into consideration
the coming winter months when weather conditions slow construction and home
Home builder confidence has far outpaced actual home construction on a
year-over-year basis; the HMI increased by 45 percent since September 2012.
Investors expect a seasonally-adjusted reading of 921,000 housing starts for
August on Wednesday. This figure represents a year-over-year increase of 23
percent for housing starts.
Rising mortgage rates affected September's reading. In addition, David Crowe,
chief economist for NAHB also cited consumer credit restrictions, a low
inventory of lots available for development and rising labor costs as factors
contributing to a plateau in builder confidence.
Fed Decision On Quantitative Easing Tapering Expected
Wednesday's highly anticipated statement from the Federal Reserve's Federal
Open Market Committee (FOMC) has created a "wait-and-see" mood among home
buyers, home builders and investors. The Fed is expected to announce whether or
not it will begin tapering its $85 billion monthly purchases of securities.
This program, which is called quantitative easing, was designed to keep
long-term interest rates low. Speculation on the Fed's upcoming decision about
reducing its securities purchases has caused mortgage rates to rise since
Economists are expecting the Fed to announce moderate tapering of QE to $75
billion in monthly purchases. Reducing or not reducing the fed's securities
purchases has become an elephant in the room to those concerned with mortgage
rates; in recent months, the Fed has hinted at its intention to taper QE
purchases before year-end.
If the Fed reduces its securities purchases, the demand for securities
(bonds) is expected to fall, along with bond prices. When bond prices fall,
mortgage rates typically rise. The good news is that once the Fed announces a
decision on QE, the guesswork will be done for a while.
Last week didn't feature any housing-related news other than Freddie Mac's
weekly survey of mortgage interest rates.
Reports on consumer credit, job openings and weekly jobless claims suggest
that without some relief in the jobs market, Americans may be taking a
"wait-and-see" stance toward buying homes.
Consumer Credit Rose By $10.40 Billion In July
The Federal Reserve reported Tuesday that revolving credit fell by an annual
rate of 2.60 percent as compared to an annual decrease of 5.20 percent in June.
Non-revolving consumer credit such as vehicle and education loans rose at an
annual rate of 7.40 percent.
Freddie Mac's Primary Mortgage Market Survey indicated that mortgage rates
were unchanged for both 30-year and 15-year fixed rate mortgage loans. The
average rate for a 30-year FRM was 4.57 percent with discount points of 0.80
percent; this was higher than last week's 0.70 percent.
Average rates for a 15-year fixed rate mortgage were unchanged at 3.57
percent with 0.70 percent in discount points. The average rate for a 5/1
adjustable rate mortgage fell by six basis points from 3.28 to 3.22 percent with
discount points unchanged at 0.50 percent.
Mortgage rates are likely to change next week in response to any announcement
by the Federal Reserve regarding its plan for reducing the amount of monthly
bond purchases in its current quantitative easing program.
Mortgage rates would likely rise if the Fed begins tapering its $85 billion
monthly purchase of securities, but if the Fed maintains its current rate of
purchases, mortgage rates could remain steady or fall in response to the
Retail sales fell short of expectations on Friday. The Department of Commerce
reported a seasonally-adjusted growth rate of 0.20 percent in August against an
expected reading of 0.50 percent and July's revised reading of 0.40 percent,
which was initially reported at 0.20 percent.
The University of Michigan/Thompson Reuters Consumer Sentiment Index for
September fell to its lowest reading since April. The September reading was
76.80 percent as compared to expectations of 81.50 percent and August's reading
of 82.10 percent.
What's Coming, Will The Fed Taper Its Securities
This week's economic news is highlighted by the Fed's FOMC statement
scheduled on Wednesday after its two-day meeting. The announcement is expected
to include an indication of the Fed's intention concerning its QE program and
whether or not monthly securities purchases will be reduced. Fed chairman Ben
Bernanke is scheduled to give a press conference after the FOMC statement.
Other scheduled economic news for this week includes the Consumer Price Index
and Home Builders Housing Market Index on Tuesday; Wednesday brings reports on
Housing Starts and Building Permits in addition to the FOMC statement and press
conference. Thursday's economic reports include Weekly Jobless Claims and the
Freddie Mac PMMS along with Existing Home Sales and Leading Indicators.
If you are on the verge of buying real estate, you've probably heard the term
Private Mortgage Insurance. Mortgage professionals talk about it a great deal,
but you may be asking, "What is it exactly? And why should I care?"
Private Mortgage Insurance Defined
PMI is required by lenders if the down payment of a purchase is less than 20
percent of the home's value. It protects the lender if the borrower defaults on
It also makes the lender more apt to loan, even if the down payment is as low
as 3%, because in the long run, the lender's investment is protected.
You Pay For It
Unlike other types of insurance which you pay to protect your interest in an
asset, you pay Private Mortgage Insurance to the mortgage company to protect its
interest in your new real estate. (Note that PMI is not usually tax deductible.
Check with a tax professional for details.)
Make It Go Away: PMI Can Be Terminated Once You've Paid Down Your
Once you pay down your mortgage to the point where it hits the magical 80% of
the original purchase price or appraised value, whichever is less, you can
request cancellation of PMI. The Homeowners Protection Act requires that loans
made after 1999 include notifications to the borrower when you arrive at this
point in your payments.
Your PMI payments must be automatically canceled once you pay down your loan
to 78%. At closing, and on a yearly basis, you should receive information from
your lender about when you can request cancellation.
Whether you're ready to buy real estate or need more information before
taking the plunge, I can help. Contact your trusted real estate professional
Last week was relatively calm due to the Labor Day Holiday on Monday providing
little mortgage and housing related news. However, there were several positive
indicators for overall economic conditions.
Construction spending rose by 0.60 percent in July and surpassed economists'
expectations of 0.30 percent and June's zero percent growth. While this may seem
a small increase, any indication that construction spending is increasing could
indicate that residential construction is ramping up.
This would be good news for home buyers, who've been facing a shortage of
available homes in many areas of the U.S.
The Fed Released Its Latest Beige Book Report
Federal Reserve districts reported rising consumer spending in most
districts, modest expansion in manufacturing and moderate residential real
estate sales. Higher mortgage rates may have dampened home buyer enthusiasm, but
an ongoing shortage of available homes is also likely to have contributed to
Mortgage rates will likely rise if the Fed tapers its $85 billion monthly
purchase of mortgage-backed securities and Treasury bonds as demand for bonds is
expected to decrease. When bond prices fall, mortgage rates usually rise.
ADP released its report on private sector jobs added for August; 176,000 jobs
were added against expectations of 185,000 jobs added and July's 198,000 jobs
added. The three-month rolling average of private sector jobs added shows steady
job growth as jobs added rose from 140,000 in May to 188,000 jobs for
Freddie Mac's Primary Mortgage Market Survey reported that the average rate
for a 30-year fixed rate mortgage rose by six basis points to 4.57 percent with
discount points unchanged at 9.70 percent.
The average rate for a 15-year fixed rate mortgage rose by five basis points
to 3.59 percent with discount points unchanged at 0.70 percent. The average rate
for a 5/1 adjustable rate mortgage rose by four basis points to 3.28 percent
with discount points unchanged at 0.50 percent.
According to the Bureau of Labor Statistics Non-Farm Payrolls Report for
August, 169,000 jobs were created, which fell shy of expectations of 173,000 new
jobs. Expectations were based on the original number of 162,000 jobs created in
July, but July's number was revised downward to 104,000 jobs created.
The unemployment report for August was 7.30 percent, down 0.10 percent from
July's reading of 7.40 percent.
The combination of higher mortgage rates, persistently high unemployment and
fewer jobs created could signal the Fed to postpone its plan to start reducing
its monthly securities purchases.
What's Coming Up
This week's scheduled mortgage and housing news is relatively flat, but
Freddie Mac's Primary Mortgage Market Survey will provide the last indication of
mortgage rates' direction before the FOMC meeting on September 18.
The Fed will also likely be watching the Weekly Jobs report and the
University of Michigan's Consumer Sentiment Index as part of its decision-making
process on whether to taper or maintain current QE securities purchases.
Home prices are still rising, but at a slower pace according to the S&P
Case-Shiller Home Price Indices for June. Home prices for the cities surveyed
in the HPI rose by 12.10 percent on an annual basis as compared to May's reading
of 12.20 percent.
This is the highest rate of monthly growth for home prices since the peak of
the housing bubble in 2006.
June's home prices remained approximately 23 percent lower than peak prices,
but economists consider the bubble peak an anomaly and caution against comparing
current home prices to the peak prices seen in 2006.
Overall Housing Price Increase Strongly
Regional home prices reported in June's HMI were mixed. Case-Shiller
publishes a 10-city Index and a 20-city Index of home prices. 13 of 20 cities
saw their rates of rising home prices decline from May to June.
Atlanta posted the highest month-to-month gain in home prices at 3.40
percent. Washington, D.C. posted the slowest month-to-month gain in home prices
at 1.00 percent.
New York City posted a monthly gain of 2.10 percent in home prices in June;
this was its highest rate of increase since 2002.
Both S&P Case-Shiller Home Price Indices for June showed annual growth in
home prices. The 10-city index posted an annual gain of 11.90 percent and the
20-city Index posted an annual growth rate of 12.10 percent. Las Vegas enjoyed
the highest annual rate of home price growth at 24.90 percent.
In year-over-year price gains, Las Vegas and San Francisco's gains exceeded
20.00 percent, while Atlanta, Detroit and Phoenix posted year-over-year gains of
19.00 percent, 16.40 percent and 19.80 percent respectively.
These figures suggest there's plenty of room before prices begin to fall, but
David M. Blitzer, chairman of the Index Committee and S&P Dow Jones Indices,
noted that "the monthly city-by-city data show the pace of price increases is
Rising Mortgage Rates, Limited Supply Of Homes Slowing Home Price
Mortgage rates remain historically low, but have risen sharply over the last
few weeks. This trend, coupled with persistently low inventories of available
homes is seen as a significant reason for slower growth in home prices.
Investors and would-be home buyers are also waiting to see if the Federal
Reserve reduces its monthly stimulus program; such a reduction would likely
cause mortgage rates to rise further.
The Fed has not set a date for "tapering" its monthly stimulus, but has
indicated it will do so soon if economic conditions continue to improve.
The National Association of REALTORS reported that existing home sales for July
came in at 5.39 million on a seasonally adjusted annual basis. July's reading
exceeded both expectations of 5.21 million existing homes sold and June's
reading of 5.06 million homes sold.
This suggests good news for home buyers who've been constrained by limited
supplies of homes for sale.
As home prices continue increasing in many areas, more homeowners are likely
to list their homes for sale. Existing home sales for July rose by 6.80 percent
The Federal Housing Finance Agency Home Price Index reported a 7.70 percent
year overyear increase in prices for homes financed by Fannie Mae or Freddie
This reading was slightly higher than May's year-over-year reading of a 7.60
percent increase in home prices.
New Home Sale Inventories Also Growing
New home sales for July dropped by 13.40 percent to a seasonally adjusted
annual reading of 394,000; this was lower than expectations of 485,000 new homes
sold, but this expectation was based on June's original reading of 497,000 new
homes sold. June's reading has been adjusted to 455,000 homes sold, which likely
would have resulted in a lower expectation.
New home sales were lower in all four U.S. regions:
-16.1 percent in the West
-13.4 percent in the South
-12.9 percent in the Midwest
- 5.7 percent in the Northeast
While this isn't great news for developers and home builders, supplies of new
homes for sale jumped from a 4.30 month supply of new homes in June to a 5.20
month inventory of available new homes in July. This was the highest inventory
of available new homes since January 2012.
Monthly New Home Sales Continue Upward Trend
Month to-month sales of new homes tend to be volatile, but July's
year-over-year home sales were 6.80 percent above new home sales in July
Higher mortgage rates likely stifled sales, but slower sales would increase
inventories of available homes. More homes available would help ease constraints
on buyers and level then playing field for home buyers who have been competing
for few homes in strong seller's markets.
Rising mortgage rates could continue, especially if the Federal Reserve
begins tapering its $85 billion in monthly bond purchases, a program known as
quantitative easing. The Fed has announced that it may start reducing the QE
program before year-end.
When QE purchases are reduced, securities prices can be expected to fall due
to less demand, and mortgage rates can be expected to rise.
Last week brought mixed economic news, but Leading Indicators released Thursday
suggest that the U.S. economy is growing at a moderate rate.
Mortgage rates for fixed rate loans were higher, but the average rate for a
5/1 adjustable rate mortgage was unchanged from the prior week. Weekly jobless
claims were also higher.
The National Association of REALTORS released its Existing Home Sales report
for July and reported existing home sales came in at 5.39 million on an
This reading surpassed expectations of 5.21 existing homes sold as well as
June's reading of 5.06 million existing homes sold on an annualized basis.
FOMC Minutes Released, Mortgage Rates Rise
The minutes for the July 31 FOMC meeting were released, and emphasized the
likely "tapering" of the Fed's quantitative easing program possibly as early as
September, though no dates have been set. Many of the FOMC members support
reducing the $85 billion in monthly securities purchases made by the Fed; fewer
members supported tapering the asset purchases sooner than planned.
Previous announcements by the Fed regarding its plan to reduce QE have
created erratic responses in financial markets, but the release of the meeting
minutes seemed to cause a sharp rise in mortgage rates.
Freddie Mac reported that the average rate for a 30-year fixed rate mortgage
moved from the prior week's average rate of 4.40 percent to 4.58 percent;
average discount points moved up from 0.70 to 0.80 percent. Average rates for a
15 year fixed-rate mortgage also rose from 3.44 percent to 3.60 percent with
average discount points moving from 0.60 to 0.70 percent.
Average rates for a 5/1 adjustable rate mortgage were unchanged from the
previous week at 3.21 percent with average discount points paid at 0.50
FHFA reported that home prices for homes with mortgages owned by Fannie Mae
and Freddie Mac rose by 7.70 percent year-over-year in June, home prices rose
slightly from May's year-over-year- rate of 7.60 percent.
Leading Economic Indicators (LEI) for July rose by 0.60 to a reading of 96.0;
this exceeded expectations for an increase of 0.50 percent. The LEI measures the
health of the economy by measuring 10 top economic sectors; eight of 10 factors
measured increased; these were led by the spread on interest rates, availability
of credit, stock prices and permits issued for building new homes.
New home sales for July were lower than expected at 394,000; Wall Street
expected new home sales to come in at 485,000 on a seasonally-adjusted annual
basis against the revised number of 455,000 new home sales reported for June.
497,000 homes were initially reported sold in June. Hew home sales gained by
6.80 percent year-over-year in July.
What's Coming Up
Scheduled economic news for this week includes the Case-Shiller Home Price
Index, and Consumer Confidence on Tuesday, Pending Home Sales will be out
Wednesday. Thursday brings Weekly Jobless Claims, and Friday brings consumer
spending and the University of Michigan's consumer sentiment report.
The minutes of last month's Federal Open Market Committee (FOMC) meeting show
significant support for tapering the Fed's current amount of monthly securities
purchases. These purchases, known as quantitative easing (QE), are an effort to
maintain lower long-term interest rates including mortgage rates.
The Fed has been buying $85 billion per month in Treasury securities and
mortgage-backed securities (MBS).
Ben Bernanke, chairman of the Federal Reserve and FOMC has hinted at
"tapering" the Fed's securities purchases by year-end in recent statements. The
FOMC minutes released Wednesday further suggest that tapering based on
strengthening economic trends is likely.
FOMC Members Express Mixed Views
The minutes for the last FOMC meeting, which took place on July 30 and 31,
states that many members are "broadly comfortable" with tapering QE securities
purchases later this year if the economy continues to improve. At the same time,
many FOMC members indicated that it "isn't yet time" to scale back the
All along, the FOMC has emphasized that it will closely monitor domestic and
global financial and economic developments as part of its decision about when
tapering the QE purchases will begin.
The minutes for July's meeting reflected this sentiment and noted "A few
members emphasized the importance of being patient and evaluating additional
information on the economy before deciding on any changes to the pace of asset
On the other side of the issue, the minutes note that a few members said that
"It might soon be time to slow somewhat the pace of purchases as outlined in the
QE Tapering Not The Only Influence On Mortgage Rates
The Fed is likely to monitor its words as well as economic conditions, as
previous announcements about tapering QE made by Chairman Bernanke and FOMC have
created havoc in world financial markets.
In relation to mortgage rates, it's likely that tapering QE purchases will
cause mortgage rates to rise. Demand for bonds will fall as the Fed reduces its
purchases, falling bond prices usually cause mortgage rates to rise.
It's important to keep in mind that tapering QE securities purchases is only
one among many things that can impact financial markets, mortgage rates and the
While the Fed is expected to begin tapering its securities purchases as soon
as September, developing economic news throughout the world can potentially
impact mortgage rates and could cause the Fed to revise its timeline for
tapering the volume of its securities purchases.
As lenders tighten mortgage guidelines for Minneapolis/St Paul home buyers,
minimum down-payment requirements are increasing.
Several years ago, you could finance a home with nothing down. Today, most
conventional mortgages require at least 5 - 10 percent.
Incidentally, these guideline changes have led to an increase in the number
of home buyers accepting cash gifts from family.
Gifts are allowed in most cases but the problem is, if you don't accept the
gift in a "lender-friendly" way, the mortgage underwriter could reject it, and
Three Steps To Success With Your Down Payment Gift Funds
You can't just deposit a cash gift into your bank account. You have to follow
a series of steps and keep records.
- Provide an acceptable gift letter signed by all parties
- Provide documentation of the gifter's withdrawal of funds via teller
- Provide documentation of the giftee's deposit of funds via teller
Lenders require these 3 steps for two basic reasons. First, they want to
make sure that the cash gift is "clean" (i.e. not laundered). Second, they want
to make sure the gift is really a gift and not a loan-in-disguise. It's why
lenders typically require that the loan application be accompanied by a signed,
I am the [relationship to recipient] of [name of recipient]
and this letter serves as evidence that I am gifting [name of
recipient] [amount of gift] to be used for the purchase of the
home at [complete address of property]. This is a gift -- not a loan --
and there is no expectation of repayment. Signed, [Signature of
Keep The Cash Gift Funds Separate From Your Other Money
As an additional step, home buyers receiving cash gifts should make sure that
gifted funds are not commingled at the time of deposit.
If the cash gift is for $10,000, therefore, the bank's deposit slip should
indicate that a $10,000 deposit was made -- nothing more, nothing less. Don't
add a random $100 deposit to the transaction, in other words. The $100 deposit
should be a separate transaction.
It's also worth noting that gifting funds between family members can create
both legal and tax liabilities.
If you're unsure about how donating or receiving a gift may impact you, call
or email me directly. If I can't help you with your questions, I can refer you
to somebody that can.
Bob Elliot - 612 578 6162 or email@example.com
The National Association of Home Builders (NAHB) reported
Thursday that its Housing Market Index rose three points to a reading of 59 for
Confidence among builders is likely growing in connection with stronger
housing markets and high demand for homes. These conditions are being driven by
short supplies of homes for sale in many markets.
Builder confidence in current market conditions rose by three points to a
reading of 62, while builder confidence in market conditions within the next six
months rose by one point to a reading of 68. Confidence in buyer foot traffic
was unchanged from July’s reading of 45.
Readings above 50 indicate that more builders surveyed view housing market
conditions as positive rather than negative; there was some concern that the
high builders’ confidence reading could trigger the Fed to announce the tapering
of its $85 billion monthly purchase of Treasury securities and mortgage-backed
Housing Starts Driven By Apartment Construction
Housing starts rose in July, but were led by the volatile apartment sector
rather than single- family homes.
On Friday, the U.S. Department of Commerce reported 896,000 housing starts on
a seasonally adjusted annual basis. This reading fell short of expectations of
915,000 housing starts, but exceeded June’s reading of 846,000 housing
Starts for residential buildings with five or more units rose by 20.90
percent year-over-year while construction of one of one-to-four family
residential buildings fell by 2.20 percent. Demand for rental properties and a
shortage of available single family homes was seen by economists as contributing
to increasing multi-family housing construction.
Analysts said that some home builders may be holding back on single-family
home construction due to increasing materials and labor costs, but this doesn’t
reflect the record level of builder confidence reported in the NAHB Housing
Building homes at less than optimum capacity isn’t good news for the shortage
of available single-family homes. Rising mortgage rates are also a concern for
home builders, as fewer borrowers may be able to qualify for mortgage loans
needed for financing home purchases.
Building permits numbers were also released on Friday, and presented a more
positive picture than housing starts. July’s reading for building permits issued
rose by 2.70 percent in July to an annual reading of 943,000 permits against
expectations of 953,000 permits issued and exceeded June’s reading of
Building permits issued provide an indication of future housing starts.
Last week wasn't kind to stock market investors, but weekly jobless claims fell
to an unexpected low of 320,000 new jobless claims filed, the lowest level in
nearly six years.
Here is a review of the major events of the week.
Monday: The federal budget for July shows an increase in its
deficit to -$98 billion, a deficit increase of $28 billion over June's figure of
-$70 billion. The good news is that the deficit for the first 10 months of the
fiscal year is $38 billion less than during the same period of the prior fiscal
Thursday: Thursday was a busy day for economic news. The
weekly jobless claims report came in lower than expected with 320,000 new
jobless claims filed. This was lower than the expected.
While this is a strong sign for the economy that would typically boost stock
prices, the markets fell. Analysts cite a good news/bad news scenario in
describing what happened. The good news was that jobless claims fell to a new
low, but the bad news is that investors feared that this may give the Fed a
signal to begin tapering its quantitative easing (QE) program.
The Fed is expected to begin tapering its monthly purchases of $85 billion in
treasury securities and mortgage-backed securities as early as next month. The
QE purchases are intended to help hold down long term interest rates including
The fall in stock prices on Thursday and Friday suggested that fear of the
Fed ending QE is more compelling than the lowest number of new jobless claims
since October 2007.
Freddie Mac reported that the average rate for a 30-year fixed rate mortgage
remained unchanged at 4.40 percent with 0.7 percent in discount points. The
average rate for a 15-year fixed rate mortgage ticked upward by one basis point
from 3.43 to 3.44 percent.
Discount points fell from 0.70 percent the prior week to 0.60 percent last
The average rate for a 5/1 adjustable rate mortgage (ARM) rose from 3.19 to
3.23 percent with discount points unchanged at 0.50 percent. The 5/1 ARM
provides an alternative to higher fixed rates for borrowers seeking lower
mortgage rates and payments.
Friday: Included Housing Starts for July, which came in at
896,000 as compared to expectations of 915, 00 0 and June's figure of 846,000
housing starts. Building permits issued in July came in at 943,000, and
surpassed June's reading of 918,000 building permits.
Increasing home values, buyer demand and a short supply of available homes
were seen as motivating factors for builders to construct more homes.
This week's schedule of economic news is set to include the Chicago Fed's
National Activity Index on Tuesday. The FOMC minutes will be released on
Wednesday along with Existing Home Sales.
Thursday will bring Weekly Jobless Claims, Freddie Mac's survey of mortgage
rates and the FHFA home price index. Friday will finish the week with a New Home