With expectations among economists that the 30-year fixed-rate mortgage will approach 5% by the end of 2019, First American Chief Economist Mark Fleming said that their is an increase in market potential which reflects faster economic growth, low unemployment, and continued low mortgage rates. Fleming said it is unlikely that large numbers of home buyers will be dissuaded by a modest increase in mortgage rates.
“There are a variety of reasons why people buy homes that are completely independent of mortgage rates. A gradual rise in mortgage rates won’t change that,” Fleming said.
“Our Potential Home Sales model forecasts what the market potential for home sales should be given current economic, demographic, and housing market environments. Potential home sales, while currently at a level of 6.1 million SAAR, are expected to reach an estimated 6.29 million SAAR by the end of 2019, despite a rising rate environment,” he said. “However, while the yearly growth rate in potential sales is currently at 3.6%, it is expected to slow to just below 1% by the end of 2019."
“When considering the right time to buy or sell a home, an important factor in the decision should be the market’s overall health, which is largely a function of supply and demand. Knowing how close the market is to a healthy level of activity can help consumers determine if it is a good time to buy or sell, and what might happen to the market in the future. That’s difficult to assess when looking at the number of homes sold at a particular point in time without understanding the health of the market at that time,” said Fleming. “Historical context is critically important. Our potential home sales model measures what home sales should be based on the economic, demographic, and housing market environments.”
Source: First American Title Insurance
Mortgage backed securities (FNMA 4.00 MBS) lost -2 basis points (BPS) from last Friday's close which caused fixed mortgage rates to move sideways for the week.
Overview: We had a holiday-shortened week (Monday closed for President's day). There were no major domestic economic releases. We did have three short term Treasury note auctions (2,5 and 7 year) that saw lower than average demand and higher rates. The bond market's only focus was on the Federal Reserve which released the Minutes from their last meeting and their Monetary Policy report.
The Talking Fed: They released the Minutes from the last FOMC meeting, you can read them here.
The Fed is confident that the economy is gaining momentum, as a number of participants said they had marked up their growth forecasts since the previous month, encouraged by firm global growth, supportive financial markets and the potential for US tax cuts to boost the economy more than expected. Still, others said the “upside risks” to growth may have increased, according to minutes of their January gathering. Of note is that FOMC voters agreed to add the word "further'' in front of "gradual increases" because of the stronger economic outlook.
Fed Chair Jerome Powell submitted the Fed Monetary Policy Report along with his prepared speech in written form to Capital Hill on Friday. You can read it here.
It very much followed the same "hawkish" tone and them as this week's FOMC Minutes.