March Mortgage Trends Insight | Guest Post
With inventory on the rise and the current state of the stock market, it’s likely many clients are asking you, ‘what’s going on with the Denver housing market?’ Truth is, this market is even keeping experts and economists scratching their heads. Warren Buffet was on CNBC last week saying he didn’t understand why the housing market wasn’t better because there are a lot of good things going on in the economy.
I want to address two things … the “Wealth Effect” and “Quantitative Easing” and how they affect housing.
We wrapped 2018 with a big stock market hit, dropping over 20 percent. Simultaneously, unemployment reached a 50-year low, job creation in Colorado was up 2.4 percent, and income was up 1 percent, GDP numbers for 2018 were also strong at 3.1 percent annual growth - the first time the GDP was over 3 percent for the year in 10 years. These numbers all sounds blissful. Yet, spending was down .5 percent, and the savings rate increased to one of the highest levels we’ve seen in a while. This is called ‘the wealth effect.’ When clients see their investments go down in the stock market and appreciation in their biggest asset, i.e. their home; slowing down, their spending levels slow.
2019 has shown a swift rebound in the stock market now back up over 18 percent from its loss, which will increase consumer confidence and spending. Mortgage purchase applications came out this past week up 6 percent week-over-week and 3 percent year-over-year. Low interest rates will continue to support homebuyers. As you know, from December through February, interest rates retreated to where they were a year ago … 4.35 percent national average with a half point origination.
So, where do we expect your clients’ interest rates to go this year? Big news was released mid-February from the Federal Reserve Board stating they intend to stop reducing the Federal Reserve asset holdings later this year. What does this mean? Through the FED’s Quantitative Easing efforts, they amassed a $4.5 trillion balance sheet. They did this after the great recession to spur the economy and keep rates low. After they stopped buying bonds, they continued to reinvest the proceeds that fell off their balance sheet of about $50B a month. We all know what happened when they dropped that number each month to end at $0 in October 2018. Our mortgage interest rates spiked dramatically, a full percentage point. Stopping reinvestment reduces the Fed’s balance sheet roughly $50B each month. Now, the Fed came out saying they think both rate hikes and balance sheet normalization is coming to an end. Their goal is to keep the balance sheet at $3.5T. Right now, it is slightly under $4T. Later this year, we will probably see the FED repurchasing mortgage-backed securities. Great news for you and your buyers as this will keep mortgage interest rates low.
Let’s wrap up this month’s market trends review with a few numbers showing how strong we are right now:
- Mortgage purchase applications are up 6 percent the last week of February which puts us up 3 percent year-over-year.
- NAHB (National Association of Home Builders) sentiment is back up to 62 in February after being down for three straight months.
- Core Inflation staying below the Federal Reserve goal number of 2 percent at 1.9 percent; good news since inflation is the arch-enemy of interest rates.
- Active inventory is up year-over-year again; in January it was up 52 percent; February is up 47.33 percent.
- Under contracts is up 15.64 percent month-over-month and 10.65 percent year-over-year.
- Months of inventory is holding at just under 2 months (1.92), and the median home price is holding at $400K.
It is an exciting market for us in the business and the clients we serve! If you want to stay ahead of the changes and continue building wealth in real estate… call me! This is exactly where our team excels!
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