Susan Deierling, Assoc. Broker
(928) 451-6098 mobile
Realty Executives Northern Arizona
Tag Archives: Purchasing Power
The Federal Reserve released its October Federal Open Market Committee (FOMC) meeting minutes last week, revealing a Fed in disagreement about the future of the U.S. economy and about what, if any, stimulus may be warranted in the next 12 months.
The “Fed Minutes” recaps the conversations and debates that transpire during an FOMC meeting, and is published 3 weeks after the meeting adjourns.
According to the October minutes, FOMC members “generally agreed” that a housing recovery is under way nationwide, citing increased housing prices, higher sales volume, and rising construction in many parts of the country.
FOMC members made no major policy changes at their last meeting, but agreed that a continuation of additional asset purchases would likely be necessary in 2013, in order to achieve a substantial improvement in the labor market.
Other notes from within the Fed Minutes included:
- On housing: Signs of improvement are “encouraging”, and mortgage rates are at historic lows
- On inflation: Essentially “unchanged”, notwithstanding recent increases in energy prices
- On Europe: Production indicators signal contraction in business activity and expansion
- On employment: Employment is rising, and unemployment remains high
The economic forecast prepared by the FOMC staff shows an uptick in consumer spending, residential construction, and labor market conditions which more than offset recent downgrades in the business fixed investment and the industrial production outlooks.
Through 2013, economic activity is projected to accelerate gradually, supported by a lessening in fiscal policy restraints. The Fed also anticipates that Cottonwood home buyers will benefit from looser credit standards.
Low mortgage rates are helping home buyers, too.
According to Freddie Mac, the average 30-year fixed rate mortgage rate was 3.34% last week, down from 3.55% in September. This has given a boost to buyer purchasing power nationwide and the year-end housing market may reflect it. Demand for homes remains strong.
The next FOMC meeting is scheduled for December 11-12, 2012.
Mortgage markets worsened last week as hope for a European economic rebound and stronger-than-expected U.S. economic data moved investors out of mortgage-backed bonds.
Mortgage rates all of types — conventional, FHA and VA — lost ground last week, harming home affordability in Cornville and reducing purchasing power nationwide.
Rising rates also thwarted would-be refinancing households hoping to time a market bottom.
The increase runs counter to Freddie Mac’s weekly Primary Mortgage Market Survey which showed the average 30-year fixed rate mortgage rate dropping 2 basis points to 3.37% nationwide.
This contradiction occurred because Freddie Mac’s weekly mortgage rate survey is conducted Monday through Wednesday, and because the majority of the surveyed banks reply to Freddie Mac on Tuesday. As a consequence, Freddie Mac failed to capture this week’s mid-week movement that took mortgage bonds to a one-month worst.
Access to Freddie Mac mortgage rates is for “prime” borrowers and requires payment of discount points plus closing costs.
This week, mortgage rates may rise again. There is a lot of news on which for Wall Street to trade, beginning with the week’s biggest story — the Federal Open Market Committee’s 2-day meeting scheduled for Tuesday and Wednesday.
At the FOMC’s last meeting, the Federal Reserve introduced a third round of qualitative easing (QE3), a program through which the Fed will work to keep mortgage rates low until the economy’s recovery is more complete.
The Fed is expected to announce no new stimulus in this, its seventh of eight scheduled meetings for 2012, however, mortgage rates are typically volatile in the hours after the FOMC adjourns.
New housing data is set for release this week, too.
Wednesday, the U.S. Census Bureau will release September’s tally of New Home Sales. Given the recent strength in Housing Starts and rising confidence among the nation’s home builders, New Home Sales may best analyst calls for 385,000 new home sold last month on a seasonally-adjusted, annualized basis.
Strength in housing has recently correlated with rising mortgage rates.
The housing market’s forward-looking Pending Home Sales Index is released Thursday.
The housing market continues to improve.
According to the U.S. Census Bureau, on a seasonally-adjusted, annualized basis, Single-Family Housing Starts rose to 603,000 last month, an 11 percent increase from the month prior and the highest reading in more than 4 years.
A “housing start” is a home on which construction has started and home builders are breaking ground at rates not seen even during the 2010 federal home buyer tax credit period.
It’s a signal to home buyers throughout AZ that the U.S. housing market may be permanently off its bottom.
At least, the nation’s home builders seem to think so.
Earlier this week, the National Association of Homebuilders reported home builder confidence at a 5-year high and nearly triple the levels of last September.
Buoyed by rising sales volume and the heaviest foot traffic since 2006, builders expect the next 6 months of sales to outpace the current rate. It may spell higher home prices for today’s new construction buyer.
Thankfully, mortgage rates remain low.
As compared to last year, today’s buyers have extended purchasing power. Assuming a 20 percent downpayment and a conforming home loan :
- September 2011 : A $1,000 mortgage payment afforded a purchase price of $202,000
- September 2012 : A $1,000 mortgage payment afforded a purchase price of $226,000
That’s an 11.9% increase in purchasing power increase over just twelve months. When combined with today’s rising rents throughout many U.S. markets, demand for new construction homes remains high and builders have taken notice. Buyers should, too.
With mortgage rates low, low downpayment programs available and home prices poised to rise, it’s an opportune time to be a home buyer. Housing has been trending better since late-2011 and will likely carry that momentum forward into 2013.
If you’ve been shopping new construction, remember that as mortgage rates and home prices rise, home affordability drops.
Mortgage rates in Arizona continue to troll near all-time lows, boosting the purchasing power of home buyers statewide.
According to Freddie Mac’s most recent Primary Mortgage Market survey, the average 30-year fixed rate mortgage is now 3.39 percent nationwide, just three ticks off an all-time low. At the start of last quarter, 30-year fixed rate mortgage rates averaged 3.62 percent.
One year ago, they averaged 4.12%.
When mortgage rates are falling, they present Cornville home buyers with interesting options. Because of lower rates, buyers can choose to tighten their household budgets, buying an ideal home but paying less to own it each month. Or, for buyers who shop for homes by “monthly payment”, falling mortgage rates put more homes with affordability’s reach.
As a real-life example, for a buyer whose monthly principal + interest mortgage payment is limited to $1,000 per month, and whom opts for a 30-year fixed rate mortgage, as compared to January of this year, the maximum property purchase price has climbed 6.6%, or $14,000 in list price.
Consider this comparison:
- January 2012 : A payment of $1,000 afforded a maximum loan size of $211,756
- October 2012 : A payment of $1,000 affords a maximum loan size of $225,771
The 6.6 percent increase in affordability outpaces this year’s rise in home prices and is one reason why the U.S. housing market is improving. Slowly and steadily, the U.S. economy is improving and “good deals” in housing are becoming harder to find. In addition, because homeownership is now less expensive than renting in many U.S. cities, home demand among buyers continues to rise.
For today’s home buyer, market conditions appear ripe. Mortgage rates are near all-time lows, low-downpayment mortgage program remain plentiful, and home values have been rising since late-2011. Within 6 months, rates may be up and homes prices, too. Purchasing power would decline, decreasing home affordability nationwide.
The best “deals” in housing, therefore, may be the ones you find today.