MARKET REVIEW - January 30, 2024

MARKET REVIEW - January 30, 2024

The Federal Reserve meets again this week to decide whether or not to adjust monetary policy. Presently, no change is expected to come, and as this meeting does not feature any update on member outlooks for policy, the only clues about the Fed's thinking may come from Chair Powell's post-meeting press conference. While there likely will be an acknowledgement that inflation continues to trend in the right direction, expect ambiguity as to the chances for a near-term cut in rates.

Financing costs are still high for residential housing loans, but better than they were in December. That plus somewhat lower costs helped sales of new homes to rise by a solid 8% for December to a 664,000 annualized rate of sale. This figure was above expectations and there was also an upward revision of 25,000 units to the initial November report, so new home sales have started to perk up after 22-year high mortgage rates crushed them late last year. Relatively lower costs for new homes has helped; the $413,200 median cost of a new home sold in December was 13.8% lower than in December 2022, and on a seasonal basis, the latest month was down 8% from August's $440,900 seasonal peak. Availability of new homes is solid, too; while the 8.2 months of supply at the current rate of sale is down a bit, the actual 453,000 (annualized) units available for sale is the highest number since November 2022. Conditions to buy a new home are at least somewhat more favorable than has been the case for some months.
Despite ongoing cost and availability challenges, the decline in mortgage rates brought an 8% increase in the number of contracts to purchase existing homes in December. The National Association of Realtors Pending Home Sales Index powered higher as rates moved lower last month, putting this indicator of sales to come at a five-month high. If these sales contracts all make it to close, this would help existing home sales move back to a pace slightly above the 4 million mark over the next month or two. By then, the spring homebuying season will be in kicking in, and sales should revive a bit more, provided mortgage rates remain at least level between now and then.

Somewhat firmer, too were requests for mortgage credit in the week ending January 19. The Mortgage Bankers Association reported a 3.7% overall increase in applications for mortgages, lifted solely by a 7.5% rise in funds to purchase homes.

Lower mortgage or other interest rates aren't coming in the immediate future, but just as the days are starting to get slightly longer, the time until the first cut comes is getting shorter. For this week, the Fed meeting is of course the big event, but right on top of it, we'll see updates covering December's Job Openings and Labor Turnover Survey (JOLTS) and an updated Employment Cost Index. Following the meeting comes the quarterly update to worker productivity and costs the ISM Manufacturing report for January... and then the monthly Employment Situation report for January. Suffice it to say it's a busy week with a lot of moving parts. As far as mortgage rates go, there's been little reliable trend over the last few days, but at the moment, mortgage rates are moving slightly lower, so we'll go with that. Look for a couple-three basis point decline the average offered rate for a 30-year FRM as reported by Freddie Mac Thursday.

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