Archive for June 20th, 2012

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A Simple Explanation Of The Federal Reserve Statement (June 20, 2012)


2012
06.20

Putting the FOMC statement in plain EnglishThe Federal Open Market Committee voted to leave the Fed Funds Rate unchanged within its current target range of 0.000-0.250 percent Wednesday.

For the fifth consecutive meeting, the Fed Funds Rate vote was nearly unanimous. Just one FOMC member, Richmond Federal Reserve President Jeffrey Lacker, dissented in the 9-1 vote.

The Fed Funds Rate has been near zero percent since December 2008. 

In its press release, the Federal Reserve noted that the U.S. economy has been “expanding moderately” this year. Beyond the next few quarters, the Fed expects growth to “pick up very gradually”. 

In addition, the Fed re-acknowledged that “strains in global financial markets” continue to pose “significant downside risks” to the U.S. economic outlook. This statement is a repeat from the FOMC’s April press release and is in reference to the sovereign debt concerns of Greece, Spain and Italy, plus the potential for a broader European economic slowdown.

The Fed’s statement also included the following economic observations :

  1. The housing sector remains “depressed”
  2. Labor conditions have “slowed in recent months”
  3. Household spending is “rising at a somewhat slower pace” than earlier this year

With respect to inflation, the Fed said that pressures have declined, led by falling oil and gasoline prices. Longer-term inflation expectations remain stable.

The biggest news of the FOMC meeting is that the Federal Reserve will be extending its “Operation Twist” program. The program sells shorter-term securities on the Federal Reserve’s balance sheet and uses the proceeds to purchase longer-term securities. This move puts “downward pressure on longer-term interest rates” and makes “broader financial conditions more accommodative.”

The Fed also pledged to keep the Fed Funds Rate at “exceptionally low” levels at least through late-2014.

Mortgage markets are muted post-FOMC. There has been no real change in rates, although that may change later in the day, or weel. Mortgage rates in Scottsdale remain at all-time lows.

The FOMC’s next scheduled meeting is a two-day event slated for July 31-August 1, 2012.

Comments Off on Housing Starts Up 26% In Last 12 Months

Housing Starts Up 26% In Last 12 Months


2012
06.20

Housing StartsSometimes, the housing data headlines tell just half the tale. The stories on May’s Housing Starts figures are proving to be a terrific illustration.

Tuesday, the Census Bureau released its monthly Housing Starts report. A “housing start” is a home on which construction has started.

The report is separated by property type with a separate count for single family homes such as detached residences and town homes; for multiple-unit homes such as 2-unit, 3-unit and 4-unit structures; and, for buildings of 5-units of more such as new condominiums.

In May, Housing Starts fell 4.8 percent nationwide. This runs contrary to recent housing market statistics and home builder confidence data which both have suggested a recovery. The press picked up the story and ran the following headlines :

  • Housing Starts In U.S. Fall 4.8% In May (BusinessWeek)
  • Housing Starts Plunge, But Permits Surge In Mixed Market (CNBC)
  • Housing Starts Slump In May (US News)

Although factually correct, these headlines are somewhat misleading. 

Housing Starts did slip 4.8 percent last month but that figure accounts for all Housing Starts. It fails isolate the single-family starts that matter to today’s buyers and sellers throughout CA. Homeowners rarely buy multi-unit homes or entire apartment buildings.

If we remove the report’s tally of 2-4 unit homes and apartment buildings, we find that, in May, single-family housing starts rose for the 4th straight month, registering 516,000 homes started on a seasonally-adjusted, annualized basis. This is the highest tally since April 2010, the last month of that year’s frderal home buyer tax credit. 

Single-family housing starts are up 26% as compared to last year. 

The housing starts report, therefore — headlines aside — is the latest in a series of housing market data that points to a sustained recovery nationwide. If you’re planning to buy a home in 2012, consider buying in between now and September because after that point, home prices and mortgage rates are likely to be higher.