If you've followed my previous blogs, I've postured that the slowdown in real estate was a brief pause, rather than a substantial decline in the market. February's existing home sales bounced back with a blistering 12% increase over January, but still down 2% year over year.....I'll take it! The real estate market remains strong as we head into spring and I expect we'll see healthy numbers throughout the year.
Interest rates took an unexpected drop this past week erasing increases we saw in the fourth quarter of 2018. This is welcome news, rates are now solidly below 4.5% from a high of 5%, however, it's disconcerting when every time the Fed seems to be on the path of trimming the balance sheet, they pull back amid concerns over the economy. The Feds. number one mandate is promoting employment growth, it's noteworhty that they've loosened monetary policy amidst a backdrop of 3.8 unemployment, and an economy growing north of a 2% clip. My take, it's more about concerns over the sate of the world economy, and less a commentary of ours, but disconcerting nonetheless.
On to the numbers....
The outlook for global economic growth declined this week, which was reflected in economic data around the world and in the comments from the U.S. Fed. As a result, rates ended the week lower.
Outside the U.S., the economic data released this week suggested that growth may be slowing. In particular, the manufacturing data in the large European countries fell to the lowest levels in several years. Since slower economic growth reduces the outlook for future inflation, this was favorable for mortgage rates.
The surprisingly large shift to a more dovish (in favor of looser monetary policy) tone at Wednesday's Fed meeting was mostly due to outside risks to the U.S. economy. Because the strength of international markets impacts U.S. exports, Fed officials modestly lowered the outlook for U.S. economic growth in 2019 from 2.3% to 2.1%. The Fed also made a couple of other significant changes which suggested looser monetary policy going forward. First, the majority of Fed officials no longer think that any federal funds rate increases will be needed this year, down from a consensus forecast just last December for two rate hikes in 2019. In addition, the Fed announced that it will slow its pace of asset reduction beginning in May and will end it altogether in September, meaning that the size of the Fed's balance sheet will remain roughly steady after that time.
Looking ahead, Housing Starts will be released on Tuesday. Pending Home Sales will come out on Thursday and New Home Sales on Friday. The core PCE price index, the inflation indicator favored by the Fed, will be released on Friday. In addition, news about the British exit (Brexit) from the European Union, which is currently scheduled to take place on March 29 but which may be delayed, could affect mortgage rates.