Mortgage rates stalling the housing market as the 30-year fixed rate sits above 7%

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Important Takeaways:

  • The 30-year fixed-rate mortgage averaged 7.19% in the week ending September 21, a tick up from 7.18% the week before, according to data from Freddie Mac released Thursday. A year ago, the 30-year fixed-rate was 6.29%.
  • “Mortgage rates continue to linger above 7% as the Federal Reserve paused their interest rate hikes,” Sam Khater, Freddie Mac’s chief economist, said. “Given these high rates, housing demand is cooling off and now homebuilders are feeling the effect,” he said. “Builder sentiment declined for the first time in several months and construction levels have dipped to a three-year low, which could have an impact on the already low housing supply,” Khater added.
  • The inventory of existing homes has also dramatically declined as homeowners who previously locked in lower rates are reluctant to sell and become homebuyers with current rates so high. The combination of low inventory and high costs has sent overall home sales 20% lower than last year, year to date.

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U.S. existing home sales surge, boosted by Fed’s signal on rates

FILE PHOTO: An existing home for sale is seen in Silver Spring, Maryland February 21, 2014. REUTERS/Gary Cameron

By Jason Lange

WASHINGTON (Reuters) – U.S. home sales surged in February to their highest level in 11 months, a sign that a pause in interest rate hikes by the Federal Reserve was starting to boost the U.S. economy.

The National Association of Realtors said on Friday existing home sales jumped 11.8 percent to a seasonally adjusted annual rate of 5.51 million units last month.

That was the highest since March 2018 and well above analysts’ expectations of a rate of 5.1 million units. The one-month percentage change was the largest since December 2015. January’s sales pace was revised slightly lower.

February’s surge came as mortgage rates fell following signals from the Federal Reserve that it was no longer eyeing rate hikes. Several years of rising rates had put a brake on parts of the U.S. housing market in 2018.

“(It’s) quite a powerful recovery that’s taking place,” said Lawrence Yun, chief economist with the National Association of Realtors.

Still, the number of sales in February was 1.8 percent lower than a year ago.

The U.S. housing market has also been held back by land and labor shortages, which have led to tight inventory and more expensive homes.

The PHLX Housing Index extended losses following the release of the figures although its decline was less steep than the broader stock market.

The median existing house price increased 3.6 percent from a year ago to $249,500 in February.

Existing home sales rose in three of the country’s four major regions and were unchanged in the Northeast.

There were 1.63 million previously owned homes on the market in February, up from 1.59 million in January.

At February’s sales pace, it would take 3.5 months to exhaust the current inventory, down from 3.9 months in January. A supply of six to seven months is viewed as a healthy balance between supply and demand.

(Reporting by Jason Lange; Editing by Andrea Ricci)

Dollar adds to gains as Fed’s Powell nods to ‘gradual’ rate hikes

FILE PHOTO: A security guard walks past a montage of U.S. $100 dollar bills outside a currency exchange bureau in Kenya's capital Nairobi, July 23, 2015. REUTERS/Thomas Mukoya/File Photo

By Saqib Iqbal Ahmed

NEW YORK (Reuters) – The dollar added to gains against a basket of major currencies on Tuesday after Federal Reserve Chairman Jerome Powell told U.S. lawmakers the central bank would stick with gradual interest rate increases despite the added stimulus of tax cuts and government spending.

Powell pledged to “strike a balance” between the risk of an overheating economy and the need to keep growth on track. His congressional testimony was his first public appearance since being sworn in as chairman earlier this month.

Powell is scheduled to present his remarks to a U.S. House of Representatives committee at a hearing scheduled for 10 a.m. EST (1500 GMT), followed by questions from lawmakers.

Brad Bechtel, managing director FX at Jefferies, in New York, said Powell’s comments were generally positive for the dollar.

“He is hawkish in the context of being very upbeat on the economy but willing to go at a moderate pace to normalize policy,” Bechtel said.

The dollar index, which measures the greenback against a basket of six other major currencies, was up 0.26 percent at 90.089.

Some of the headwinds the U.S. economy faced in previous years have turned into tailwinds, Powell said, noting recent fiscal policy shifts and the global economic recovery.

“That’s sort of a big statement if you think about it,” said Bechtel.

“He’s kind of dialed it up just a notch from where (Powell’s predecessor, Janet) Yellen was,” Bechtel said.

The Fed is expected to approve its first rate increase of 2018 at its next policy meeting in March, when it will also provide fresh economic projections and Powell will hold his first news conference. Fed policymakers anticipate three rate increases this year.

“From a 10,000-foot view, Powell’s prepared remarks are common-sense,” said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott in Philadelphia.

“It’s more interesting to see that the market is interpreting the comments as somewhat hawkish, and that’s more informative about the trading bias right now than about the Fed’s actually likely policy path.”

The dollar was up 0.19 percent against the Japanese yen at 107.11 yen.

The euro was down 0.26 percent against the dollar at 1.2284.

Italians vote in a national election on Sunday, while the leading political parties in Germany will decide on a coalition deal that could secure Angela Merkel a fourth term as chancellor.

There was not a whole lot of fear in the market about the outcome of the Italian election, Bechtel said.

“There is a lot of folks looking at hedges but not a huge amount of activity in that space. Kind of an ambivalence toward the election this weekend, which is interesting,” said Bechtel.

(Reporting by Saqib Iqbal Ahmed; Editing by Jonathan Oatis)