Existing home sales jumped 6.5% in July which was far beyond any analysts expectations. The National Association of Realtors believes that the jump was primarily due to panic in the market over rising interest rates. It is believed that many fence sitting home buyers have been jumping into the market to make their purchases because of the belief that mortgage rates will continue to rise. In recent times a jump of this magnitude may have been attributed to either seller concessions or a government stimulus program for home buying. No such events have occurred to impact home purchases so interest rates seems to be the clear cause of the home sales increase.
The supply of homes coming on the market is currently keeping pace with sales keeping inventory numbers virtually unchanged. The current supply of home remains at 5.1 months which is the same as June and only slightly higher than May’s inventory number of 5 months..
Mortgage rates rose very sharply in the week of August 16th as well as this week. The cause of rising interest rates is primarily based upon the belief that the Fed is getting closer and closer to tapering their economic stimulus program. It is this program that has been keeping mortgage rates artificially low. Although the Fed has not started to ease the program, many investors have been selling their bond holdings in order to minimize their losses when the Fed does begin tapering. As interest rates rise the value of bonds deteriorates which means investors could suffer significant losses if rates rise rapidly and they don’t sell their bond holdings. Rising rates have caused mortgage applications for refinances to plummet 8.0% in the last week. Purchase applications rose 1.0% which ties into home buyers jumping into the market.
On Wednesday the release of the FOMC minutes from the most recent committee meeting indicates that the Fed is cautious about cutting back on their stimulus program in the near term. However the overall indication is that the Fed will reduce their asset purchases if the recovery continues on track. It appears that the September meeting could be a turning point for Fed policy. The data released in the remainder of August and early September will be the guide for the next action to be taken by the Fed.
Based upon the minutes of the most recent Fed meeting, it appears that there is heavy debate within the members on what to do in regard to economic stimulus. It seems that with each passing month there is more separation between members that want to end the program versus those that want it to continue.
The Federal Housing Finance Agency reported that home prices continue to rise rapidly. The most recent FHFA report shows that home prices increased .7% in the month of June.
Please give me a call if you or anyone you care about would like to know more about the forces driving these rising home prices and changing market conditions, and how they impact you.