Latest Fed Rate Cut Benefit

The Federal Reserve lowered its benchmark interest rate by another quarter of a percentage point on Wednesday to a range of 1.75% to 2%, citing concerns over a global economic slowdown. Mortgage rates aren’t directly tied to the Fed’s interest rate, but they do tend to be influenced by them.

Still, while mortgage rates remain low, the Fed’s actions Wednesday will likely have little impact, at least initially, in directly bringing rates down more, several economists said after the Fed’s announcement.

Following its meeting, the Fed said that the U.S. economy is in “strong shape and unemployment remains low.” “If the economy does turn down, a more extensive series of rate cuts could be warranted,” Fed Chairman Jerome Powell said at a news conference following the Fed’s meeting.

Housing Hurdles Taint Healthy Economy

As housing inventory increases and home prices begin to ease, the door to home ownership is opening for more buyers. But Freddie Mac economists aren’t optimistic that the real estate market will be able to break even with last year’s sales levels.

In their September forecast, Freddie’s economists point to a booming economy and job market, but point out a stalled housing market. They consider the main factors to be weaker housing affordability, constraints that are limiting home building, and ongoing supply and demand imbalances.

Economists predict that many prospective buyers will continue to have difficulty breaking into the market. They are forecasting home sales for both new and existing homes to fall 0.8 percent this year and for home price growth to moderate at 5.5 percent.

Source: “Freddie Mac September Forecast,” Freddie Mac (Sept. 24, 2018)

Mortgage Rates in Free Fall Since Brexit Vote

Since Britain’s surprising vote to leave the European Union, U.S. home buyers and home owners have been reaping an expected benefit — mortgage rates that are quickly dropping. Mortgage rates are now at the lowest average in more than three years, and economists expect them to head even lower.

“Lower rates produce lower monthly payments and greater buying power—those who are well qualified can afford a home that’s 8 percent more expensive than at the beginning of the year,” Jonathan Smoke,®’s chief economist, writes in a recent column. “That’s more than enough to offset the rise in prices during that time.”

Source: “Thanks, Brexit! Well-Qualified U.S. Buyers Reap a Windfall,”® (June 28, 2016)

Millennials Striking Out on Their Own

In 2013, 31 percent of 18- to 34-year-olds still lived with their parents. Prior to the housing crisis, however, that percentage stood at 27 percent. If the number of 18- to 34-year-olds who live with their parents returns to pre-recession levels over the next five years that could mean an extra 400,000 young adults leaving home each year.

“[A] normalization in the share of young adults living with their parents looks set to provide a boost to household formation, underpinning the recovery in housing starts,” says Ed Stansfield, chief property economist for Capital Economics. “But unless it is also accompanied by a marked loosening in lending criteria it is unlikely to trigger a new house price boom, as house price growth will be constrained by income growth.”

“The U.S. economy is now growing strongly, with real incomes rising rapidly and mortgage credit conditions loosening,” says Stansfield. “That means more young adults will have the means to strike out on their own.”

Source: “Is Household Formation Set for a Rebound?” HousingWire (March 12, 2015)

Real Estate Predictions for 2015

Expect the home-purchase market to strengthen along with the economy in 2015, according to Freddie Mac’s U.S. Economic and Housing Market Outlook for November.

“The good news for 2015 is that the U.S. economy appears well-poised to sustain about a 3 percent growth rate in 2015 — only the second year in the past decade with growth at that pace or better,” says Frank Nothaft, Freddie Mac’s chief economist. “Governmental fiscal drag has turned into fiscal stimulus; lower energy costs support consumer spending and business investment; further easing of credit conditions for business and real estate lending support commerce and development; and consumers are more upbeat and businesses are more confident, all of which portend faster economic growth in 2015. And with that, the economy will produce more and better-paying jobs, providing the financial wherewithal to support household formations and housing activity.”

Freddie Mac economists have made 5 projections in housing for 2015 at: Freddie Mac



U.S. Household Wealth “Regains Peak”

Federal Reserve research shows that surging stock prices and steady home appreciation have finally allowed Americans to recover the $16 trillion in wealth they lost during the Great Recession. The gains are helping to bolster the U.S. economy and could lead to additional spending and growth.

Most of the recovered wealth has come from higher stock prices that have been flowing mainly to wealthier Americans. By comparison, the middle class derives the bulk of its wealth in the form of home equity, which has risen much less.

According to the Fed, household wealth totaled $66.1 trillion as of Dec. 31 — 98 percent of the pre-recession peak. Further increases in stock and home prices this year mean that Americans’ net worth has since topped the pre-recession peak of $67.4 trillion, private economists report.

Source: “US Household Wealth Regains Pre-Recession Peak,” Associated Press (March 8, 2013)

More Americans concerned about finances than economy

A recent survey found two out of three Americans are more concerned about their finances today than they were at the beginning of the financial crisis two years ago.  The survey, conducted by the Certified Financial Planners (CFP) Board, also found 44 percent of Americans expect the U.S. economy to improve in the next six months, while only 28 percent expect conditions to worsen.

Other highlights of the CFP survey include:

Slightly more than one-third of Americans (37 percent) expect to see their personal finances improve in the next six months versus less than half (46 percent) who expect to hold onto what they currently have and 16 percent who expect to lose money.

80 percent of Americans say that Congress and regulators have not done enough “to deal with the financial market problems and their impact on American investors.”

When asked to describe how they feel about their personal finances, the number-one response was “cautious” (33 percent), followed by “calm” (26 percent), “concerned” (25 percent), and “hopeful” (25 percent).  Respondents could select multiple responses.

More information at: