Housing Prices Lower & Rates Low Until 2014?
Have we hit the optimal point of low mortgage rates and low home prices? Although we can’t predict the future, news over the past week has been very positive for the housing market.
Today, the S&P Case Shiller Home Price Index indicated that prices fell more than expected in November, with values in 20 major metropolitan areas declining by 3.7% compared to a year earlier. At the same time, we reported to you last week that home sales have been picking up. The Federal Housing Finance Agency also reported a very slight increase in prices based on loans insured by Fannie Mae and Freddie Mac. With the number of sales increasing and existing inventory starting to decline, some feel the bottom for housing prices may be very near.
Adding to falling home prices, last week the Federal Reserve announced after their two-day meeting that they would continue purchasing U.S. Treasuries and mortgage-backed securities to help maintain low interest rates into 2014. With that surprising announcement, mortgage rates immediately plunged back toward historic lows. Following this news on Friday, fourth quarter GDP came in slightly lower than expectations, reinforcing the Fed’s view that rates should remain low.
There is some optimism from Europe today as most countries in the EU agreed to tighten budget controls in order to help halt their debt crisis. But the impact to mortgage rates has remained relatively minimal thus far. It will be important to monitor economic news from the Euro region in the coming days and weeks as additional momentum could drive rates slightly higher.
The week isn’t over yet and we have several domestic economic releases on their way, including employment reports on Thursday and Friday. Stay tuned.