Paul Sager

Is More Fed-Led Stimulus On Its Way?

The Federal Open Market Committee released its April 2012 meeting minutes this week, revealing a Federal Reserve in the ready in the event additional monetary stimulus is needed.

The Fed Minutes function much like the minutes from a business meeting; or, condominium association meeting, for example. It’s a detailed review of the conversations and debates between FOMC members, and is typically published 3 weeks after a Federal Reserve meeting.

The Fed Minutes is a follow-up statement on the FOMC’s more well-known, post-meeting press release. It’s also much more lengthy.

Whereas the April 25, 2012 press release totaled 444 words, the Fed Minutes spanned 6,618.

Those extra words are important, too, because the detail offered within the Fed Minutes lends insight into how our nation’s central bank views the U.S. economy, its strengths and weaknesses, and its threats.

From the Fed Minutes, some of the Fed’s comments includes :

On employment : Unemployment may remain elevated through 2014
On housing : Tight underwriting is “holding down” the housing market
On rates : The Fed Funds Rate should remain low until late-2014

There was also substantial talk about Europe and its role in the U.S. economy. Notably, U.S. financial institutions have been actively reducing their European exposure to contain damage in the event of a full-blown economic crisis abroad.

This has had the net effect of lowering mortgage rates in Missouri. Mortgage bonds often benefit from economic uncertainty.

In addition, because several Fed members acknowledged a willingness to add new stimulus to the U.S. economy, mortgage markets are accounting for the possibility it could happen. It’s unclear whether stimulus would be added after the Fed’s next meeting, or at some point later in the year, or at all.

The FOMC has its next scheduled meeting June 19-20, 2012.

Single-Family Housing Starts Powers Ahead

The new construction housing market continues to improve.

One day after the National Association of Homebuilders reported a 5-year high in homebuilder confidence, the U.S. Census Bureau reports that single-family housing starts rose 2 percent for the second straight month last month.

In April, on a seasonally-adjusted, annualized basis, the government reports 492,000 single-family housing starts. A “housing start” is a home on which ground has broken.

In addition, March’s single-family housing starts were revised higher. What was previously reported as a three percent loss was re-measured and changed to a 0.2% gain.

The April tally marks a six percent increase over the one-year moving average and, along with the March revision, suggests that the springtime housing market may have just been seasonal.

In March, a number of reports suggested a housing retreat :

Existing Home Sales slipped 3%
New Home Sales slipped 7%
Homebuilder Confidence fell 4 points

Since then, though, low mortgage rates and affordable home prices appear to have sustained the new construction market, which now appears poised for a strong 2012.

As one mark of proof, active buyers of newly-built homes in Brentwood and nationwide are scheduling “model home” showings at the fastest pace since 2007. The burst of foot traffic high has builders upping their sales expectations for the next 6 months.

A scenario like this would normally lead new home prices higher, but the pressure for prices to rise may be offset by the amount of new home supply coming online.

In addition to a rise in Housing Starts, the Census Bureau also reports that, in April, the number of Building Permits for single-family homes rose 2 percent to move to its second-highest level since March 2010 — the month preceding the end of the 2010 federal Home buyer tax credit.

86 percent of homes break ground within one month of permit issuance.

It’s unclear whether housing is on a steady path higher, but there’s a growing body of evidence that suggests the market bottom has already passed.