Fed Moves Up Timetables
On Wednesday, the Federal Open Market Committee said that it would accelerate its tapering of agency mortgage-backed securities and signaled that its schedule for increasing the federal funds rate would be pushed as well.
The FOMC mostly did what was expected in its Dec. 15 policy statement: it kept the federal funds rate at 0-0.25 percent for the time being; it announced a sustained decrease in its monthly purchases of agency mortgage-backed securities; and it recognized challenges in the economy that could warrant further monetary policy changes soon and raise the federal funds rate ahead of projected end-of-2022 scenarios.
The Mortgage Bankers Association’s Chief Economist, Mike Fratantoni, stated that the Fed’s prediction for economic growth in 2022 has improved, while the forecast for inflation has declined. Moreover, the Fed’s purchases of longer-term Treasuries and MBS have kept mortgage rates lower than they would have been otherwise, according to Fratantoni. “Mortgage rates will rise to 4% by the end of 2022, according to MBA, and may become more volatile as the Fed retreats from the market,” he said. “Although this will result in fewer refinances, we forecast a rise in home sales in 2022 due to the solid economy.”
Builders are Upbeat as Year Nears End
According to the National Association of Home Builders (NAHB), builder confidence in the new home market will be high by the end of 2021 despite inflation concerns and continued production bottlenecks. In December, the NAHB/Wells Fargo Housing Market Index (HMI) rose for the fourth month in a row. Due to strong consumer demand and limited existing availability, it rose to 84, 1 point higher than in November.
The most pressing concern for the housing market, according to NAHB economist Robert Dietz, is a shortage of inventory. The construction sector has grown, but it still confronts challenges, such as the cost and availability of materials, labor, and lots. While single-family starts in 2021 are predicted to be 24 percent higher than pre-Covid 2019 levels, increased interest rates in 2022 will negatively impact housing affordability.
Millennials Are Supercharging the Housing Market
The generation that was formerly thought not to want to buy things now accounts for more than half of all home-purchase loan applications, and economists expect them to continue to boost demand for years to come.
For years, conventional wisdom has widely assumed that millennials born between 1981 and 1996 would be the generation to shun homeownership. Instead, they have accomplished a housing milestone, accounting for more than half of all home purchase loan applications last year, after surpassing the baby boomers to become the largest living adult generation in the US. Many economists predict that home-buying demand will continue robust for years to come because of the generation’s growing desire to own a home.
Next week’s potential market-moving reports are:
- Monday, December 20th – Leading Economic Indicators
- Tuesday, December 21st – Current Account Deficit
- Wednesday, December 22nd – Existing Home Sales
- Thursday, December 23rd – Initial Jobless Claims, Continuing Jobless Claims, New Home Sales
- Friday, December 24th – No Report
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