It’s a near certainty that the Federal Open Market Committee (FOMC) will raise the short-term Federal Funds rate this week. The CME group estimates the probability of a 25 basis-point increase at 90.2 percent. Some may fret about how this will impact the housing market, but they are missing the point on mortgage rates and affordability for first-time home buyers.
Amazon’s very public search to identify the best location for its second headquarters made me wonder - what criteria would be helpful for young professionals when making their personal decision on where to live and work? Affordable housing would be important. For example, you can buy so much more home in Texas or Ohio than you can in California. But, when making the decision about where to live, considering what and how many job opportunities exist is also a critical point. The most attractive places to live for young professionals would be where housing costs are reasonable and great job opportunities are abundant. In other words, the top cities for economic opportunity.
Last week, the Federal Open Market Committee (FOMC) met for the second to last time this year. As most prognosticators expected, the FOMC decided to leave the short-term Federal Funds rate unchanged. While good news for those with credit card debt, car loans and adjustable rate mortgages, the impact of FOMC inaction, or action for that matter, is less clear for the mortgage market. Additionally, Jerome Powell was nominated to be the next Chairman of the Federal Reserve and he is widely believed to hold a similar stance on monetary policy as the current chair, Janet Yellen.
This month, the Federal Open Market Committee (FOMC) will consider again whether to increase the benchmark Federal Funds Rate for a third time this year. As I stated when the FOMC was contemplating a rate increase earlier this year, increasing the short-term Federal Funds rate has little impact on longer term rates like the 30-year, fixed-rate mortgage. But, more importantly, the FOMC may start reducing its $4.5 trillion portfolio of bonds purchased during the global financial crisis through various rounds of quantitative easing (QE). Almost 40 percent of that portfolio is mortgage backed securities (MBS) that the Fed started buying in 2009. As explained by the FOMC in June, the “Quantitative Un-Easing” plan, could begin at any point this year with the reduction of $4 billion a month in MBS. The pace of MBS sales would increase by $4 billion each quarter up to a maximum of $20 billion per month.
We’ve said it before and we’ll say it again – the shortage of houses on the market is making it difficult for Americans to find homes to buy, which is especially concerning for the Millennial first-time home buyer. There are many possible reasons for the housing supply shortage, ranging from fear of paying a higher mortgage rate to insufficient equity keeping sellers at bay. Frequent readers of this blog will be familiar with our “prisoner’s dilemma” theory for the housing supply shortage.
As Hurricane Harvey’s flood waters finally recede, the degree of damage is becoming more apparent. The most recent estimates indicate that flood damage could be assessed as high as $37 billion and that 70 percent of that damage is to property that is uninsured. According to the Federal Emergency Management Agency (FEMA), more than 30 counties and more than 100,000 properties have been impacted in some way. Harris County alone accounts for 68 percent of the affected or damaged properties. FEMA estimates that more than 12,000 properties in Harris County have major damage or are destroyed. When the flood waters are finally gone and all the costs are accounted for, Harvey is likely to be the costliest hurricane in U.S. history.
The housing market is suffering from a supply shortage, not a demand dilemma. As Millennial first-time homebuyer demand continues to increase, the inventory of homes for sale tightens. At the same time, prices are increasing, so why aren’t there more homeowners selling their homes?
With the Federal Reserve Open Market Committee (FOMC) meeting to decide whether to increase the Federal Funds rate in just a few days, the potential for an increase in mortgage rates dominates the housing news and industry chatter. Yet, changes to the short-term rate matter little to the housing market.
Homeownership is a goal shared among all people, regardless of race or ethnicity, and remains the main driver of wealth creation for the majority of households in the United States. That is why it is vital to understand the underlying characteristics that influence the probability of homeownership. Over the last several months, my research has explored the influence of marital status and family formation, education, income and economic factors on homeownership rates. Today, I examine how ethnicity impacts the probability of homeownership.
Spring break is fast approaching, that playful time of year when beach cities are inundated with college students and tourists. As housing economists, spring break is exciting because it coincides with the beginning of the spring home buying season! While we may not seem to have much in common with the college crowd, there is an underlying connection: education.