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Mortgage Rates, Home Prices Up, Ownership At 18-year Low

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WASHINGTON (7/31/13)--Interest rates on mortgages continued climbing, existing-home prices rose, and home ownership dove to an 18-year-low, according to three separate reports released Tuesday.
 
Mortgage prices in June increased 0.15% from May, according to the Federal Housing Finance Agency (FHFA). The national average contract rate for pre-existing homes was 3.55% for loans closed in late June. The contract rate on the composite of all mortgage loans was 3.55%, up 15 basis points (bp) from 3.40% in May.
 
Interest rates typically are locked in 30 to 45 days before a loan is closed, which means the June data reflect market rates from mid-to-late May. The effective interest rate was 3.67%, up 10 bp from 3.57% in May. Effective interest rate accounts for adding in initial fees and charges over the term of the mortgage.
 
The average interest rate for a 30-year, fixed-rate mortgage of $417,000 or less was 3.76% in June, up 18 bp. The average loan amount for all loans was $282,400 in June, an increase of $1,800 from $280,600 in May, said FHFA.
 
On the home price front, home prices in 10 major U.S. cities increased 11.8% in the year ended in May, said Standard & Poor's/Case-Shiller home price index (The Wall Street Journal and Moody's Economy.com July 30). Home prices in 20 cities had risen 12.2% on the year. Economists surveyed had projected a gain of 12.4%.  Seasonally adjusted, the 10-city index rose 2.5% in May from April and the 20-city index rose 2.4% for that period.
 
House prices grew robustly, said Moody's, which pointed out that the growth is concentrated mostly in the West, while prices dipped in Georgia and Florida.
 
Meanwhile, homeownership in the U.S. for the second quarter was unchanged from first quarter, according to Census Bureau data released Tuesday (Bloomberg.com  July 30).  Ownership is currently at an 18-year-low, expected to hit about 64% in the next year when families in foreclosure have ended that process and enter rental homes, said London-based Capital Economics Inc. in an analysis of May figures.
 
First-time buyers and minorities have seen the sharpest declines in home ownership since the financial crisis.  About 81% of senior citizens own homes and that is little changed, said Bloomberg. However,  only about 37% of those younger than 35 owned homes, compared with 42% five years earlier.

ATM Group: 'Common Debit Solution' Proposed

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SIOUX FALLS, S.D. (7/31/13)--The Europay MasterCard Visa Migration Forum, an independent, cross-industry body created to address issues in the payments industry, has reached a consensus on the need for using a single application identifier (AID) that represents each of the debit networks enabled on any debit card, the ATM Industry Association (ATMIA) announced last week.
 
Currently three different solutions using a single AID are offered--one each from MasterCard, Visa, and the Secure Remote Payment Council (SRPc). MasterCard and Visa have reached an agreement, in principle, to use each other's technology, ATMIA said.
 
It appears that all three solutions will include multiple regional networks. However, those business relationships still in progress. SRPc has 10 regional networks on board and discussions are underway with at least four others, ATMIA said.
 
Card issuers can choose from three solutions that use a single AID and offer a routing choice to conform with the current interchange rule. Those solutions, though, still suffer from the same inadequacy--none of the cards work on all terminals unless all merchants and operators choose the same solution.
 
SRPc has proposed joint ownership and management of four AIDs and applications. Such an arrangement would permit all four AIDs to be resident on all terminals, and issuers could select the one AID of those four that will be used with their cards.
 
Several major retailers already have announced decisions to accept only cards with a single AID, said ATMIA. 
 

NEW: Fed's Monetary Policy Stays On Course

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WASHINGTON (7/31/13 UPDATED 2:46 p.m. ET)--As expected, the Federal Reserve's policymakers stayed on course with its monetary policy, with no change in the 0.25% targeted funds interest rate and no announcement of a wind-down in its $85 billion-per-month bond assets purchase program. However, they noted the economy was expanding at a "modest" pace--a downgrade from the "moderate" pace last month.
 
The Federal Open Market Committee (FOMC), which met in its two day meeting Tuesday and today, said after the meeting ended this afternoon that the increase in mortgage rates is a concern and that persistently low inflation was rising.
 
"Labor market conditions have shown further improvement in recent months, on balance, but the unemployment rate remains elevated," said the FOMC's statement. "Household spending and business fixed investment advanced, and the housing sector has been strengthening, but mortgage rates have risen somewhat and fiscal policy is restraining economic growth. Partly reflecting transitory influences, inflation has been running below the Committee's longer-run objective, but longer-term inflation expectations have remained stable.
 
The FOMC noted it "expects that, with appropriate policy accommodation, economic growth will pick up from its recent pace and the unemployment rate will gradually decline toward levels the committee judges consistent with its dual mandate. The committee sees the downside risks to the outlook for the economy and the labor market as having diminished since the fall." Also FOMC noted it "recognizes that inflation persistently below its 2% objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term."

Many economists expect that the Fed's announcement about tapering off its $85-billion a month  bond assets purchase program, known as quantitative easing (QE3), will come after FOMC's next meeting on Sept. 17-18.  The FOMC's statement gave no hint of whether that will be the case.

 Instead, it "decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month."  It is "maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction." These actions "should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative," the statement continued.
 
FOMC said it is prepared to "increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes. In determining the size, pace, and composition of its asset purchases, the committee will continue to take appropriate account of the likely efficacy and costs of such purchases as well as the extent of progress toward its economic objectives.

The committee also  reaffirmed its view "that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens."

It will keep the target range for the federal funds at 0% to 0.25%  and "currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6.5%, inflation between one and two years ahead is projected to be no more than a half percentage point above the committee's 2% longer-run goal, and longer-term inflation expectations continue to be well anchored."

In determining how long to maintain the "accommodative" policy, the FOMC "will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2%."

Voting for the policy action were: Federal Reserve Chairman Ben S. Bernanke, Vice Chairman William C. Dudley, James Bullard, Elizabeth A. Duke, Charles L. Evans, Jerome H. Powell, Sarah Bloom Raskin, Eric S. Rosengren, Jeremy C. Stein, Daniel K. Tarullo and Janet L. Yellen. Voting against was Esther L. George, who expressed concern that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.

Economists at the Credit Union National Association are reviewing the statement and will provide an analysis of what FOMC's actions mean for credit unions in tomorrow's News Now.