Building Permits Rising Nationwide; Housing Starts To Follow

Single-Family Housing Starts fell for the second consecutive month, dropping to a seasonally-adjusted, annualized 417,000 units in August 2011.

A "Housing Start" is defined as a home on which ground has broken.

We shouldn't put too much faith in the findings, however. Although housing starts were lower last month, as noted by the Census Bureau, the margin of error in the August Housing Starts report exceeded the actual result.

From the official report:

• August's Published Results : -1.4% from July 
• August's Margin of Error : ±10.3% from July

Therefore, August's Housing Starts may have actually increased by up to +8.9% from July, or it may have dropped as much as -11.7%. We won't know for sure until several months from now, after the Census Bureau has gathered more housing data.

One thing is certain, though -- the long-term trend in Housing Starts is "flat". There has been little change in new home construction since last summer.

The same can't be said for Building Permits.

Considered a pre-cursor to Housing Starts, Single Family Building Permits climbed 2.5 percent with a minuscule Margin of Error of ±0.9 percent.

As is common in real estate, results varied by region:

• Northeast : +3.3 percent from July
• Midwest : +6.3 percent from July
• South : -1.3 percent from July
• West : +11.3 percent from July

When permits are issued, 86 percent of them begin break ground within 60 days. Therefore, expect Housing Starts and new home inventory to rebound in the months ahead.

For now, housing remains steady. And, with mortgage rates at all-time lows, homebuyer purchasing power in an around Minneapolis is higher than it's been in history. If you're in the process of shopping for a home, talk with your lender to plan your mortgage budget.

A Simple Explanation Of The Federal Reserve Statement (September 21, 2011 Edition)

Wednesday, the Federal Open Market Committee voted to leave the Fed Funds Rate unchanged within its current target range of 0.000-0.250 percent.

The vote was 7-3 -- the second straight meeting at which the FOMC adjourned with as many 3 dissenters. Prior to that last meeting, there hadn't been 3 FOMC dissenters since 1992.

In its press release, the Federal Reserve presented a dour outlook for the U.S. economy, noting that since its last meeting in August:

1. Economic growth "remains slow"
2. Unemployment rates "remain elevated"
3. The housing sector "remains depressed"

The Fed also said that there are "significant downside risks" to the economic outlook, tied to strains in the global financial markets.  

The news wasn't all bad, however.

The Fed noted that business investment in equipment and software continues to expand, and that inflationary pressures on the economy appear to have stabilized. The Fed then re-iterated its plan to leave the Fed Funds Rate in its current range near 0.000 percent "at least until mid-2013". This means that Prime Rate -- the rate to which credit card rates and lines of credits are often tied -- should remain unchanged at 3.250 for at least another 2 years.

Furthermore, as expected, the Federal Reserve launched a market stimulus plan aimed at lowering long-term interest rates. The Fed will sell $400 billion in Treasury securities with a maturity of 3 years or less, and use the proceeds to buy the same with maturity between 6 and 30 years.

Mortgage market reaction to the FOMC statement has been positive this afternoon. Mortgage rates in Minnesota are improving, but note that Wall Street sentiment can shift quickly -- especially in a market that's as uncertain as this one.

If today's mortgage rates and payments fit your household budget, consider locking in a rate. Rates can change swiftly.

The FOMC's next meeting is a 2-day affair, scheduled for November 1-2, 2011.

A Simple Explanation Of The Federal Reserve Statement (September 21, 2011 Edition)

Wednesday, the Federal Open Market Committee voted to leave the Fed Funds Rate unchanged within its current target range of 0.000-0.250 percent.

The vote was 7-3 -- the second straight meeting at which the FOMC adjourned with as many 3 dissenters. Prior to that last meeting, there hadn't been 3 FOMC dissenters since 1992.

In its press release, the Federal Reserve presented a dour outlook for the U.S. economy, noting that since its last meeting in August:

1. Economic growth "remains slow"
2. Unemployment rates "remain elevated"
3. The housing sector "remains depressed"

The Fed also said that there are "significant downside risks" to the economic outlook, tied to strains in the global financial markets.  

The news wasn't all bad, however.

The Fed noted that business investment in equipment and software continues to expand, and that inflationary pressures on the economy appear to have stabilized. The Fed then re-iterated its plan to leave the Fed Funds Rate in its current range near 0.000 percent "at least until mid-2013". This means that Prime Rate -- the rate to which credit card rates and lines of credits are often tied -- should remain unchanged at 3.250 for at least another 2 years.

Furthermore, as expected, the Federal Reserve launched a market stimulus plan aimed at lowering long-term interest rates. The Fed will sell $400 billion in Treasury securities with a maturity of 3 years or less, and use the proceeds to buy the same with maturity between 6 and 30 years.

Mortgage market reaction to the FOMC statement has been positive this afternoon. Mortgage rates in Minnesota are improving, but note that Wall Street sentiment can shift quickly -- especially in a market that's as uncertain as this one.

If today's mortgage rates and payments fit your household budget, consider locking in a rate. Rates can change swiftly.

The FOMC's next meeting is a 2-day affair, scheduled for November 1-2, 2011.

The Fed Adjourns At 2:15 PM ET Today : What It Means For Mortgage Rates

The Federal Open Market Committee adjourns from a two-day, scheduled meeting today, the sixth of 8 scheduled meetings this year, and the seventh Fed meeting overall.

The FOMC is a designated, 12-person committee within the Federal Reserve, led by Fed Chairman Ben Bernanke. The FOMC is the voting members for the country's monetary policy. Among its other responsibilities, the FOMC sets the Fed Funds Rate, the overnight rate at which banks borrow money from each other.

Note that the "Fed Funds Rate" is different from "mortgage rates". Mortgage rates are not set by the Fed. Rather, they are based on the price of mortgage-backed bonds, a security traded among investors.

As the chart at top illustrates, the Fed Funds Rate and conforming mortgage rates in Minneapolis have little correlation. Since 1990, the two benchmark rates have been separated by as much as 5.29 percent, and have been as close as 0.52 percent.

Today, the separation between the Fed Funds Rate and the national average for a standard, 30-year fixed rate mortgage is roughly 4 percent. This spread will change, however, beginning 2:15 PM ET Wednesday. That's when the FOMC adjourns from its meeting and releases its public statement to the markets.

There is no doubt that the Fed will leave the Fed Funds Rate in its current target range of 0.000-0.250%; Fed Chairman Bernanke plans to leave the benchmark rate as-is until at least mid-2013. However, the Fed is expected to add new support for markets.

Unfortunately, there are few clues about how the Fed will support markets, and there is no consensus opinion regarding the size of the said support. As a result, mortgage rates should be bouncy today. First, they'll be volatile ahead of the Fed's statement. Then, they'll be volatile post-Fed statement.

Even if the Fed does nothing, mortgage rates will change. This is because Wall Street is prepping for an announcement and -- no matter what the Fed says or does -- investors will want to react accordingly.

When mortgage markets are volatile, the safest move is to lock your mortgage rate in. There too much risk to float.

Homebuilder Confidence Stays Flat

Homebuilders are feeling worse about the market for new homes nationwide.

With construction credit tight and competition from foreclosures increasing, the National Association of Homebuilder's Housing Market Index slipped 1 point in September, falling to levels just below the index's 12-month average.

The HMI measures homebuilder confidence nationwide. It's the result of 3 separate homebuilder surveys, each designed to measure a specific facet of the homebuilder's business.

1. How are market conditions for the sale of new homes today? 
2. How are market conditions for the sale of new homes in 6 months?
3. How is prospective buyer foot traffic?

Each component survey showed a drop-off from August. Responses fell 1 point, 2 points, and 2 points, respectively. Together, September's composite reading was 14 out of a possible 100 points. Readings over 50 are considered favorable. 

The HMI not been above 50 since April 2006.

With homebuilder confidence low -- and stagnant -- buyers of new homes Maple Grove in should remain alert for "deals". Builders are more likely to offer free upgrades and other concessions to incoming buyers. The availability of such deals may increase as the seasons change and as the year comes to a close.

Low mortgage rates are making new homes attractive, too. Last week, 30-year fixed rate mortgage rates fell to their lowest levels of all-time. As compared to just 8 weeks ago, 30-year fixed rate mortgage payments are lower by 5 percent at all loan sizes, down $27 per month per $100,000 borrowed.

What's Ahead For Mortgage Rates This Week : September 19, 2011

Mortgage bonds worsened last week as Eurozone default fears eased abroad, and expectations for a domestic stimulus increased. 

Mortgage rates rose for the first time in three weeks last week, pushing conforming and FHA mortgage rates in Minnesota off their all-time, historical lows. Rates were at their lowest Tuesday morning, then rose through Friday's afternoon closing. 

Markets open this week with an eye toward the world's central banks.

In the Eurozone, central bankers (continue to) discuss the debt burdens of Greece and whether a coordinated intervention is necessary. Without it, some economists believe that the nation-state will default on its sovereign debt, which would then create additional financial stress within other nations in the region.

Italy is included among those countries.

In the United States, central bankers are making equally-important choices. 

The Federal Open Market Committee will emerge from a 2-day meeting Wednesday and is expected to announce new stimulus for the U.S. economy.

Since 2009, the Federal Reserve has twice stimulated the economy via an open-market, bond buying initiative. The programs created demand for mortgage bonds which, in turn, lowered mortgage rates for U.S. homeowners. If the Fed chooses this path a third time, expect for mortgage rates to fall in Maple Grove.

If the Fed's sponsored stimulus is something else, however -- or if the Fed choose to do nothing -- mortgage rates may rise.

There is economic data due this week, including the Existing Home Sales and Housing Starts report, but it will be the world's central bankers that sit in spotlights. 

Expect volatile mortgage rates this week. Wall Street can only guess what governments will do to stimulate their respective economies and can lead to wild swings in pricing. The "safe play" is to lock a rate while we're still near all-time lows.

Once rates reverse higher, they're expected to rise quickly.