U.S. Outlook: Monetary policy tighter without tightening

Chief Economist

With the April FOMC meeting coming, it’s a good time to add some points to the go-slow approach to an initial rate hike touted by Chairwoman Yellen and others.

Graph showing deviation of US interest rates from Germany and Japan.The U.S. economic growth slowdown in Q1 and downside risks from Europe and China are good reasons to be cautious, but there are a few more.

For more on what this means and other economic developments this week, see my full analysis. Highlights are outlined below, followed by a link to the full U.S. Outlook report, delivered on April 24.

Key observations:

  • Low inflation has already had an impact on interest rates without the Fed even touching the Fed funds target rate.
  • The low-interest-rate environment has become “the new normal,” so any significant deviation will have a big, possibly negative, impact.
  • Without stronger bank lending trends, the Fed’s end of QE3 may be all the tightening the economy can absorb.

Click here to read my full report.

Numbers Count: First-time buyers’ revival?

Posted by Chad Royle
Mortgage Banking

Numbers count. They matter to bankers and to prospective homebuyers, sellers, and real estate professionals. Here’s my take on the key numbers on the housing market this week.

The numbers: Demand for FHA, VA mortgages rises

Young, happy African-American family in front of a house that is for sale.FHA and VA purchase mortgage applications have outpaced conventional mortgage demand since last spring, and the gap has widened considerably since January, according to a new report on overall economic conditions from Fannie Mae’s Economic & Strategic Research (ESR) Group. ESR says the demand for these government mortgage programs is “perhaps an early indicator that the long-dormant first-time homebuyer segment is building momentum.”

What counts: Fannie Mae’s report aligns with a report last week from our Chief Economist Scott Anderson, who is bullish on housing. Here are his reasons for being upbeat about prospects for first-time homebuyers:

  • Student loan debt has been declining;
  • There’s a big comeback in household formation (children leaving their parents’ home, singles moving out of shared housing to start their own households, etc.);
  • The labor market is showing tentative signs of improvement; and
  • Interest rates continue to hover near historically low levels

Individual financial circumstances are all different, but the big-picture indicators suggest 2015 may be a good time for first-time homebuyers to be in the market.