Record-low interest rates fueled a recovery in the housing market that spread to the broader economy. With mortgage interest rates rising in recent months, the outlook has become less certain.
Gauges of the housing market dominate economic reports in the coming week:
- The National Association of Realtors reports on existing home sales for July: Wednesday at 10 a.m. (all times Eastern)
- The Federal Reserve releases July meeting minutes: Wednesday at 2 p.m.
- The Conference Board releases the index of leading economic indicators for July: Thursday at 10 a.m.
- The Commerce Department releases new home sales for July: Friday at 10 a.m.
Fed: Less pedal to the metal
Federal Reserve Chairman Ben Bernanke has likened the central bank's actions to putting the foot on the accelerator. That's a whole lot easier to understand than keeping the federal funds rate at between zero and 0.25 percent along with monthly asset purchases of $85 billion. The Fed signals that it may begin to take the foot off the pedal by tapering the asset purchases. Anticipation of that alone has led to an increase in the 30-year fixed-rate mortgage to more than 4 percent in recent weeks, having hovered in the 3 percent range for months.
Sales expectations 'flat'
At the National Association of Realtors, which releases the figures on sales of previously owned homes, spokesman Walter Molony says, "It looks like most of the growth in sales has already taken place this year. Higher mortgage interest rates are now causing home sales to level out."
That could be good news for prospective buyers in markets were home sales have become more heated in recent months.
Molony says the trade group expects sales to rise between 2 percent to 3 percent in 2014, with an increase in home prices of up to 6 percent. That's compared to what he characterizes as an 11 percent gain for this year.
How much more progress ahead?
Economist Robert Brusca notes that there's been a significant recovery from the depths of the housing market collapse. "Both new and existing home sales have been rising strongly in this recovery after a slow start," Brusca says. "Existing sales are up some 47 percent from their low point, while new home sales are up some 84 percent from their low. From those reference points, median existing home prices have risen 17 percent, with new home prices up 13 percent."
At the same time, he's sees some signs that are worrisome. "For low-priced houses ($100,000 and lower), existing home prices are still lower year-over-year by nearly double digits. New homebuilding is cherry-picking the hottest regions and is not representative of the (U.S.) housing market." Homebuilder stocks have recently been declining amid lower expectations.
As for helping to spread the wealth, so to speak, to the broader economy, Brusca says, "It is not surprising that sales of items that relate to homebuying -- like appliances, furniture and building materials -- are lagging."
What's next for the Fed?
The Federal Reserve's next policy-setting meeting is scheduled for Sept. 17 and 18. Chairman Bernanke has a news conference scheduled immediately after the meeting. Release of minutes from the late-July meeting, due Wednesday, should give some clues on the Fed's future moves. The clock on the Bernanke era is ticking down to its final months. His term ends in January 2014.
This week in business history: Orville Wright's birthday
On Aug. 19, 1871, Orville Wright was born in Dayton, Ohio.
He and brother Wilbur are credited with inventing and building the world's first successful airplane. Orville was also a printer and publisher and a bicycle seller and manufacturer.
Wright was quoted as saying, "If we worked on the assumption that what is accepted as true really is true, then there would be little hope for advance."
But Orville Wright didn't see all of the potential of his own invention, also having said, "No flying machine will ever fly from New York to Paris … (because) no known motor can run at the requisite speed for four days without stopping."
He outlived his brother, dying in 1948 at age 76. He witnessed both the era of the horse and buggy and the debut of commercial air travel.
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