More Positive Housing Data and The Fed by Tim McLaughlin
A report Wednesday showed builders broke ground on more new homes in June than in any month in nearly four years. Wednesday’s housing report from the Commerce Department showed home construction jumped 6.9% from May, to a seasonally adjusted rate of 760,000. Because builders cut back so sharply during the downturn, if there’s an increase in the number of households of any magnitude, the home builders will now benefit.
The report of a jump in new home construction came one day after an index that measures home builder confidence rose to its highest level since March 2007, according to the National Association of Home Builders. The index jumped to 35 this month, up six points from June, the largest monthly increase in 10 years. But the index is still below historical level, a reading above 50 means that more builders view conditions favorably than not.
Housing demand has picked up this year as low prices and low mortgage rates have made owning less expensive than renting in more markets. The Mortgage Bankers Association reported Wednesday that the average 30 year fixed-rate mortgage fell to 3.74% last week, the lowest in the history of the survey.
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In his semi-annual monetary policy testimony, Fed chairman Ben Bernanke stayed fairly close to the recent FOMC statement and minutes. He emphasized the downside risks to the economic outlook and reiterated that the Fed stands ready to take further action as appropriate. He declined to discuss specific policy steps in his prepared comments, but during questioning posited a number of potential tools should the economy weaken further.
The expectations from the market are that if/as the data continue to soften; the Fed will undershoot its own forecasts and thus respond with further easing. Expectations range from the Fed pushing out its forward guidance until at least mid-2015, perhaps at the August 1st FOMC meeting, to launching as much as a $500B QE3 asset purchase plan as early as the September 13th Bernanke noted that the Fed expects growth to run barely above trend, thus yielding “frustratingly slow” progress on reducing unemployment -> the driver of the QE3 thoughts.
