On Wednesday, December 16, the Federal Open Market Committee (the policy-making arm of the Federal Reserve) will wrap its eighth and final meeting of 2015. Nearly everyone from economists, analysts, and even the policymakers themselves are predicting the FOMC to announce the Fed’s first federal funds rate hike in nine years.
Many believe that November’s employment summary from the Bureau of Labor Statistics, which reported 211,000 jobs added during the month and an unemployment rate of 5.0 percent, provided the final piece of the puzzle for a December Fed liftoff. Upward revisions lifted the average monthly job gain for September, October, and November up to 218,000.
At a public address in early December, Fed Chairman Janet Yellen hinted that a rate hike will be likely, saying that in September’s FOMC meeting, all participants “agreed that the timing of a rate increase would depend on what the incoming data tell us about the economic outlook and the associated risks to that outlook.” She added that “both economic and financial information received since our October meeting has been consistent with our expectations of continued improvement in the labor market.”
According to Fannie Mae SVP and Chief Economist Doug Duncan, the November BLS employment summary “reinforces our view that underlying domestic demand appears to be solid enough for the Fed to finally depart from its zero interest rate policy this month.”
On the effect the Fed liftoff would have on housing, First American Financial Chief Economist Mark Fleming stated, “Based on a 25 basis point increase in the 30-year fixed rate mortgage rate, house price appreciation on a year-over-year basis slows down by 1 percent more than expected without the rate increase. Existing-home sales slow by about 2.5 percent on annualized and seasonally adjusted basis, a decline of less than 150,000 sales a year. The housing market isn’t doomed by a Fed rate increase, but demand would fall modestly.”
Auction.com EVP Rick Sharga stated: “A Fed rate increases could actually be good for housing. One of the biggest headwinds in the housing market today is tight credit. There’s virtually no non-agency lending…nothing outside of QM, other than jumbo loans to rich borrowers the banks want to grab as customers for other services. Higher interest rates would actually allow for loans to be priced in a way that accommodated some degree of risk.”
The FOMC’s announcement will be at 2 p.m. EST on December 16.
Tuesday, December 15
The National Association of Home Builders (NAHB) will release its monthly Housing Index for December, which is comprised of a survey in which participants are asked to rate the general economy and housing market conditions. The index continued an up and down year last month by falling unexpectedly.
Wednesday, December 16
Will housing starts rebound in November from October’s declines? On Wednesday, HUD and the U.S. Census Bureau will reveal the answer in their monthly housing starts report. In October, single-family rental starts dropped by 2.4 percent down to an annualized rate of 722,000, but dropped by 11 percent overall after being pulled down by a 25 percent decline in multi-family starts down to a 338,000 annualized rate.