The hurdles to purchase a home are expected to get steeper as February’s jobs report nearly guarantees a rate hike during the Federal Open Market Committee’s (FOMC) March meeting. Last month, the economy added 235,000 new jobs, solidly beating expectations. The report wasn’t entirely unexpected after payroll processor ADP’s report earlier this month beat projections by 100,000 positions. A March rate hike keeps the Fed on track to lift the federal funds rate three times this year, which we forecast after the most recent increase in December. February’s gains marked the 77th consecutive month that the economy has added new positions, dating back to late 2010 when temporary census workers were removed from payrolls.
Wage growth, which has long been cited by the FOMC as a reason to abstain from interest rate hikes, was 2.8 percent during February. Over the past six months, wages have posted an average year-over-year improvement of 2.7 percent. Although the Fed would like to see wage growth above 3 percent, momentum in the sector will keep the FOMC on the current path. However, the gap between how much workers earn and home prices continues to widen. January prices for owner-occupied homes were 11 percent higher over the past 12 months.
Mortgage rates have been relatively stable through the first 10 weeks of the year, though a more aggressive Fed stance could encourage financial institutions to act ahead of anticipated movements in the overnight rate. After several years of false starts toward the normalization of interest rate policy, financial institutions are justifiably hesitant to price mortgages in conjunction with the FOMC’s own projections. Elevated completion also keeps lenders waiting until the last minute to move their retail offerings, particularly as lending standards loosen. An unraveling of Dodd-Frank could mute the Fed’s actions in regards to mortgage rates. Given the state of the economy on the eve of the second quarter, we expect the 30-year mortgage rate to end the year in the high-4 percent area.
HomeUnion® is an online real estate investment management firm. Based in Irvine, Calif., it provides all the services needed for individuals to invest remotely in single-family rental (SFR) properties. The company uses a combination of research and proprietary analytics to incorporate data on over 110 million homes and 200,000 neighborhoods into their database, and then delivers its solutions to an on-the-ground infrastructure that currently serves 11 locations. HomeUnion®’s role spans the lifecycle of the investment transaction: identifying sound investments, handling all aspects of acquisition, maximizing income, protecting asset value, and selling the asset when the time comes.
By Steve Hovland
Director of Research
Communications Manager, HomeUnion®