Overview: Over the past week, the troubles in the banking sector did not spread, but investors remained cautious. The Federal Reserve meeting produced the results most analysts anticipated, and the reaction was relatively small. In the end, mortgage rates were just slightly higher.
At Wednesday’s meeting, the Fed raised the federal funds rate by 25 basis points to a target range of 4.75% - 5%, the highest level since September 2007. The latest projections from officials for the terminal (peak) rate remained near 5.1%, suggesting that they anticipate there will be one more 25 basis-point hike in this tightening cycle. The meeting statement said that it was too soon to tell how much recent banking troubles would impact the economy. The bank issues likely will result in “tighter credit conditions,” but the extent to which it will slow economic growth is “uncertain.” During his press conference, Fed Chair Jerome Powell emphasized that the Fed would continue to do whatever it takes to bring inflation back down to its target level of around 2% annually based on incoming economic data. In housing news, sales of existing homes rose for the first time in a year. In February, existing-home sales increased 15% from January, far above the consensus forecast, yet still were 23% lower than last year at this time. Inventory levels were an encouraging 15% higher than a year ago but remain at just a 2.6-month supply nationally. The median existing-home price of $363,000 was 0.2% lower than last February, the first annual decline in home prices in over 10 years.
Additional home inventory has been badly needed for quite a while, and the latest data was mixed. In February, multi-family housing starts jumped 24% from January, while starts of single-family units rose just slightly and remained 32% lower than a year ago. Also notable, single-family building permits, a leading indicator, increased for the first time in a year.
Existing-Home Sales (millions)
Looking ahead, investors will continue to closely watch for signs of problems in additional banks or other areas of the financial system. They will also be alert for hints from the Fed on the outlook for future monetary policy. For economic reports, the New-Home Sales report will be released on March 23, and the Consumer Confidence Index will come out on March 28.