The first quarter was marked by growing optimism about global growth, particularly with strong data pointing to a recovery in the United States. The stronger than expected growth increased speculation the U.S. Federal Reserve might scale back its aggressive stimulus earlier than planned. Mortgage rates increased .25% during the quarter but would have been much more if the Fed were not buying $40 billion of MBS on a monthly basis. The housing market is clearly on a path to recovery. The chart below shows the number of new housing units authorized by building permits over the last two years. Inventory of homes for sale continues to decrease and sales activity is increasing. At the current sales pace, there are 4.4 months of existing home supply on the market. This is the lowest level this has been since March 2005. This should be good for home prices going forward.
The U.S economy has a seasonal tendency to weaken in the second quarter and effects of fiscal tightening may compound the bearish trend. The euro zone’s financial crisis re-emerging in one form or another from time to time remains another downside risk . Keep an eye on next week employment report; it could set the trend for rates for the next 30 days. Happy Holidays.