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Each month, we use IBM Watson’s tools to assess the sentiment of hundreds of articles about the US housing market. Overseeing that process is Tides analyst Dan Allen. Insightful and observant, he follows the media and helps us keep a pulse on what’s going on out there. Here are his observations on the top housing media trends in June 2017:
June Housing News Summary
Fed Moves Again without Fanfare
The Federal Open Market Committee raised the federal funds rate by another 25 basis points in June. This rate hike attracted a bit less news coverage than the prior three. Not long ago, talk of rate hikes was accompanied by speculation about mortgage rates rising in tandem and stalling the housing recovery—and the economy. This month’s coverage of the hike was less anxious.
There has been more speculation recently about the Federal Open Market Committee acting soon to normalize the Federal Reserve’s balance sheet. In response to the financial crisis, the Federal Reserve dramatically changed the size and composition of its balance sheet in an attempt to stabilize financial markets and stimulate the economy. Prior to the crisis, the balance sheet stood at less than $1 trillion but has since ballooned to over $4 trillion.
A Return to Normal
Now that the Federal Open Market Committee’s priority has shifted from stimulating the economy to controlling inflation, nontraditional assets such as mortgage-backed securities are likely to be culled from the balance sheet. This can be accomplished by allowing these assets to mature and not reinvesting them or by selling off the assets prior to maturity.
Some committee members have expressed interest in beginning one or both of these processes by the end of the year. Much like raising the federal funds rate, normalization of the Federal Reserve balance sheet is likely to have a very slight cooling effect on the economy. By ceasing reinvestment of assets as they mature, the overall effect on asset markets will be a decrease in demand; conversely by actively selling assets overall supply will increase. Both changes will exert upward pressure on interest rates.
D. R. Horton Wins Forestar Bid
D.R. Horton acquired a 75% stake in Forestar Group in June. Forestar had been in talks with Starwood Capital about an acquisition, but D.R. Horton outbid them at $17.75 per share for a total valuation of $560 million. The acquisition gives D.R. Horton access to a large supply of lots owned by Forestar.
Housing Construction Continues to Sag
Both housing permits and starts faltered again in May. Permits fell month-over-month on a seasonally adjusted basis but remained positive year-over-year while starts declined by both comparisons. Homebuilder confidence declined in June and survey respondents complained of shortages of skilled labor and buildable lots, factors that are likely to continue weighing on homebuilding activity in the future.
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