Much to the frustration of taxpayers all over the country, the tax-filing season begins in January and runs through April 15 of each year. The year 2020 brought us many changes, including an extension on filing taxes. Taxes this year are due on July 15th. Are you ready?
As the current tax season approaches, it presents an opportunity to help tax-payers clarify their responsibilities and remind them of certain important tax deductions that may be available.
Filing Responsibilities
Every person in the United States is required to file their tax returns by July 15 so long as they have some form of qualifying income. Based on filing status, income and available deductions, tax-payers must file a 1040EZ, 1040A or 1040 (long-form for itemized deductions).
Qualifying income is generally defined as, but not limited to wages, commissions, miscellaneous income (rental, interest), investment income and alimony. These forms of income are reported on a periodic basis to the IRS and State governments by employers, banks, contract employers and/or other responsible parties.
The most common tax receipts that must be sent to tax-payers by January 31 are W-2s and 1099-Misc forms.
Calculating Taxes
While the IRS requires individuals to report all forms of income, they also allow certain living costs to be used as deductions to offset income in order to arrive at a "taxable income" number on which tax liabilities are calculated.
If a tax-payer's deductions fail to exceed the combined statutory standard deduction,, they will want to file the 1040EZ or 1040A. If itemized deductions exceed this number, the 1040 becomes preferable.
Mortgage Interest Deduction
For a majority of tax-payers, the largest tax deduction available is usually mortgage interest paid on secured debt where the primary residence and in some cases second homes or rental property serve as collateral. In most of these cases, all interest paid during the year is deductible.
If the mortgages are large enough, the total interest paid will typically push the tax-payer into position to itemize deductions. It is important for tax-payers to read the rules related to mortgage interest deductions as they tend to be somewhat complicated.
Other Important Deductions to Consider
Once a tax-payer qualifies to itemize deductions, many other living expenses become deductible. Other prominent deductions include property taxes, charitable contributions, childcare costs, qualified moving expenses, certain work related expenses and certain medical expenses.
Prior to using any deduction, it is incumbent on the tax-payer to review deduction guidelines in order to determine applicability.
Case-Shiller’s National Home Price Index showed little change in April as home prices rose by 0.10 percent to a year-over-year average of 4.70 percent. The 20-City Home Price Index showed corresponding home price growth of 0.10 percent to 4.00 percent year-over-year.
Ongoing influences on home price growth before the coronavirus pandemic included short supplies of available homes coupled with high demand for homes and low mortgage rates. While closures and shelter-at-home restrictions in many markets slowed buyer and seller activity, real estate analysts said that home-buyer desiring to buy larger homes to accommodate working at home helped maintain home prices. Homeowners relocating to less congested areas also helped with stabilizing home-price growth in April.
Case-Shiller 20-City Index: Home-Price Growth Rates Increases in 12 Cities
The three top cities in April’s 20-City Home Price Index were Phoneix, Arizona with a year-over-year home price growth rate of 8.80 percent; Seattle, Washington reported 7.30 percent yearly growth in home prices. Minneapolis, Minnesota reported home-price growth of 6.40 percent.
Home price growth rates increased in 12 of 19 cities reported. Detroit Michigan did not report to the 20-City Index for the second consecutive month. The coronavirus pandemic continued to grow and spread throughout the U.S during May; some states that opened their economies quickly are now reconsidering as Covid-19 cases rise at faster rates. Changing data and emerging responses to the spreading virus are expected to impact home price growth in the coming months according to whether the coronavirus spreads or diminishes.
FHFA Home Price Index: Home Prices Increase Despite Coronavirus Pandemic
The Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, reported 5.50 percent home price growth year-over-year in April compared to the March reading of 5.90 percent year-over-year growth. FHFA expects home prices to continue rising as real estate markets return to normal. With spring and early summer home sales impacted by coronavirus-related restrictions, Lynn Fisher, deputy director of research and statistics for FHFA, expected sales to pick up during the summer months.
As coronavirus infection rates increase, further restrictions and closings are anticipated and could negatively impact real estate markets and home prices soon.
Are you thinking about using mortgage financing to buy a new home? If so, you've likely heard about mortgage insurance policies requirements and you may be wondering how they will affect you. In today's blog post we'll explore mortgage insurance and explain the difference between conventional, FHA, VA and USDA mortgage insurance policies.
How Does Private Mortgage Insurance or "PMI" Work?
While there are a number of reasons that your lender may require mortgage insurance, in general you'll be required to purchase a conventional PMI policy if you are putting less than 20 percent of the home's value in as a down payment.
Another way your lender might explain this is that you have a "loan to value" or "LTV" ratio of higher than 80 percent, which means that the amount of your loan divided by the value of your home is higher than 0.8.
The cost of your private mortgage insurance policy will vary depending on a number of factors, such as your financial situation, FICO credit score, the cost of your home and more. Generally speaking you'll be required to pay from one-half to one percent of the cost of your monthly mortgage payment in insurance fees.
Once your LTV ratio moves below 80 percent you may no longer be required to pay for PMI.
How Does VA Mortgage Insurance Work?
If you qualify for a mortgage from Veterans' Affairs you'll be pleased to know that you won't be required to pay for mortgage insurance. In some instances you actually won't be required to pay a down payment either, meaning that you may be able to borrow up to $400,000 to purchase a home without having to invest a cent of your own capital.
How Does USDA Mortgage Insurance Work?
Did you know that the Department of Agriculture runs a mortgage program? The USDA Rural Development mortgage offering is government-backed and like the VA mortgage program above you can finance 100 percent of the cost of your home without investing a down payment. However, unlike the VA program you'll be required to pay for mortgage insurance. Currently the annual mortgage insurance premium on USDA loans is 0.5 percent.
How Does FHA Mortgage Insurance Work?
Finally, don't forget about the Federal Housing Administration's mortgage program. If you qualify for a FHA-backed mortgage, you'll be paying about 1.35 percent in mortgage insurance premiums if you make the minimum down payment.
As you can see, there is a bit of a learning curve involved with fully understanding how all of the different types of mortgage insurance work. To learn more about mortgages and how insurance can benefit you, contact your local mortgage professional today.
Last week’s scheduled economic news included readings on sales of new and pre-owned homes and reports on inflation. Weekly reports on mortgage rates and new and continuing jobless claims were also released.
Home Sales Results Mixed for May
The National Association of Realtors® reported fewer sales of pre-owned homes in May at a seasonally-adjusted annual pace of 3.91 million sales. Analysts expected 3.80 million sales as compared to April’s reading of 4.33 million sales. This was the lowest reading for sales of pre-owned homes since July 2010 and sales were 26.60 percent lower year-over-year.
Lawrence Yun, the chief economist for the National Association of Realtors®, said that sales were expected to rise as coronavirus-related restrictis were lifted and people returned to work. Mr. Yun said in a report that sales of previously-owned homes should surpass last year’s annual sales pace in the second half of 2020. Mr. Yun made this forecast before rising coronavirus cases occurring after the reopening of the economy started.
There was a 4.80 months supply of previously-owned homes for sale in May, which was below the six-months supply indicating a balanced market.
The Commerce Department reported 676,000 new homes sold in May on a seasonally-adjusted annual basis; this surpassed expectations of 650,000 sales and April’s revised annual sales pace of 580,000 new homes sold. New home sales rose by 45.50 percent in May in the Northeastern region; New home sales rose by 29 percent in the West and 15.20 percent in the South, New home sales fell by -6.40 percent in the Midwest.
The average sale price of new homes was $317,900 in May. There was a 5.60 months supply of new homes available in May, which nearly matched the six months average inventory.
Mortgage Rates Hold Steady as JoblessClaims Fall
Freddie Mac reported little change in average mortgage rates last week. Rates for 30-year fixed-rate mortgages were unchanged at an average rate of 3.13 percent; The average rate for 15-year fixed-rate mortgages rose by one basis point to 2.59 percent and the average rate for 5/1 adjustable rate mortgages fell one basis point to 3.08 percent. Discount points averaged 0.80 percent for fixed-rate mortgages and 0.50 percent for 5/1 adjustable rate mortgages.
Initial jobless claims fell to 1.48 million from the prior week’s reading of 1.51 million new claims. Continuing jobless claims were also lower last week with 19.50 million claims filed as compared to 20.30 million claims filed the previous week.
Rising Inflation Indicates Improving Economy
Inflation rose to a seasonally-adjusted annual pace of 8.20 percent in May as compared to April’s reading of -12.60 percent Analysts expected the inflation rate to reach 9.90 percent.
What’s Ahead
This week’s scheduled economic news releases include readings on pending home sales, Case-Shiller Home Price Indices, and labor-sector jobs reports. The national unemployment rate will be released along with weekly readings on mortgage rates and new and continuing jobless claims.
There are multiple types of loans out there and one of the easiest to get is called a hard money loan. On the other hand, it is also important for people to avoid being lured in by an attractive loan offer because it might be expensive. When it comes to a hard money loan, there are a few important points that people should note. These can be an essential tool for investors.
What Is A Hard Money Loan?
As a rule of thumb, most people look at a hard money loan as a tool of last resort. This is usually employed as a short-term loan or a bridge loan. This type of loan is commonly found in real estate deals.
Even though many people refer to a hard money loan as a loan of last resort, they serve a bigger purpose than this. Lots of real estate investors take out a hard money loan as part of their financing strategy, particularly if the goal is to fix the house and flip it. There are a few ways that a hard money loan will differ from a traditional loan.
How A Hard Money Loan Is Different
It is important to compare a hard money loan to a traditional loan that people get from a lender, such as a mortgage. Some of the key differences regarding a hard money loan include:
In contrast, the approval process for a mortgage takes a longer time and is harder to get. On the other hand, a mortgage typically comes with a lower interest rate when compared to a hard money loan. This is what people mean when they say a hard money loan is more expensive.
Should Investors Get A Hard Money Loan?
If the goal is to buy a house and flip it quickly, it is important to get approved for loans in a short amount of time. This is where a hard money loan can be helpful. If the loan is going to be paid off quickly with the sale of the house, then the expensive interest rate isn’t as big of a deal. This is the major advantage of a hard money loan.
There are many people who set buying a home as one of their major life goals. There is a lot that comes with owning a home including a major investment opportunity, a sense of stability, and a feeling of pride; however, homes are also expensive. It can be challenging to find a home loan.
A traditional mortgage requires a thorough credit check and could take a long time to get approved. Some people might not even qualify.
On the other hand, there is also a helpful alternative called an instant pre-approved home loan. There are a few important points that everyone should keep in mind.
What Is An Instant Pre-Approved Home Loan?
A pre-approved home loan is a loan that has been offered to existing customers of a certain lender with an immediate sanction. The funds are disbursed once the property has been verified.
The point of a pre-approved home loan is to skip the lengthy procedure that is usually required for someone to obtain a home loan. The bank makes this loan offer available to customers even before they have selected the property they want to buy. A pre-approved home loan often comes with a strong offer at an affordable price. Sometimes, the pre-approved home loan is even offered at a lower interest rate when compared to the current market average.
In order to offer a pre-approved home loan, the bank will still go through the credit history, payment history, and bank statements of its customers.
There are a few major features of a pre-approved home loan that people should note. Usually, these loans are only available for a short period of time. Second, the pre-approved home loan allows borrowers to manage their funds well. They usually bank with the same lender. Finally, there is some room for negotiation when it comes to a pre-approved home loan.
Is A Pre-Approved Home Loan The Right Option?
Many people are wondering if a pre-approved home loan is the right option for them. The downside of a pre-approved home loan is that people are limited to that specific lender. Therefore, it is a solid strategy to continue to check around with other lenders to find out about their comparable rates.
When someone is applying for a mortgage, it is important to consider the other costs that go along with taking out this type of loan. While many people focus on the down payment, the size of the loan, and the interest rate, there are other costs that might go along with taking out a mortgage.
These hidden fees are sometimes referred to as "nickels and dimes" that the lender tacks on to the loan to try to make some extra money. When compared to the size of the loan, many borrowers shrug this off because the loan is so big; however, nobody should have to pay more than they should. It is important to aim for the lowest borrowing costs possible when applying for a mortgage.
The Hidden Borrowing Costs Of A Mortgage
There are several hidden borrowing costs when it comes to a mortgage. One of the most common hidden borrowing costs is called origination fees. An origination fee is a fee that is tacked onto the mortgage for printing the papers. It is important for borrowers to ask about origination fees and try to get them waived, if possible.
A second hidden cost when it comes to a mortgage is called points. Points are interest payments due at signing. In this manner, the lender is asking for more money upfront in an effort to earn interest on that money sooner. Borrowers should keep their eyes open for points and avoid them, if possible.
Finally, some borrowers might also be asked to purchase PMI. While this isn't a "hidden" cost, it is something that borrowers should know. This is mortgage insurance that the borrower purchases for the lender to protect the lender against the risk of default. Borrowers can often avoid this expense as long as they put enough money down; however, this down payment hurdle might be lowered if the borrower has a strong credit history and plenty of assets.
Reduce The Cost Of Taking Out A Mortgage
These are a few of the most common added costs that borrowers might face when they take out a loan. Everyone needs to keep their eyes open for these hidden costs so they don't pay more than they should.
When it comes to putting a down payment on a house, most lenders are going to ask for 20 percent; however, some lenders will be willing to accept a smaller down payment in exchange for something else.
That something else is usually mortgage insurance. If a lender says they are asking for mortgage insurance, which is also shortened to PMI, it is important for everyone to know what this means.
An Overview Of PMI
PMI stands for private mortgage insurance and is usually required if the borrower is putting down less than 20 percent. The lender will usually go out and find private mortgage insurance before shifting the premium for the insurance policy to the borrower.
Usually, PMI is included with the rest of the mortgage payment. The lender will take the portion of the mortgage payment that makes up the PMI and shift this into an escrow account. Then, the lender will simply move this out of the escrow account to the insurance company to cover the cost of the policy. This is the most common type of mortgage insurance.
What Is The Cost Of Mortgage Insurance?
The cost of PMI is going to depend on a number of different factors. Some of the factors include:
In general, the larger the down payment and the higher the credit score, the lower the mortgage insurance is going to cost. It is also important for people to note that mortgage insurance is not going to last for the length of the mortgage. As a whole, most PMI policies will be phased out once the amount of equity in the home reaches 20 percent of the home’s value. Then, the PMI will usually be waived.
The Purpose Of Mortgage Insurance
Some people might be wondering why they need to purchase PMI at all. This is an insurance policy that is meant to protect the lender against the risk of the borrower defaulting. If the borrower is able to convince the lender that their risk of default is low, they might be able to avoid being asked for PMI.
Last week’s scheduled economic reporting included readings on U.S. Housing markets, housing starts, and building permits issued. Weekly reports on new and continuing jobless claims and mortgage rates were also released.
NAHB: Builder Confidence in Housing Market Recovers in June
Analysts cited slim supplies of available homes, tight housing markets, and low mortgage rates as drivers of new home sales. Builder confidence in current housing market conditions rose 21 points to an index reading of 58 in June; builder confidence in housing market conditions in the next six months rose 22 points to 68.
Builder confidence in buyer traffic in new single-family housing developments rose from May’s index reading of 21 to 43 in June. Readings for buyer traffic are typically lower than the benchmark reading of 50.
Readings over 50 indicate that most builders are confident about housing market conditions and component readings of the Housing Market Index. Prospective home buyers continued to face obstacles of high unemployment and loss of income due to the coronavirus pandemic; these factors will likely impact builder confidence for months ahead as impacts of the pandemic change.
Housing Starts, Building Permits Issued Increase in May
The Commerce Department reported 974,000 housing starts on a seasonally-adjusted annual basis in May as compared to a pace of 934,000 housing starts reported in April. Building permits issued in May rose to 1.22 million permits issued on an annual basis from April’s pace of 1.07 million permits issued. Analysts expected 1.25 million permits to be issued in May on an annual basis.
Mortgage Rates Hit All-Time Low as Jobless Claims Decrease
Freddie Mac reported lower mortgage rates that were the lowest mortgage rates recorded. The average rate for a 30-year fixed-rate mortgage was eight basis points lower at 3.13 percent; interest rates for 15-year fixed-rate mortgages averaged 2.58 percent and were four basis points lower than for the prior week. Interest rates for 5/1 adjustable-rate mortgages averaged one basis point lower at 3.09 percent. Discount points averaged 0.80 percent for fixed-rate mortgages and 0.40 percent for 5/1 adjustable-rate mortgages.
First-time jobless claims fell to 1.51 million claims last week as compared to the prior week’s reading of 1.57 million initial claims filed. Continuing jobless claims also fell; 20.50 million claims were reported as compared to 20.60 million ongoing jobless claims reported the prior week.
What’s Ahead
This week’s scheduled economic reports include reports on sales of new and previously-owned homes, FHFA’s Home Price Index, and the University of Michigan’s consumer sentiment index.
Millennials are among the most common demographic buying homes today. According to numerous reports that have been published, many homeowners are planning on conducting a home improvement project this year. In large part, this is due to millennials wanting to improve their homes.
Furthermore, home improvement projects may have bigger budgets this year when compared to prior years. It will be interesting to see what kind of home improvement projects unfold this coming year.
Types Of Home Improvement Projects
There are numerous renovation projects that homeowners are going to undertake this year. The most common are outdoor remodels. Many homeowners want to produce encompassing decks, providing a larger space for people to get together and hang out.
In addition to decks, people are looking to add patios as well. Patios can be made from a variety of materials; however, stone is becoming more popular. Homeowners are thinking about adding outdoor kitchens as well.
The most popular indoor renovation project involves the bathroom. People are starting to realize just how much time they spend in the bathroom. With new trends unfolding in terms of baths, showers, and toilets, many homeowners are looking to make an upgrade.
Finally, kitchen renovations are going to be popular as well. This comes as part of a push to generate an open concept among the kitchen, living, and dining areas. With new appliances coming out, there are plenty of opportunities for kitchen upgrades as well.
Reasons For Home Improvement Projects
Many experts are wondering why these home improvement projects are taking place now. The biggest reason is that homeowners are worried about the impression their house would make on their guests. Many homeowners are indicating that they have been planning these projects for a while; however, they haven’t had the time or money to carry out this project until now.
More Home Improvement Projects Are Coming This Year
With more people looking to carry out home improvement projects, expect to see a major jump in home values. Many homeowners enjoy a significant return on the investment they make in home improvement projects. This means that the value of their house may see a jump once the project is finished.
When you buy a new house, the first thing you want to do is protect your investment. You already have property insurance. Should you also buy a home warranty?
What Is A Home Warranty?
A home warranty is not the same thing as insurance. Home warranties are service contracts. If a covered item breaks down and it is covered in the terms of the warranty, the home warranty company will pay to fix or replace that item.
What is Covered Under A Home Warranty?
Every home warranty contract is different but generally, a home warranty may cover items like major kitchen appliances, HVAC components, sump pump, in-home sauna or spa tub, and/or ceiling and exhaust fans.
Often, a homeowner can get an extended warranty contract that covers items like the washer and dryer, garage door opener, septic system and swimming pool components.
Understand The Costs
A basic home warranty costs between $350 and $500 annually, depending on what coverage you get. However, if something does break, you will also be on the hook for incidentals like service call fees or a deductible.
Know The Benefits
There are considerable benefits to having a home warranty contract in place, especially when something expensive breaks down, like a furnace. There is a lot of peace of mind knowing that you will be able to quickly get something fixed in your home.
You Might Already Be Covered
Your homeowner's insurance policy might cover some of the same things that are covered with a home warranty. So you could be paying for duplicate coverage on some items. However, your homeowner's insurance likely will not cover a dishwasher that needs to be replaced or a fridge that suddenly goes out.
There Are Alternatives
Finally, before you pay for a home warranty, remember that there are alternatives. For example, most HVAC companies offer financing options to buy a new furnace. Most appliance stores also offer financing on major purchases like refrigerators and dishwashers. You could save your $500 or so a year and put it in a savings account for a rainy day instead of gambling that you might have a major repair or purchase that year.
There are pros and cons to home warranty plans. Just be sure you fully understand both sides of the issue before you sign on the dotted line.
As a homebuyer, your real estate agent will do their best bring you to see homes that meet the criteria you asked for. However, there's no guarantee that a home will have a history of being properly cared for.
Your real estate agent can choose the homes you see, but they have no control over the property owner's homeownership habits.
Why Home Maintenance Matters
Home maintenance should matter to you as a homebuyer and later on as a homeowner. A home needs consistent and proper maintenance in order to run efficiently, and that doesn't only apply to moving parts like the HVAC system. If a home isn't looked after, it begins to run down and then break down.
Just as a poorly maintained vehicle will eventually strand its owner on the side of the road, a poorly maintained home will eventually fail to properly house its occupants.
How To Tell If A Home Has Been Well-Maintained
A home that hasn't been cared for will easily give up its secrets to a discerning homebuyer. Conversely, you can tell if a home has been cherished and well-maintained over the years.
These are all positive signs for a prospective homebuyer. Of course, you must still pay attention to the home inspection report. But odds are if you see all these signs, you're probably looking at a new home that will serve your needs for many years to come.
The cost of living in America varies widely in different parts of the country. In general, it is less expensive to live in the country than in the cities.
However, there are many cities where the cost of living is modest compared to others where the money needed to live there is outrageous in comparison.
These rankings came from comparing the monthly cost of renting a one-bedroom apartment, utilities, the price for gasoline, and the cost of groceries.
The Ten Lowest-Cost Cities For Renters
From Texas and Ohio to New Mexico and Arizona, there are some nice cities in this low-cost group.
The top ten lowest-cost cities are:
For the top ten lowest-cost cities, the total monthly expenses for two adults ranges from just under $1,200 per month in El Paso to just over $1,500 per month in Mesa. These cities are a great deal when compared to other cities.
In America, the median rent of $1,566 per month is more than the total amount needed to live in these low-cost cities.
The Ten Highest-Cost Cities For Renters
It is not surprising that the biggest metropolitan areas are on the high-cost list.
The top ten highest-cost cities are:
For the top ten highest-cost cities the total monthly expense for two adults ranges from just over $2,000 per month in Irvine to over $4,200 per month in San Francisco. For those wanting to live in the “City by the Bay” of San Francisco, both of the people in a couple better have an incredibly well-paying executive position to be able to afford to live there.
What About Home Buying?
The national median home price in America is $229,000. The city with the highest median home price is San Francisco at $1,352,000. New York is only $672,000 in comparison. The median home price in El Paso is $129,800; however, El Paso does not have the lowest-priced homes in the country.
The Top Ten Cities With The Lowest-Priced Homes
There are many cities where the homes sell at bargain prices for under $100,000, these include:
Conclusion
There are bargains to be found in many parts of America for those that do not have to live in the big cities.
Many younger people are now part of the “gig” economy. They do all of their work online and can work from anywhere that has a decent Internet connection. For these young people, finding a lost-cost city in America to live in and finding a modestly-priced home to buy is not limited to any particular area.
Last week’s economic reporting included readings on inflation, the post-meeting statement from the Fed’s Federal Open Market Committee, and consumer sentiment. Weekly readings on mortgage rates and jobless claims were also released.
Inflation Ticks Up in May
May’s Consumer Price Index moved from April’s reading of -0.80 percent to -0.10 percent. The Core Consumer Price Index, which excludes volatile food and energy sectors, rose to -0.40 percent in May as compared to April’s reading of -0.40 percent. The Consumer Price Indices are used to calculate overall and core inflation rates. The Federal Reserve uses an annual inflation rate of 2.00 percent as an indicator for achieving price stabilization.
The Federal Open Market Committee of the Federal Reserve said in its post-meeting statement that the Fed would do all it can to ease the economic downturn caused by the Coronavirus and left the current federal funds rate of 0.00 to 0.25 percent unchanged. Fed Chair Jerome Powell indirectly encouraged legislators to approve funding for additional coronavirus relief.
Mortgage Rates Remain Stable as Jobless Claims Fall
Freddie Mac reported little change in average mortgage rates last week as the average rate for 30-year fixed-rate mortgages rose by three basis points to 3.21 percent. Rates for 15-year fixed-rate mortgages averaged 2.62 percent and were unchanged from the previous week. The average rate for 5/1 adjustable rate mortgages was also unchanged at 3.10 percent. Average discount points rose to 0.90 percent and 0.80 percent for 30-year fixed-rate mortgages and 15-year fixed-rate mortgages. Discount points for 5/1 adjustable rate mortgages averaged 0.40 percent.
Jobless claims remained far higher than pre-coronavirus levels but were lower last week than for the prior week. 1.54 million first-time jobless claims were filed as compared to 1.90 million claims filed the previous week. 29.50 million continuing jobless claims were filed last week as compared to the prior week’s reading of 30.20 million continuing unemployment claims.
The University of Michigan reported a higher index reading for consumer sentiment in May with a reading of 87.8 as compared to April’s index reading of 82.3.
What’s Ahead
This week’s scheduled economic reports include the National Association of Home Builders Housing Market Index and Commerce Department readings on housing starts and building permits issued. Weekly readings on mortgage rates and unemployment claims will also be released.
The Federal Reserve’s monetary policy committee decided against changing the Fed’s benchmark interest rate range of 0.00 to 0.25 percent. The Federal Open Market Committee said in its post-meeting statement that it is not considering raising rates until 2023. Two of 17 FOMC members felt that the Fed’s key rate may rise in 2022.
Fed Approves Quantitative Easing Measures
Committee members also stabilized the Federal Reserve’s ongoing purchases of Treasury bills and mortgage-backed securities and said that the Fed would purchase Treasury bills and mortgage-backed securities “at least at the current pace.” The Fed was tapering its purchases before the Coronavirus pandemic.
FOMC members moved to stimulate the economy through quantitative easing. The Fed purchased $20 billion in Treasurys and agreed to purchase up to $22.5 billion in mortgage-backed securities this week. The Fed’s balance sheet was higher than $7 trillion as of June’s FOMC meeting, but former New York Federal Reserve President William Dudley expected the Fed’s balance sheet to reach $10 trillion.
Fed Chair Jerome Powell remained cautious about a quick economic recovery in response to last week’s report of 2.5 million jobs added in May. Mr. Powell noted that it was only one month’s data and that 20 million people remain out of work. Some analysts interpreted Mr. Powell’s comments as pressure on Congress to approve another stimulus package. FOMC members also discussed capping certain Treasury yields, but no decision was made.
Federal Reserve Chair Favors a Cautious Approach to Economic Recovery
Fed Chair Jerome Powell emphasized the Fed’s position of supporting the economy to the extent it is permitted. In his post FOMC meeting press conference, Mr. Powell said the Fed’s goals during the pandemic were to “provide some relief and stability, ensure that the recovery will be as strong as possible and to limit lasting damage to the economy.”
Mr. Powell predicted that the decline in real Gross Domestic Product (GDP) in the current quarter would likely be the most severe to date. He also said that the Coronavirus has not impacted Americans equally as “those least able to shoulder the burden have been the most affected.”
After saying that the extent of the economic downturn and the pace of economic recovery remains extremely uncertain, Mr. Powell indirectly called upon Congress to pass needed funding and provisions to provide additional relief until economic conditions return to normal. He said that the Fed would do “whatever we can, for as long as it takes” to assist in economic recovery.
