Real Estate Analysis and Commentary in Peoria, Arizona

It has been nearly 100 days since our last blog post about the market changes happening in Maricopa County and all over the country for that matter.  

We get a lot of calls, asking us if the housing price drop of 2008 is here now, and that is a difficult question to answer.  It is yes and no, with a little grey in the middle.  Interest rates and rising basic living costs have skyrocketed in the past six months.  Rates have risen from the mid 3% area to 7%.  I will give a basic example of the dollar / affordability differences between the two.

A $350,000 loan amount, amortized over 30 years at a 3.5% interest rate would require a $1,572, per month, (principle & interest) payment.  At a 7% interest rate, the monthly payment would be $2,329, per month (principle & interest).  That is a whooping difference of $757, per month more for the same home.  So, for a typical family with a car payment, a few credit car payments, a college loan payment, and a house payment, the mortgage payment has to typically fit with-in a 45% to 50% loan to debt ratio.  So lets do the math, buyer A has a combined household income of $82,000 or $6,833 (prior to taxes).  45% to 50% of that income, per month, would leave $3,417 to $3,758 left for your revolving debt (car payments, credit card payments, loan payments, mortgage payments, etc.).  

So buyer A, has a car loan payment of $700, per month, a furniture loan of $150, per month, $250 in monthly credit card debt, and a $500, per month, loan on that fishing boat for a total revolving debt of $1,600 (not including the mortgage payment).  Therefore, in the best (50% loan to debt ratio) scenario, they would be able to qualify for a mortgage payment of $2,158.  So you can see at a 3.5% interest rate, buyer A would be able to afford a mortgage amount of around $475,000 (this is why home prices were higher).  Now, at a 7% interest rate, with the same Buyer A, they would be able to afford a mortgage amount of $320,000 (best case scenario).  Net difference in the affordability index of $155,000 less (mortgage amount).  This is huge, and this is why home prices are dropping.  Based on this simple affordability index example, home prices for the same home with a constant down payment, would have to drop approximately 32% at a 7% mortgage rate before Buyer A would be able to purchase the same home at a 3.5% mortgage rate.

Now, this doesn't factor in the higher prices of fuel, groceries, and basically every item consumed by consumers in the United States in the past two years or so.

So to simplify what is happening, it isn't that we had a housing bubble, it is that there was an interest rate bubble.

So will housing prices drop 32%?  We don't think so, but there will and has been a correction in the past six months or so, and this will continue until houses are at price-points that allow the typical homeowner to be able to qualify for a mortgage.  As always there are a lot of other factors in play, like rising income taxes, mass job cuts and/or unemployment, natural disaster, conflicts, etc.

We know personally that a lot of customers ask "is now a good time to buy", and the answer is yes if you need a home and don't need to sell.  It is a complete buyers market right now, selling a home is difficult and there is a lot of other listings to compete with.  If the dream house you are waiting to drop in price, drops in price, more than likely the home you need to sell will drop in price at a similar rate, so it will equal out.  If you don't own a home, now is a good time to bargain shop, as buyers have the leverage in negotiation currently.

Let's see what happens over this last quarter, and we should be able to tell some long term trends and we will update the blog in another 90 days or so.

Posted by Jason Clow on October 6th, 2022 2:39 AMLeave a Comment

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May 10th, 2022 12:10 PM
by Jason Clow
Opinion Piece

Well it has been a few months since the desktop appraisal option has been available in lender's toolboxes.  As a firm, we have not yet received an order for a desktop appraisal; however, we are making sure we are prepared and ready when the time comes.

As we discussed in the previous blog, the biggest hurdle in our opinion was the special drawing / floorplan required to be performed by a third party source.  So, we decided to sign up for CubiCasaTM as it is really the only option available for appraisal firms that do not work for AMC's.  


I tasked my youngest certified appraiser with the job "Mackenzie".  We had a vacant house (but staged with furniture) that we have physically measured recently, that was going to be our test subject.  The home was a very basic single level home, built in the late 70's, and considered a very easy measure, even for a novice appraiser.  I told Mackenzie to watch the YouTube videos from CubiCasaTM, install the software on your smart phone and go measure this house like any third party realtor or homeowner would do and do a write-up of your experience.

Mackenzie, watched approximately 45 minutes of training videos on how to use the measuring software, installed the software on his smart phone, and logged into our CubiCasaTM account.  The actual measure using the software took approximately 12 minutes and was sent to CubiCasaTM for rendering.  We received the floorplan / sketch back in approximately 24 hours and were impressed overall.

The livable square footage of the home based on physical measurement was 1,758 sf, with a 542 sf garage, a 43 sf covered entry, and a 167 sf screened patio.  Performed to ANSI-Z765-2021 standards.

The livable square footage of the home based on CubiCasaTM smart phone software was 1,829 sf, with a 510 sf garage, and a 166 sf screened patio.

So the correctly measured square footage performed to ANSI standards was 71 sf smaller (livable) than the software measuring tool.  Not too bad actually, but still was hoping it would be a little closer overall.  Wall thickness was 0.5 which is similar to what CubiCasaTM calculates also.  The interior walls and floorplan was surprisingly accurate.

In conclusion, the typical homeowner would not be able to use this software based on our experience with the last COVID-19 desktops, where we sent an app link to homeowner's smart phones to gather notes and photos of the interior of the property.  That was in itself challenging for about 50% of homeowners.  Also believe it or not, a large portion of the population of homeowners do not have current smart phones and/or don't use them for "apps".  We believe seasoned realtors would be able to use this software effectively and it would take approximately 20 to 30 mins on average (including interior photos / notes).  WE WERE IMPRESSED WITH THE CUBICASATM SOFTWARE, AND IT IS A GREAT FLOORPLAN DRAWING TOOL ESPECIALLY FOR MARKETING PURPOSES OR VISUAL PURPOSES.  

See the two drawings for comparison below:

Physically measured drawing on Alamode Sketching Software


Posted by Jason Clow on May 10th, 2022 12:10 PMLeave a Comment

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How to prepare your home for an appraisal during the COVID-19 era:

Social distancing and limited contact measures have drastically increased over the past 30 days.  An invisible enemy has attacked the United States and much of the world.  Business must continue and as far as mortgages and appraisals go, homes still need to be appraised for mortgage financing purposes.  So, what should appraisers and home owners do to maintain social distancing and to protect one another.


1.  The appraiser should be free of any symptoms including coughing, fever, etc.  At West Valley Appraisal Services, the appraiser(s) that represent our company, will only inspect a property if and only if they have no symptoms, no COVID-19 tests outstanding, and no known contact with anybody known to have the COVID-19 virus.

2.  The appraiser should wear gloves to avoid any physical touching of any surface of the home (skin to surface).  At West Valley Appraisal Services, the appraiser(s) that represent our company will wear clean rubber gloves at every inspection.

3.  The appraiser should respectfully inquire whether anyone in the home, or present during inspection, is ill or has been exposed to anyone with COVID-19.


1.  Please have all lights on and doors / gates opened prior to the appraiser arriving at the property.  At West Valley Appraisal Services, the appraiser will first inspect the exterior of the property.  Open the garage and keep any pets inside (or off the property) for the first phase of the appraisal inspection.

2.  Once the appraiser is done with the exterior appraisal inspection, please put the pets in the backyard if possible.  Occupants are advised to also move to the the backyard or keep at least six foot distance from the appraiser as he or she moves throughout the home taking notes and photos of the interior of the property.

3.  If somebody is sick or has an outstanding COVID-19 test, please notify the appraiser prior to the appraisal inspection to discuss alternative inspection options / times.  It is critical to maintain the CDC guidelines throughout the process.  

4.  Any information the home owner / real estate agent would like to share with the appraiser (upgrades, solar information, improvements, etc.) need to be delivered to the appraiser via email in digital format.  No paper copies.

5.  At the end of the appraisal inspection, the appraiser will let themselves out, please secure your home, including gates / garage door.

Thank you so much for your help as the home occupant to ensure the safety of not only yourselves, but the appraiser and the general public.


Jason Clow (Owner)

West Valley Appraisal Services

Office: 602-717-8450

Fax: 623-349-0652

Posted by Jason Clow on March 29th, 2020 1:49 PMLeave a Comment

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November 16th, 2019 9:42 AM

Appraisal Waivers (Risks & Rewards)

by Jason Clow, owner and founder of West Valley Appraisal Services

I am going to preface my blog, stating that any information, examples, etc. are regarding residential properties from my area of expertise in Maricopa County Arizona (the fourth largest county in the United States).  For reference, I have been an appraiser in Maricopa County for over 20 years and a Realtor in Maricopa County for nearly 20 years.

Appraisal Waivers for residential properties really started in early 2017 for low Loan to Value (LTV) mortgages.  Currently they are being used in a much wider range of mortgage products and for a larger pool of borrowers.  Currently (taken from the Fannie Mae website (dated 08/07/2019).  The following link shows the list of the criteria regarding qualifying for an AW (appraisal waiver):

Fannie Mae has been collecting information / data from appraisers for years on all mortgage transactions that appraisals were performed to assist in the AVM (Automated Valuation Model).  What is an AVM?  Well it is a computer-generated appraisal to provide a quick risk assessment based on what the AVM states the value range is of a specific residential property.  Basically, borrowers with good credit, good equity (based on the AVM) for refinances, and a typical down payment putting the loan to AVM value ration in a low risk scenario. 

Why would Fannie Mae allow loans to be funded without an appraisal?  Well the simple answer is simplification of the mortgage process, a reduction in cost associated with the loan to the consumer, and confidence in collected data from previous appraisals over the years.  It is basically an accepted risk tolerance for a specific borrower. 

What are the risks associated with appraisal waivers on the overall real estate market (regarding Maricopa County, but could possibly be applied to other cities and counties throughout the U.S.)?

  1. Computer collected data can not determine quality differences or differences in conditions / upgrades, or any improvements performed / or damage done since the last real appraisal was completed. This can result in a borrower purchasing a home that can be drastically above what the actual market can support (see real life examples below).
  2. Although, yes it can speed up the loan / purchase time frame, have you ever asked yourself why anybody would want to make one of or the largest purchase decision of their life, and have that process sped up an additional week or so? What would you be giving up? Well a physical measurement of the home to ensure that it is the square footage you are purchasing; A professional appraisers inspection and rating of the home based on review of other sales in the market area; A review of the actual most similar comparable sales available and what others were willing to pay for them; And finally having peace of mind knowing that a licensed / educated appraiser agrees that the opinion of market value is current and supported.
  3. Allowing people and entities interested in the financial gain attained through a residential mortgage loan value the property. What does this mean? Well, on a $300,000 purchase, the real estate appraiser typically earns 0.1 to 0.2% of the purchase price for their non-biased opinion of value (appraisal fees are not based on sales price or value, but rather on complexity of the assignment), while realtors involved in the transaction typically earn 4-7% of the $300,000 purchase price, and lenders typically earn between 2-7% of the loan amount (the higher end is typically only on higher interest / more risk loans).
  4. Appraisal waivers can increase prices drastically, which is good for residents in the communities; however, this is an artificial inflation, and trying to sell your home for the inflated price could result in long marketing times, unrealistic expectations, damages in planning, and pricing out buyers.
  5. The actual loss of new information to collect for Fannie Mae’s AVM (example would be a home that sold three years ago not remodeled, then re-sold to an appraisal waiver buyer, the AVM would not have collected that information for future AVM’s).
  6. There are a lot of other flaws in this process, but this touches on a few of them.

What are the benefits associated with appraisal waivers for individuals involved in a transaction an appraisal waiver was allowed?

  • For well qualified borrowers with real equity in their property, the cost involved with the appraisal is eliminated and the loan can typically close a few weeks sooner.
  • Savvy individuals who already have a good handle on property values, etc. can eliminate an unnecessary cost.
  • Lenders can streamline the process. I am sure everybody has heard the terms for super-fast loans, well an appraisal is a non-biased process historically that determined the market value of the property, which could often dictate lending limits, etc.
  • There are other benefits; however, this blog is focused more of the dangers and/or risks involved.

Below is a list of three real life examples I have personally had in the past six months regarding failure of appraisal waivers.  Two are as an appraiser and one is as a Realtor.

Example 1.

I was representing a client to sell their home, so I have my Realtor hat on.  As a Realtor my job and obligation is to assist my client to obtain the best sales price for their property as possible and protect the interests of my client.  I am going to use false numbers, but similar % differences for reference.

I took the listing and we discussed the initial list price.  This home was in a strange market with differing quality of homes located basically across main / different streets.  3,000 sq.ft. homes on one side of the street would typically sell for $500,000+-, 3,000 sq.ft. homes between the two main streets the same quality of home would typically $400,000+-, and 3,000 sq.ft. homes to the south of the main street would typically sell for $325,000+-.  This is all with-in about a two-mile radius, with limited (recent sales in the middle section, but historic data coupled with current data showed these differences.  The market data in the exact micro market was showing a list price of approximately $425,000 on the high end.  I showed my client all the market data and they decided to list the home on the lower side of the historically superior neighborhood.  So, we listed the home, with the understanding, they would be willing to lower the price after a few weeks on the market to a price point that would attract more foot traffic.

With-in the first week we had a few showings, and we received an offer.  The offer was negotiated and an agreed upon sales price was made.  This contracted price was well above market value; however, automated AVM’s free to the public (just google find your homes value), showed a value close to the contracted price.  I told them that is due to the neighborhood on larger lots with superior community amenities, better setbacks, and better architecture and I prepared her for the appraisal process.  We had a plan in place, but again, my job as a Realtor is to obtain the highest sales price available.  As an appraiser, the contracted price was well above market value.  Well, in a few weeks, we found out that the buyer had an appraisal waiver, and the home was never appraised and closed at the contracted price.  This now created a recent arm’s length sale in this community like the historically higher priced community, just across the street.  Since this sale, there has been another home that has been listed and not yet contracted.  This micro market just jumped 10%.  Sure, this can happen with all cash buyers also, so this isn’t the first time I have seen this, but the first time with a buyer that needed a mortgage.  Who does this hurt?  Well it hurts all buyers in the near future, the buyer of this house, etc.  Had they had a professional appraisal; it is very possible the home could have been purchased for tens of thousands less.

Example 2.

This example is as an appraiser.  Recently, I was assigned to appraise a property for a home equity line of credit.  The owners / borrowers recently purchased the home with over 20% down and received an appraisal waiver.  Now they wanted to get a HELOC (home equity line of credit). 

As I do on all residential appraisals, I physically measured the home.  I immediate noticed that the square footage of the home was off.  This happens all the time, that there are large discrepancies in square footage.  The home was 15% smaller than what they thought they were buying.  Not only did the owner pay more than the home was worth with the marketed square footage they thought they were buying, now the home is 570 sq.ft. smaller.  The market value of the home was well below what they purchased the home for just a few months ago, as there was no appraisal / measurement made on the property.

Example 3. 

This example is as an appraiser.  Recently, I was assigned to appraise a property for a home equity line of credit.  The owners / borrowers recently purchased the home with over 20% down and received an appraisal waiver.  Now they wanted to get a HELOC, very similar to Example 2.

I physically measured the home like always and performed my appraisal (and the physically measured square footage was very similar to the assessors square footage).  The home was sold in average condition with minimal remodeling / updating performed in the past 15 years (this home was built in the early 80’s) but priced like a remodeled home, while the market norm and all other sales near the price point this home was purchased at were complete remodels.  There was a lot of market data available in the community, and the range of sales for the same floor plan was $190,000 to $300,000 (this also including things like site size, pools, etc.).  Homes that were in very average condition similar to the Subject property were selling at the very low end, while the remodeled homes with new surfaces (quartz / granite counter tops, new flooring, new bathrooms, new trim, new roofs, newer dual pane windows, etc.). 

Needless to say, my appraisal utilized comparable properties in similar condition (not remodeled) and was much less than the original purchase price a few months ago, while the market was slightly increasing. 

There are other examples of the damages that can be caused by appraisal waivers, as computers can’t replace professional experienced appraisers who examine all aspects of the property including but not limited to condition, quality, location, site size, site amenities, curb appeal, square footage, garages, etc.

So in summation, this is just a blog entry to try to inform any readers that in my opinion, if you are buying a home regardless of what the “public” information states or what AVM’s say the value is, purchasing a private appraisal (in an instance where you quality for an appraisal waiver) would be a small price to pay if something is not noticed or misrepresented in the buyer’s research.  I also recommend always getting a home inspection on any home you purchase to find out if there are any major issues that can cause what seems like a value to be a nightmare.

If getting a private appraisal takes an additional week, so be it, when making the largest purchases in a typical person’s life, gathering information can only help the situation.  Just like finding your future spouse, you don’t meet and get married in 30 days, you have an “inspection period” for better terms to determine if this is the best decision.

Posted by Jason Clow on November 16th, 2019 9:42 AMLeave a Comment

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by Jason Clow, owner and founder of West Valley Appraisal Services

Through my 22 years of residential appraisal experience in the Maricopa County market, I have been asked countless times, “Should I get an appraisal before listing or buying a home?”.  The short answer is “YES”.  In this month’s blog, I will go over the pros and cons of ordering and having a private appraisal for each instance, and you can decide what is best for you.

Selling a home, why is a professional private appraisal a good idea?

  1. Get an accurate measured square footage of your home, many times the square footage is much different than what the county assessors records indicates. If it is much smaller than the assessor’s records indicate an appraisal on the front end can often allow the owners to list the property accurately and avoid possible issues with a lender ordered an appraisal, upset buyers, fallout contracts, and piece of mind. An actual measurement provides the market accepted livable square footage of your property.
  2. Know the market based on actual sales and market trends. Realtors are great and are always looking to get the highest possible sales price on your home; however, to over-price a home is not always good. Negative market stigma can often come from initially listing your home well above market value, and the professional Realtors that work your area will often over-look your property over time, even when you eventually lower the price in the market value range.
  3. Understand the positive and negative features of your home. A private appraisal will often discuss the positive elements of your home, distinguish between “personal property & real property”, and call it like it is based on sales in your neighborhood and/or competing neighborhoods.
  4. Piece of mind knowing your listing price is supported in the market, so you can plan accordingly on a realistic sales price of your property.
  5. Typical appraisal costs in Maricopa County range from $400 (for basic homes) to $1,000 (for complex properties). This cost is minimal when considering the marketing power of having a personal appraisal to provide pease of mine to the potential buyers that the property is “worth” the asking price.

Buying a home, why is a professional private appraisal a good idea (especially when paying cash)?

  1. Know the actual square footage of the livable area and other amenities. As noted above, assessor’s records are often wrong, and you don’t want to be purchasing a new home thinking it is 2,900 sq.ft. and it is really 2,600 sq.ft., especially when the home is priced as a 2,900 sq.ft. home. It is always the buyer’s responsibility to confirm the square footage, per the purchase contract. Typically, in the Maricopa County market, buyers have a 10-day inspection period to investigate their new home, that would be a great time to get a private appraisal.
  2. Know what the market supports, based on the recent sales in the market area. Often, individual markets / subdivisions can vary with-in a couple of blocks, and just because homes on the other side of the street have sold for a certain price, doesn’t mean homes on your side of the street sell for the same price.
  3. Know the “external” negative features of your home like traffic, power lines, commercial influences, etc. A private appraisal will reflect the appraiser’s supported opinion on the influence on value of things like a busy road, commercial, cell phone tower, power line views, etc. Often, people move from other parts of the country where certain external influences do not make much of a difference; however, in a market like Maricopa County, these influences could make the home your purchasing much less appealing in the eyes of the overall market.
  4. Piece of mind knowing that your offer price is supported, and the home is worth what it is being marketed as.

Think of it this way, getting a private appraisal on a property you are selling or buying is like taking a used car to a mechanic prior to selling or purchasing.  Knowing the most information about the property can and will assist in making the best financial decisions regarding that property.

Posted by Jason Clow on July 29th, 2019 1:35 AMLeave a Comment

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Residential real estate in greater Phoenix continues to see price appreciation, driven by modest personal pay increases and falling interest rates.  Current 30-year conventional loans are 3.82% with .5 points. (Fannie Mae, June 2019)  

Further, the Federal Reserve is now forecasting a drop in rates through next year with many Wall Street analysts predicting three reductions of ¼ point each over the next 12 months.  

Why the change in rate forecast?

Late last year, signs of a significant slowing in the U.S. (and global) economies began to emerge.  The Gross Domestic Product (GDP) had slowed, and forecasts were predicting continued slowing over the next several months.  Also, the U.S. found itself in a significant trade dispute with China (and for a brief time, Mexico), and trade disputes are almost never good for global economic growth.  With the economy significantly slowing, the Fed announced its intent to change its forecast of approximately three interest rate increases to taking a “wait and see” position.  

Today, analysts are predicting rates in 2020 to be flat to slightly down:

(Reuters) – The U.S. Federal Reserve is done raising interest rates until at least the end of next year (2020), according to economists in a Reuters poll who gave a 40 percent chance of at least one rate cut by end-2020.

So what have these lower rates done to our housing market?  Our median sales price in June 2019 is $278,000, up 4.9% year over year.  

One last point, whether buying or selling, please keep in mind that our market is not monolithic.  Price ranges and neighborhood locations will vary in performance, often significantly.

For the $150,000 to $225,000 range, expect annual appreciation rates to be between 6%-10%.  For homes that sell for $225,000-$500,000, appreciation is expected to be between 3%-5% and those selling over $500,000 appreciation is expected to be between 1%-3%. (Cromford Report, June 2019)

Please be sure and partner with your real estate professional to determine the correct market value of your home.

Raw Data Source: ARMLS

Posted in:General
Posted by Jason Clow on July 1st, 2019 1:53 AMLeave a Comment

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Short-term Rates Falling in Anticipation of Fed Rate Cut

By DAVID PAYNE, Staff Economist 
June 13, 2019

Short-term interest rates are headed down because of expectations that the Federal Reserve will cut the federal funds rate next month. The Fed probably will lower the rate, at either its July 31 or September 18 meeting. The central bank wants to counteract the slowdown in manufacturing caused by the trade war.

The Fed could also cut rates in 2020 if an expected economic slowdown threatens to snowball. GDP growth should slow from 2.5% this year to about 1.8% next year, but could drop more if a U.S.-China trade deal doesn’t happen, or some other negative economic shock occurs.

The yield curve inversion has lessened with the drop in short rates. An inversion occurs when the 10-year rate falls below rates of a year or less. This causes consternation because inversions have preceded past recessions. The decline in short rates should provide a bit of a boost to consumer borrowing. The bank prime rate that auto loans and home-equity loans are based on will decline to 5.25% after the Fed’s rate cut.

Long rates are likely to stay in the low 2% range for now but may pick back up if the trade war relents. We expect that 10-year Treasury notes could rise to the mid-to-upper 2% range from today’s 2.1%. The 30-year fixed mortgage rate would also rise to 4.2%, and the 15-year fixed mortgage rate to 3.7%.

Posted in:General and tagged: Interest Rates
Posted by Jason Clow on June 24th, 2019 12:45 AMLeave a Comment

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Fed Likely to Leave Interest Rates Unchanged as Trump Calls for Cut

By Jeanna Smialek
April 30, 2019

WASHINGTON — Federal Reserve officials are poised to disappoint President Trump at the conclusion of their two-day policy meeting on Wednesday, with the central bank expected to leave interest rates unchanged despite Mr. Trump’s repeated calls for it to start cutting rates.

Mr. Trump has criticized the Fed’s 2018 interest rate increases for slowing growth and called on it to start using its tools to stimulate the economy. On Tuesday, Mr. Trump said in a tweet that the Fed should lower its benchmark rate by a percentage point, saying such a move could send United States economic growth “up like a rocket.”

He compared the Fed’s approach with that of China, a partly managed economy, saying: “China is adding great stimulus to its economy while at the same time keeping interest rates low. Our Federal Reserve has incessantly lifted interest rates, even though inflation is very low.”

But the policy-setting Federal Open Market Committee, which operates independent of the White House, is widely expected to hold rates steady on Wednesday when it releases its decision at 2 p.m. Fed officials are unlikely to explicitly suggest that a rate reduction is coming anytime soon, economists think.
Mr. Trump is not the only one looking for a rate cut. Wall Street investors increasingly expect the Fed to reverse some of last year’s rate increases as inflation softens. But the Fed must balance weak price increases with otherwise solid progress: Consumer spending and job market figures have been coming in strong, and the Fed has already shifted away from monetary tightening and toward patience this year. Officials will most likely wait to see how the economic data plays out before adjusting course.

“They’re in a good place,” Michael Feroli, the chief United States economist at J.P. Morgan, said of the Fed. “Growth is above trend, financial conditions are easy, so that should continue to support above-trend growth, and they believe that should support firming inflation pressures over time.”

The Fed raised rates four times last year, and has lifted them a total of nine times since 2015. In December, it projected two more rate increases in 2019. But the central bank abruptly changed tack early this year, as warning signs began to emerge that the global economy was slowing. In March, officials removed projections for future rate increases. It also announced a plan to end what is commonly called quantitative tightening, an effort to winnow the giant portfolio of bonds it amassed in the financial crisis.

Many of the risks that prodded the Fed toward patience have since faded. Shaky markets have rallied, financial conditions have eased, spending has rebounded and growth was better than expected in the first quarter.

Yet annual price increases slowed to 1.6 percent on a core basis in March, taking the Fed further away from its stubbornly elusive goal of 2 percent inflation. Weak inflation raises the risk of economy-damaging deflation, so the central bank aims to keep prices growing at a slow and steady rate.

That disconnect poses a serious policy challenge. If officials cut rates to lift prices against a backdrop of strong growth, they risk fueling financial excess and looking like they have caved to political pressures.

Should inflation slip too low for too long, on the other hand, businesses and consumers could come to expect permanently slower gains and behave accordingly. That would make it harder for the Fed to ever achieve its 2 percent goal.

Charles L. Evans, the president of the Federal Reserve Bank of Chicago, has indicated that rate cuts are possible if inflation falls too low and stays there. “Anything that’s sustainable, that looks like it’s moving downward, not upward, I would be extremely nervous about,” Mr. Evans told The Wall Street Journal in April. “I would definitely be thinking about taking out insurance in that regard.”

The full committee will not release fresh economic projections until after its June meeting, but Jerome H. Powell, the Fed chairman, could flesh out what conditions would merit a precautionary cut and explain whether such a move is becoming more likely during his postmeeting news conference.

Subtle statement tweaks could also provide the setup for a future shift. Officials could use their release to highlight lower inflation as a real risk rather than a transitory miss, said Neil Dutta, the head of economic research at Renaissance Macro Research.

“If they sound more dovish on inflation, more worried about where inflation is going, that would tee up the idea that there could be a policy response,” Mr. Dutta said.

The Fed cut rates three times total in 1995 and 1996 because inflation was slowing, so tweaking policy around the edges against a strong economic backdrop with relatively low recession risks would not be unprecedented.

“It’s one thing if the Fed is cutting because the economy is getting worse,” Mr. Dutta said. “It’s another thing if they’re just trying to reinforce their inflation target in an otherwise healthy economy.”

Still, Mr. Dutta thinks it is more likely that the Fed’s next rate move is up. Goldman Sachs economists also expect an increase, though not until late 2020.

“Fed officials would likely worry about the risks that a rate cut could appear political or unnerve markets,” Goldman’s chief economist, Jan Hatzius, and his colleagues wrote Thursday in a note. They “might mistake a cut in response to low inflation for serious concern about the growth outlook.”

Posted in:General and tagged: Interest Rates
Posted by Jason Clow on June 2nd, 2019 12:39 AMLeave a Comment

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By Jeanna Smialek

  • May 1, 2019

WASHINGTON — The Federal Reserve left interest rates unchanged on Wednesday, and its chairman, Jerome H. Powell, stressed that it would remain patient, even as investors looked for a rate cut and President Trump urged one.

A strengthening economy has prompted members of the policy-setting Federal Open Market Committee to raise rates nine times since 2015, with four increases coming under Mr. Powell’s leadership. But they have adopted a cautious stance this year, first as growth wavered and more recently as inflation has fallen further below the committee’s 2 percent target.

At a news conference after the committee’s meeting on Wednesday, Mr. Powell said the United States economy remained strong and said signs of global economic weakness that prompted concern in March had partly subsided. “It appears that risks have moderated somewhat,” he said. “Our outlook, and my outlook, is a positive one, is a healthy one, for the U.S. economy for the rest of this year.”

But Mr. Powell continued to project a patient approach to setting the Fed’s benchmark interest rate and gave no indication that a cut was any more likely than an increase at the moment. “We do think that our policy stance is appropriate right now,” he said. “We don’t see a strong case for moving in either direction.”

Posted in:General and tagged: Interest Rates
Posted by Jason Clow on May 2nd, 2019 12:15 AMLeave a Comment

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Homebuilder sentiment holds steady despite a decline in mortgage rates

Published 10:01 AM ET Mon, 18 March 2019  Updated 12:48 PM ET Mon, 18 March 2019

The nation's homebuilders are feeling positive about their business, but not as much as they did a year ago.

A monthly sentiment measure held steady at 62 from February to March, according to the National Association of Home Builders/Wells Fargo Housing Market Index. The index stood at 70 in March 2018. Anything above 50 is considered positive.

"Builders report the market is stabilizing following the slowdown at the end of 2018, and they anticipate a solid spring home buying season," said NAHB Chairman Greg Ugalde, a homebuilder and developer from Torrington, Connecticut.

Mortgage rates rose throughout most of last year but have since fallen to below year-ago levels. That should help make all homes more affordable, but new homes come at a higher price than similar existing ones.

Weak affordability has been the biggest problem in the new home market, as builders have largely focused on move-up homes rather than cheaper entry-level products. The median price of a new home sold in January was down nearly 4 percent annually, according to the U.S. Census. That was not necessarily because builders were lowering prices, but because a larger share of entry-level homes sold that month. Sales in January fell to a three-month low.

"More builders are saying that lower price points are selling well, and this was reflected in the government's new home sales report released last week," said Robert Dietz, NAHB's chief economist. "Increased inventory of affordably priced homes — in markets where government policies support such construction — will enable more entry-level buyers to enter the market."

Builders say they continued to have trouble building lower-priced homes, however, due to shortages of skilled labor and buildable lots.

Of the index's three components, sales expectations in the next six months rose 3 points over the past month to 71, current sales conditions increased 2 points to 68, and traffic of prospective buyers fell 4 points to 44. Buyer traffic has been in negative territory for several months.

Looking at three-month moving averages, builder sentiment in the Northeast rose 5 points to 48, the South was up 3 points to 66 and the West increased 2 points to 69. Sentiment in the Midwest fell 1 point to 51.

Posted in:General
Posted by Jason Clow on March 21st, 2019 1:07 AMLeave a Comment

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