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Fed expected to reduce spending after new data

Fed expected to reduce spending after new dataPurchase Markets  \  January 28, 2014 07:27 pm

While prices were up on a year-to-year basis, the price index declined 0.1 percent from October 2013 to November. During the previous nine months, home prices rose, marking November as the first month-over-month drop in a year. Out of the 20 cities recorded in the index, nine reported positive monthly returns.

Some cities fared better than others. According to the report, Dallas home prices were up 9.9 percent from 2012 levels. Chicago also saw a major improvement in 2013, up 11 percent from 2012 and reaching its highest rate of price appreciation since December 1988.

Housing market strengthens economy
Rising home prices have signaled good news for many homeowners who have watched their property values and home equity rise over the last year. The year-over-year gains may also indicate to Federal Reserve officials that the housing market is close to its pre-recession levels.

In December, following a two-day meeting, Fed officials announced they would soon begin to reduce stimulus spending that has helped keep mortgage rates near record lows since 2012.

"Home prices continue to rise despite last May's jump in mortgage interest rates," said David Blitzer, chairman of the index committee. "Mortgage applications for purchase were up in recent weeks confirming home builders' optimism shown by the NAHB survey. Combined with low inflation - 1.5 percent in 2013 - homeowners are enjoying real appreciation and rising equity values. While housing will make further contributions to the economy in 2014, the pace of price gains is likely to slow during the year." 

Officials at the central bank have previously stated they would not begin to taper spending until the economy proved to be strong enough to continue growing on its own. Artificially low mortgage rates have helped many Americans become homeowners once more, and many expect the taper to influence rates to rise in 2014.

Another factor in the Fed's decision to change its fiscal policy was the positive national employment report in November by the Department of Labor. The report revealed that 204,000 jobs were added to the economy during the month. However, the hiring momentum did not carry over into the final month of the year, when only 74,000 jobs were added. This weaker report has left many economists speculating as to whether to Fed will still reduce spending in January.

According to a recent study by CNBC, most economists think that the Fed will remain on its course  to limit spending by $10 billion, despite the latest economic reports. In its poll, 87 percent of respondents told CNBC they expect tapering to match $9.87 billion in January. Later on in the year, 72 percent of economists predict that spending will be reduced by an average of $10.67 billion after every meeting following the January decision.

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