The Wall Street Journal - 31.07.2019

A8| Wednesday, July 31, 2019 THE WALL STREET JOURNAL.**

their slump, it has important

implications for homeowners,

buyers and the broader U.S.

economy. Mortgages ac-

counted for two-thirds of the

$13.67 trillion in U.S. house-

hold debt in the first quarter,

according to the New York

Fed.

For home buyers or owners

looking to refinance their

mortgages, the lower rates

could easily save thousands of

dollars over the life of a loan

or enable them to purchase a

bigger house than they could

have afforded in December.

The decline in mortgage rates

since then would shave $

off the monthly payment on a

$250,000, 30-year loan.

“The interest rate is cer-

tainly appealing,” said Kay

Spiva, a real-estate agent in

Abilene, Texas, where a grow-

ing population has helped the

local housing market buck the

national trend. “We’ve been

strong to start with, and if the

interest rates go down, I can

only see that continuing.”

Because they are typically

paid off over decades, mort-

gage rates are more correlated

with 10-year Treasury notes

than with the short-term rates

controlled by the Fed.

But in recent months, 10-

year yields have responded to

move may or may not pull

mortgage rates any lower, it

could eventually filter into

shorter-term rates such as

credit cards.

But economists say the

overall impact of a Fed rate

cut on U.S. consumers is likely

to be muted.

In part, that is because the

two categories of household

debt that have grown the most

during the current expan-

sion—student and auto

loans—tend to have fixed rates

that don’t move in lockstep

with the fed-funds rate, econo-

mists at Wells Fargo said in a

research note this week. Ad-

justable-rate mortgages and

credit-card debt have shrunk,

they noted.

It is also because consum-

ers were already doing fine at

a time of low unemployment,

rising wages and muted infla-

tion.

Consumer spending grew at

an inflation-adjusted, annual-

ized pace of 4.3% in the sec-

ond quarter from the previous

three months, the Commerce

Department said Friday, un-

derpinning broader economic

growth.

“Consumers are showing

their resiliency,” said Jack

Kleinhenz, chief economist at

the National Retail Federation.

many of the same factors that

have convinced Fed policy

makers to lower interest rates

at their meeting Tuesday and

Wednesday.

Concerns about Brexit, ris-

ing trade tensions and slowing

economic growth in Asia and

Europe have prompted several

central banks around the

world to ease monetary policy.

Negative interest rates outside

the U.S., combined with expec-

tations of weaker economic

growth and soft inflation have

weighed on long-dated Trea-

sury yields.

Fed officials were prepared

to cut rates by a quarter-per-

centage point after their two-

day policy meeting concludes

Wednesday. While such a

Aug. ’18 2019

1

2

3

4

5

6%

Sources: Freddie Mac (mortgage rate); Federal

Reserve (federal-funds rate)

30-year,fixed-ratemortgage

Effectivefederal-fundsrate

Early Savings

Formortgageborrowers,the

effectsoftheexpectedFed

ratecutarealreadybeingfelt.

will decide later this year

whether the case will head to

trial.

Nassar pleaded guilty in

2017 to 10 counts of sexual

abuse in Michigan state court

to resolve the claims of scores

of women, including elite gym-

nasts, who alleged he had sexu-

ally abused them. He also

pleaded guilty to child-pornog-

raphy charges and is serving an

effective life sentence in federal

prison.

“Lou Anna Simon did a lot

of incredibly great things for

Michigan State University and

served as its president with

distinction,” said Lee Silver, Dr.

Simon’s lawyer in the criminal

matter.

She became president in

2005, and returned to a tenured

faculty position after resigning

as president in January 2018.

She took a voluntary unpaid

leave of absence after the

charges were filed against her

last fall, and will remain on un-

paid leave until she retires.

The retirement agreement

says Dr. Simon won’t be pro-

vided office space, and public

recognition of her emeritus ti-

tles—including an official por-

trait—could be withheld if she

is convicted of a felony and that

verdict is upheld after appeals.

The payments won’t be affected

by the criminal case’s outcome.

Michigan State University

will give former President Lou

Anna K. Simon payouts total-

ing $2.45 million after the ad-

ministrator, currently facing

criminal charges related to the

Larry Nassar sex-abuse scan-

dal, retires.

Dr. Simon will step down, ef-

fective Aug. 31, after spending

45 years at the university. Her

first payout will come shortly

after the retirement date, with

another in January 2020 and

the final one in January 2021.

Under the terms of her

agreement, Dr. Simon will

maintain the titles of president

emeritus and faculty emeritus,

and receive her vested retire-

ment benefits, similar to those

for other retiring university ex-

ecutives. A Michigan State

spokeswoman said the school’s

board negotiated that package.

“Our campus community is

continuing its healing, and the

Board of Trustees feel the re-

tirement of Dr. Simon is best

for the university,” said Dianne

Byrum, the board’s chair-

woman.

Dr. Simon is currently facing

criminal charges that she lied

to officers about her knowledge

of complaints against the dis-

graced sports doctor. She has

pleaded not guilty, and a judge

BYMELISSAKORN

Ex-MSU President,

Facing Charges,

To Receive Payout

U.S. NEWS

WASHINGTON—The Federal
Reserve is prepared to cut in-
terest rates this week for the
first time since 2008, but the
biggest source of debt for U.S.
consumers—mortgages—has
been getting cheaper since
late last year.
Mortgage rates have fallen
recently to the lowest levels
since late 2016, tracking a
broader slide in U.S. Treasury
yields. The average rate on a
30-year, fixed-rate mortgage
was 3.75% last week, down
from 4.94% in November, ac-
cording to Freddie Mac.
“The most significant im-
pact of an expected Fed rate
cut is already upon us,” said
Greg McBride, chief financial
analyst at Bankrate.com, refer-
ring to the drop in mortgage
rates.
The decline contrasts with
trends in other consumer rates
since the Fed last tweaked
monetary policy in December
by raising its benchmark fed-
eral-funds rate by a quarter-
percentage point to a range
between 2.25% and 2.5%.
The cost of auto
loans, which rose only mod-
estly as the Fed tightened pol-
icy from 2015 through last
year, has fallen less than mort-
gage rates since December.
The average rate on a five-
year, new-car loan was 4.72%
last week, down from 4.93% in
mid-December.
Consumer rates that tend to
more closely hew to Fed policy
decisions rose in the weeks af-
ter its December rate increase,
and have remained mostly
steady since. These include the
average rate on variable
credit-card debt, which was
17.85% last week, up from
17.6% in December, and the av-
erage rate for a home-equity
line of credit, which was 6.74%
last week, up from 6.27% in
December, according to Bank-
rate.com.
“The big change has been in
mortgage rates,” said Tendayi
Kapfidze, chief economist at
LendingTree.
While the decline in mort-
gage rates hasn’t done much
to lift U.S. home sales from

BYPAULKIERNAN

Rates Already Cut—for Mortgages

Home-Price Gains

Continue to Slow

The growth of U.S. home

prices slowed again in May, as

the housing market continues

to moderate during what has

been a weak year for sales.

Sales prices grew 3.4% for

the year ending in May 2019,

down from the 3.5% increase

during the year ending in April,

according to the S&P CoreLogic

Case-Shiller National Home

Price Index. Prices have been

decelerating on an annual basis

for more than a year, the re-

port said, though they continue

to outpace the rate of inflation.

“That is the longest stretch

of cooling price growth since

the great recession. That’s sort

of the elephant in the room,”

said CoreLogic deputy chief

economist Ralph McLaughlin.

In the nation’s 20 largest

cities, price gains were modest,

growing 2.4% for the year end-

ing in May. However, the data

were highly variable. While

prices grew 6.4% in Las Vegas,

they declined 1.2% in Seattle.

Still, the latest statistics in-

dicate some housing markets

remain resilient despite the

broader softening trend, said

Philip Murphy, managing direc-

tor at S&P Dow Jones Indices.

He noted that seven of the

largest U.S. cities saw larger

than average gains. “For now,

there is still substantial diver-

sity in local trends,” he said.

Mr. McLaughlin expects na-

tional price deceleration to re-

verse course within the next

one to three months, given his-

torically low interest rates and

a slight uptick in inventory.

Sales volume of existing

homes has declined for the last

16 months, falling 1.7% for the

year ended in June, according

to the National Association of

Realtors. Although the current

rate of price deceleration hasn’t

yet been enough to spark more

sales, some analysts point to

more rapidly falling prices in

West Coast markets as another

potential draw for new buyers.

Of those markets, Seattle

has seen the biggest swing.

The sluggish May market

made Seattle the first city to

post a year-to-year price de-

cline since 2012, Mr. McLaugh-

lin said. He cited slowing job

growth there and increasing in-

ventory as contributing factors.

—Will Parker

Former Michigan State University President Lou Anna Simon.

CORY MORSE/THE GRAND RAPIDS PRESS/ASSOCIATED PRESS

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