Those aiming for perfection in the housing recovery would agree it is indeed quite elusive.
Last week's reports proved to be anything but perfect. New Home Sales were down 7.6% in August, to a 609,000 annual rate but let's remember, home sales data are extremely volatile month to month and they shot up in July to their fastest rate since 2007.
In August, that pace remained relatively strong. If you take out July's numbers, August posted the fastest sales pace since 2008, ending UP 20.6% compared to a year ago and the bulk of those sales were for homes that have yet to break ground, so demand is clearly ahead of supply.
Note that the New Home Sales report is for single-family homes. Multi-family deals (condos, co-ops) aren't counted. Pending Home Sales, an index of contracts signed on existing homes dipped 2.4% in August following a 1.2% gain in July. Media naysayers jumped on the pending home sales declines in three of the past four months, and warned of an impending stall in the housing recovery. Yet the National Association of Realtors projects existing home sales will hit 5.36 million in 2016, up 2.1% from 2015 and the highest annual pace since 2006. Though not perfect, the housing recovery remains one of the few bright spots in the otherwise lethargic U.S. economy.
Review of Last Week
It was a volatile week on Wall Street, with stocks rocking up one day, then rolling downhill the next. The cause of all this was the up-and-down news surrounding a major global bank headquartered on the other side of the pond. Fears for its future were fueled by concerns about its capital standing, coupled with our Justice Department looking to extract from it a multi-billion dollar settlement. But Friday saw the bank's CEO send employees a letter assuring them of the firm's health, followed by news that the bank is near a more reasonable settlement with Justice. Stocks rallied and the three major indexes posted weekly gains once again.
Amidst all of this, the economic reports didn't seem to matter much. True to form, the data ranged wide. On the down side were the headline housing numbers, though underlying trends keep moving up. Final Q2 GDP showed the economy grew at a 1.4% annual rate, higher than initial estimates but pathetic by historical standards. Consumer spending was unchanged, though personal income inched up along with inflation, still far below Fed targets. On the up side, Consumer Confidence hit its highest level since before the recession, Michigan Consumer Sentiment improved and the Chicago PMI indicated some manufacturing expansion in the Midwest.
The week ended with the Dow UP 0.3%, to 18308; the S&P 500 UP 0.2%, to 2168; and the Nasdaq UP 0.1%, to 5312.
As global equity markets rallied on Friday, bonds lost the ground they picked up when stocks slid earlier in the week. The 30YR FNMA 4.0% bond we watch finished the week UP .08, at $107.42. For the week ending September 29, national average 30-year fixed mortgage rates dropped to a 10-week low in Freddie Mac's Primary Mortgage Market Survey. Their chief economist linked this to "the FOMC's decision to leave rates unchanged." Remember, mortgage rates can be extremely volatile.
This Week’s Forecast
We should see the ISM Index of manufacturing activity push back over 50, indicating barely visible growth. ISM Services, measuring the sector of our economy providing most jobs, is also expected to inch ahead. The September Employment Report will be the week's featured attraction, forecast to show another modest gain in Nonfarm Payrolls and equally unspectacular Hourly Earnings growth.
The Week’s Economic Indicator Calendar
Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.
Economic Calendar for the Week of Oct 3 – Oct 7
Oct 3 10:00 ISM Index
Oct 5 08:30 Trade Balance
Oct 5 10:00 ISM Services
Oct 5 10:30 Crude Inventories
Oct 6 08:30 Initial Unemployment Claims
Oct 6 08:30 Continuing Unemployment Claims
Oct 7 08:30 Average Workweek
Oct 7 08:30 Hourly Earnings
Oct 7 08:30 Nonfarm Payrolls
Oct 7 08:30 Unemployment Rate
Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months... Fed watchers still see no rate hike at the next FOMC meet just days before the election, but the majority expect a small rise in December, which will hold come February. Note: In the lower chart, a 10% probability of change is a 90% certainty the rate will stay the same.
Current Fed Funds Rate: 0.25%-0.5%
After FOMC meeting on:
Nov 2 0.25%-0.5%
Dec 14 0.5%-0.75%
Feb 1 0.5%-0.75%
Probability of change from current policy:
After FOMC meeting on:
Nov 2 10%
Dec 14 62%
Feb 1 63%
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