Last Wednesday, New Home Sales came in down 9.4% in July at a 571,000 annual rate. Sales for the month were not strong but the dip looked worse, measured against June's upwardly revised annual selling pace. The 8.9% drop in sales from a year ago compares this July's performance to July 2016 which ranked as that year's largest monthly gain for new home sales. An executive of a firm that provides housing information added, "housing starts are currently outpacing closings, signaling a growing market."
That same executive reported, "job growth is the number one fundamental fuel of new home development," noting that the recent increase in high quality, higher paying jobs, is moving more Americans closer to home ownership. Existing Home Sales in July fared better, off just 1.3%, to a 5.44 million annual rate, and 2.1% ahead of where they were a year ago. Demand stays strong - July was the fourth month in a row a typical listing sold in under 30 days. Realtor.com's chief economist said, "continued buyer interest in the face of more than five years of price growth is a sign of strong demand and bodes well for the health of the housing market."
Review of Last Week
After the market slid two weeks in a row, stocks last week surged back solidly, the Dow, S&P 500 and Nasdaq all finishing with nice gains. Investors focused on the Fed's Jackson Hole Symposium, where Chair Janet Yellen said any changes to financial regulations should be modest and didn't mention monetary policy. European Central Bank President Mario Draghi also spoke, pushing for open trade and output growth. These speeches gave Wall Streeters the impression rate hikes are a good way off. Also comforting, Treasury Secretary Steven Mnuchin reiterated the debt ceiling will be raised in time to keep the government functioning.
The positive investor mood has sparked strong market performance this year, with the three major indexes near record levels. Low interest rates have helped as well as rising corporate earnings. Most importantly, the U.S. economy is improving and about to deliver more growth. The Atlanta Fed's "GDP Now" model projects the economy expanding in Q3 at a 3.8% annual rate. The labor market is healthier, with an average 184,000 new jobs a month, the 4.3% unemployment rate is at a 16-year low and economists think tighter employment conditions will lead to stronger wage growth.
The week ended with the Dow UP 0.6%, to 21812; the S&P 500 UP 0.7%, to 2443; and the Nasdaq UP 0.8%, to 6266.
Bond traders loved that Fed Chair Yellen's Jackson Hole speech didn't mention any reduction in their bond buying program, which would send prices down and rates up. The 30YR FNMA 4.0% bond we watch finished the week UP .04, at $105.45. The national average 30-year fixed mortgage rate fell for the fourth week in a row in Freddie Mac's Primary Mortgage Market Survey for the week ending August 24.
Where are interest rates headed?
This Week’s Forecast
Not a bad set of economic data is forecast. Pending Homes Sales should keep growing in July. The Fed's favorite PCE Prices measure of inflation is expected up just 0.1%, a 1.2% annual rate, far below their 2% target for a rate hike. The Chicago PMI and ISM Index should keep showing solid expansion in manufacturing. Just under 200,000 Nonfarm Payrolls are projected to have been added in July, while Q2 GDP should climb closer to a 3% economic growth rate.
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 August 28th – September 1st
Aug 29 10:00 Consumer Confidence
Aug 30 08:30 GDP - 2nd Estimate
Aug 30 10:30 Crude Inventories
Aug 31 08:30 Initial Unemployment Claims
Aug 31 08:30 Continuing Unemployment Claim
Aug 31 08:30 PCE Prices
Aug 31 08:30 Core PCE Prices
Aug 31 08:30 Personal Income
Aug 31 08:30 Personal Spending
Aug 31 09:45 Chicago PMI
Aug 31 10:00 Pending Home Sales
Sep 1 08:30 Average Hourly Earnings
Sep 1 08:30 Average Workweek
Sep 1 08:30 Nonfarm Payrolls
Sep 1 08:30 Unemployment Rate
Sep 1 10:00 ISM Index
Sep 1 10:00 U. of Michigan Consumer Sentiment
Federal Reserve Watch
Speculative Forecasting Federal Reserve policy changes in coming months:
The Fed Funds Futures market shows no chance of a rate hike through the end of this year and into the spring.
Note: In the lower chart, a 0% probability of change is a 100% certainty the rate will stay the same.
Current Fed Funds Rate: 1.0%-1.25%
After FOMC meeting on:
Sep 20 1.0%-1.25%
Nov 1 1.0%-1.25%
Dec 13 1.0%-1.25%
Probability of change from current policy:
After FOMC meeting on:
Sep 20 0%
Nov 1 8%
Dec 13 42%
Where are interest rates headed?
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