The National Association of Realtors (NAR) Pending Home Sales Index is a measure of contracts signed on existing homes. It's a forward-looking indicator of where sales may be a few months out when those contracts go to closing. Monday we received good news that Pending Home Sales in June were 1.5% ahead of May's upwardly revised reading. This reverses a three month decline and the NAR now predicts existing home sales will end the year at about 5.56 million, up 2.6% from 2016's 5.45 million. The median existing home price is forecast to end the year up 5%, just below 2016's 5.1% gain.
The NAR's chief economist commented: "Market conditions in many areas continue to be fast paced, with few properties to choose from, which is forcing buyers to act almost immediately on an available home that fits their criteria." Freddie Mac's chief economist concurred, "the spoiler is the lean inventory. Nationally, just over five months of supply." Yet he remains positive "a decade after the Great Recession, the housing market is rebounding. House prices today are higher than they were at the peak in the summer of 2006, near record low mortgage rates have boosted housing demand, and sales volume is robust."
Review of Last Week
A super strong jobs report Friday kept the stock market working just fine. Equities were doing well with the Dow breaking through 22,000 for the first time on Wednesday but June's way better than expected 209,000 new Non farm Payrolls pushed the blue-chip index to end the week at a new high, its 34th record close of the year if you're counting. The 4.3% jobless rate matched a 16-year low, even as 349,000 workers were added to the labor force. Hourly earnings were up 0.3% in July, up 2.5% the past year, and since total hours worked are up 2%, total earnings are up 4.6% from a year ago.
The economic scene remains positive. With around 75% of S&P 500 companies reporting second quarter results, earnings are up 10.1% year-over-year, effortlessly beating June's 6.4% estimates. Plus, these bottom line profits aren't just from corporate penny-pinching, as top line revenues are growing nicely too. Even the trade deficit narrowed in June, to a smaller than expected $43.6 billion. Negative types bemoaned slight slips in the ISM Manufacturing and ISM Services indexes for July. These quick-draw pundits ignored the fact that both measures of our economic health are still signaling solid growth, with readings well north of 50.
The week ended with the Dow UP 1.2%, to 22093; the S&P 500 UP 0.2%, to 2477; and the Nasdaq down 0.4%, to 6352.
Friday's good jobs hurt U.S. Treasuries but other bonds stayed the course. The 30YR FNMA 4.0% bond we watch finished the week UP .14, to $105.41. In Freddie Mac's Primary Mortgage Market Survey for the week ending August 3, national average 30 year fixed mortgage rates held steady. Positive economic data normally lowers bond prices (and raises rates) but Freddie feels "markets are erring on the side of caution."
This Week’s Forecast
Not a lot of economic data this week however there are two items the Fed likes to watch. The Productivity - Preliminary reading for Q2 is forecast to come in up a bit, something the central bankers want to see. They would also like to see more inflation, which the Consumer Price Index (CPI) is expected to deliver. However, most economists don't feel these numbers will be strong enough to get the Fed hiking rates for a while.
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 07 – August 11
Aug 09 08:30 Productivity - Prelim. Q2
Aug 09 08:30 Unit Labor Costs - Prelim. Q2
Aug 09 10:30 Crude Inventories
Aug 10 08:30 Initial Unemployment Claims
Aug 10 08:30 Continuing Unemployment Claims
Aug 10 08:30 Producer Price Index (PPI)
Aug 10 08:30 Core PPI
Aug 11 08:30 Consumer Price Index (CPI)
Aug 11 08:30 Core CPI
Federal Reserve Watch
Speculative Forecasting Federal Reserve Policy Changes in Coming Months:
Not much change in financial market sentiment although there is a greater probability for a rate hike from the Fed in December.
Note: In the lower chart, a 1% probability of change is a 99% 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 1%
Nov 1 7%
Dec 13 48%
Where are interest rates headed?
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