Last week provided a variety of useful news about the housing market. The Mortgage Bankers Association Mortgage Applications Survey for the week ending June 30th reported its seasonally adjusted Purchase Index was up 3% from the week before. Then, an online real estate database reported that, despite rising prices, May had the highest level of home buyer demand since they began tracking it more than four years ago. The CoreLogic Home Price Index was up 1.2% in May and up 6.6% from a year ago however they say price gains will slow, to just 0.9% in June and 5.3% in the coming year.
Encouraging news came with CNBC's report that the three major credit rating agencies (Equifax, Experian and TransUnion) "will drop tax liens and civil judgments from some consumers' profiles if the information is not complete," so FICO scores "could go up by as much as 20 points." The CNBC article also said that Fannie Mae and Freddie Mac, who guarantee conventional mortgages, are raising their debt-to-income ratio limit from 45% to 50% of pretax income. The final decision on a mortgage is with the originating lender's underwriters but CNBC said these changes "could help millions more borrowers quality for a home loan."
Review of Last Week
Stocks started the third quarter headed in the right direction, thanks largely to a big 222,000 jump in new Non farm Payrolls in June. The three major market indexes ended the first week of July posting modest gains over the three and a half days of light trading, as many players took off to celebrate our nation's independence. Those remaining on Wall Street celebrated an Employment Report that included upward revisions to April and May, which added a total of 269,000 new jobs. The Unemployment Rate edged up to 4.4%, but that was due to some good news: 361,000 more people entered the labor force.
Best of all, the report revealed a hike in consumer purchasing power. Average hourly earnings went up 0.2% in June and 2.5% the past year. Total hours worked rose 0.5% for the month and 2.5% the last year. If you multiply hours worked by hourly wages, total earnings are up 4.5% over a year ago. With inflation around 2%, that's a nice bit of extra purchasing power to drive housing and the economy. In fact, June's ISM Manufacturing index reached 57.8, while the ISM Services index scored a 57.4, both well above expectations and well into growth territory, north of 50. We even had the trade deficit decline for May.
The week ended with the Dow UP 0.3%, to 21414; the S&P 500 UP 0.1%, to 2425; and the Nasdaq UP 0.2%, to 6153.
The strong June jobs report proved to be too much for bonds, as investor money scurried back into equities and bond prices slipped. The 30YR FNMA 4.0% bond we watch finished the week down .25, at $104.84. As expected, national average 30-year fixed mortgage rates moved up a tad in Freddie Mac's Primary Mortgage Market Survey for the week ending July 6th.
Where Are Interest Rates Headed?
This Week’s Forecast
Analysts are forecasting Retail Sales to be growing again in June, in positive territory overall and gaining even more when you exclude volatile auto sales. Inflation is also expected to pick up in June, though not as strongly. The overall Consumer Price Index (CPI) should go from negative to flat, while Core CPI, excluding volatile food and energy prices, is predicted to move up more. Inflation remains benign, which benefits us two ways: prices are kept in check, and so is the Fed.
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 July 10th – July 14th
Jul 12 10:30 Crude Inventories
Jul 12 14:00 Fed's Beige Book
Jul 13 08:30 Initial Unemployment Claims
Jul 13 08:30 Continuing Unemployment Claim
Jul 13 08:30 Producer Price Index (PPI)
Jul 13 08:30 Core PPI
Jul 14 08:30 Retail Sales
Jul 14 08:30 Retail Sales ex-auto
Jul 14 08:30 Consumer Price Index (CPI)
Jul 14 08:30 Core CPI
Jul 14 09:15 Industrial Production
Jul 14 09:15 Capacity Utilization
Jul 14 10:00 Business Inventories
Jul 14 10:00 U. of Michigan Consumer Sentiment - Prelim
Federal Reserve Watch
Speculative Forecasting Federal Reserve Policy Changes in Coming Months:
Last week's FOMC Minutes portrayed Fed members as generally upbeat about economic activity so investors think a rate hike is more likely in December, but not before then.
Note: In the lower chart, a 3% probability of change is a 97% certainty the rate will stay the same.
Current Fed Funds Rate: 1.0%-1.25%
After FOMC meeting on:
Jul 26 1.0%-1.25%
Sep 20 1.0%-1.25%
Nov 1 1.0%-1.25%
Probability of change from current policy:
After FOMC meeting on:
Jul 26 3%
Sep 20 14%
Nov 1 15%
Where are interest rates headed?
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