Housing Starts came roaring back with an 8.3% gain, to post their largest monthly boost of the year. This put them at a 1.215 million unit annual rate, however, we need 1.5 million new units per year to cover population growth and tear downs, so there is still more recovery to come. Starts overall are up 2.1% compared to a year ago and single-family starts are up 10.3% (multi-families are down). This is a positive sign for the economy since each single-family home contributes to GDP, on average, around twice what a multi-family unit does.
It was also terrific to see housing completions increase by 5.2% in June, bringing them 8.1% ahead of where they were a year ago. Want to know what the future of home building looks like? Building Permits for new structures shot up 7.4% in June, their largest monthly hike since 2015. The greater interest here is also in single-families, as those permits are up 9.2% versus a year ago. Some experts are now saying 2017 could be the best year for new construction in a decade. No wonder builders continue to feel confident. Yes, the National Association of Home Builders sentiment index did slip in July but landed at a still very high 64 reading.
Review of Last Week
Things keep moving ahead on Wall Street as investors remain optimistic about the economy, sensing growth-friendly policies will eventually come out of Washington. There's plenty to feel good about right now with some solid corporate earnings reports, plus indications that monetary policy will remain, (meaning low interest rates) as far as anyone can predict. Both the European Central Bank and the Bank of Japan left interest rates alone last week and our Fed should do the same on Wednesday. The S&P 500 ended ahead for the third week in a row and the Nasdaq hit a new record high, though the Dow slipped a bit.
Economic data was not to bad either. In addition to the excellent home building reports covered above, the Conference Board Leading Economic Index (LEI) went up 0.6% in June after a 0.2% gain in May. The New York Empire Manufacturing Index and Philadelphia Fed Index for July showed factory activity in those regions continues to grow, though at a slightly slower pace. Weekly Initial Unemployment Claims stay in the low 200K range and Continuing Unemployment Claims remain below 2 million. Finally, the price of West Texas crude suffered its biggest drop in two weeks, which nudged some investors over to bonds.
The week ended with the Dow down 0.3%, to 21580; the S&P 500 UP 0.5%, to 2473; and the Nasdaq UP 1.2%, to 6388.
The bond market saw Treasuries hit multi-week highs, sending yields and interest rates down. We also had a rally in eurozone government bonds. The 30YR FNMA 4.0% bond we watch finished the week UP .28, to $105.31. After inching ahead two weeks in a row, national average 30-year fixed mortgage rates dropped in Freddie Mac's Primary Mortgage Market Survey for the week ending July 20. This was in part due to "weak inflation data."
Where are interest rates headed?
This Week’s Forecast
The forecasters say June Existing Home Sales will be off a bit and New Home Sales will come in flat. Not surprising given the tight inventory of existing homes in many areas and the fact builders are still scurrying to catch up with demand. No hike is expected in the FOMC Rate Decision. The predicted slower growth in the Employment Cost Index would indicate inflation is tame, which continues to keep the Fed in check.
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 24th – July 28th
Jul 24 10:00 Existing Home Sales
Jul 25 10:00 Consumer Confidence
Jul 25 10:00 New Home Sales
Jul 26 10:30 Crude Inventories
Jul 26 14:00 FOMC Rate Decision
Jul 27 08:30 Initial Unemployment Claims
Jul 27 08:30 Continuing Unemployment Claims
Jul 27 08:30 Durable Goods Orders
Jul 27 08:30 Durable Goods Orders - Ex Transportation
Jul 28 08:30 GDP - Advanced
Jul 28 08:30 Employment Cost Index
Jul 28 10:00 U. of Michigan Consumer Sentiment - Final
Federal Reserve Watch
Speculative Forecasting Federal Reserve policy changes in coming months:
The probability of a rate hike from the Fed is very slim for this week's FOMC meeting and for the next two. Sentiment is rising for a rate increase in December.
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 8%
Nov 1 9%
Where are interest rates headed?
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