The home building sector of the housing market has roared back into action as Housing Starts surged 13.7% in October to a very nice sounding 1.29 million unit annual rate. About 1.5 million units a year are what we need to meet population growth and replace tear-downs, so we're making progress in the right direction. Single family starts rose 5.3% for the month, to an 877,000 annual rate, and housing completions grew 12.6% to a 1.23 million yearly rate. The National Association of Realtors chief economist averred, "Overall, the total activity for the country is moving in the right path."
Housing analysts find it even more encouraging that Building Permits bumped up a solid 5.9% in October to a 1.3 million annual rate. Permits are viewed as a leading indicator of future starts, so this suggests the upward trend in home building should continue. Home builders certainly feel that way, as Builder Confidence hit an index level of 70 this month, the second highest read since July 2005. The National Association of Home Builders chief economist sees "continued upward movement of the single-family housing market." Freddie Mac forecasts new home sales will be the main driver of total home sales going into 2018.
Review of Last Week
Stocks finished lower for the second week in a row, but down only moderately after quietly moving in both directions over five days of trading. Actually, we haven't seen extreme volatility for a while, the VIX index that measures it staying well below average for the past year. This tranquility is happening while stocks deliver a nearly 20% return year-to-date, the market has been up 10 of the last 13 weeks, and we have not seen a monthly loss since October 2016. Investors await tax reform as two proposals grind through Congress but some now feel there's a good chance a bill will be passed.
Analysts say investor optimism is supported by a growing economy, rising corporate earnings and relatively low interest rates. Plus, they point to the kind of economic data we saw last week. October Retail Sales grew 0.2% (0.5% including upward revisions to prior months), and they are now up 4.6% over a year ago. The Core Consumer Price Index (CPI) put inflation up 0.2% in October and up 1.8% in the last year. This is near the 2% inflation target the Fed says shows a solidly growing economy. Rising incomes are vital to the housing market, so it was good to see overall worker earnings up, at around a 4% annual rate.
The week ended with the Dow down 0.3%, to 23358; the S&P 500 down 0.1%, to 2579; and the Nasdaq UP 0.5%, to 6783.
Bonds experienced a mixed week but analysts do not feel this reflects any growth concerns. The 30YR FNMA 4.0% bond we watch finished the week UP.10, at $104.73. National average 30-year fixed mortgage rates reversed course and ticked up in Freddie Mac's Primary Mortgage Market Survey for the week ending November 16.
Where are interest rates headed?
This Week's Forecast
Tuesday we'll get the first read on Existing Home Sales that was not negatively affected by the August and September hurricanes. The forecast is for those sales to be in growth mode for October. Just before Tuhanksgiving the Fed will share FOMC Minutes from its November 1 meeting. Rates held then, but everyone sees a hike coming next month, so we'll look for signs confirming that in the minutes.
The financial markets will be closed Thursday for Thanksgiving Day. Friday, the stock market will close at 1:00 pm, the bond market at 2:00 pm.
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 November 20th - November 24th
Nov 20 10:00 Leading Economic Index (LEI)
Nov 21 10:00 Existing Home Sales
Nov 22 08:30 Initial Unemployment Claims
Nov 22 08:30 Continuing Unemployment Claims
Nov 22 08:30 Durable Goods Orders
Nov 22 10:00 U. of Michigan Consumer Sentiment - Final
Nov 22 10:30 Crude Inventories
Nov 22 14:00 FOMC Minutes
Federal Reserve Watch
Speculative Forecasting Federal Reserve policy changes in coming months:
The Fed futures market sees the Funds Rate going up for sure at next month's meeting, and there's growing sentiment we'll see a second small hike in March.
Note: In the lower chart, a 100% probability of change is a 100% certainty the rate will rise, while a 5% probability of change is a 95% certainty the rate will stay the same.
Current Fed Funds Rate: 1.00%-1.25%
After FOMC meeting on:
Dec 13 1.25%-1.50%
Jan 31 1.25%-1.50%
Mar 21 1.25%-1.50%
Probability of change from current policy:
After FOMC meeting on:
Dec 13 100%
Jan 31 5%
Mar 21 48%
Where are interest rates headed?
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