Home builders went to work as Housing Starts shot up 6.6% in April to 1.172 million. Naysayers pointed out starts suffering a decline in March so April's number is still down 1.7% from a year ago. This is due to a slow-down in multi-family construction. Single-family starts are up 4.3%. Likewise, new building permits for single-family units are up 8.4% versus a year ago, while overall permits were up 3.6% in April, to a 1.116 million annual rate. The experts say we need starts to get to 1.5 million units a year, so there's room for lots more recovery ahead.
There wasn't anything negative about the National Association of Realtors (NAR) report that Existing Home Sales rose in April for the second straight month, up 1.7%, to a 5.45 million unit annual rate, beating all forecasts. The NAR's chief economist sees momentum building for the spring housing market, noting "sales activity overall was at a healthy pace last month, as very low mortgage rates and modest seasonal inventory gains encouraged more households to search for and close on a home." But Freddie Mac's chief economist cautioned that mortgage rates could begin to change, given "the hawkish tone of Wednesday's Fed minutes release." Let's hope he's overreacting.
Review of Last Week
Fed rate hike chatter dominated Wall Street, as comments from central bank officials suggested a June rate boost is possible. FOMC Minutes from the Fed's April confab included this shocker: "...if incoming data were consistent with economic growth picking up...labor market conditions continuing to strengthen, and inflation making progress toward the Committee's 2.0% objective, then it would likely be appropriate...to increase the target range for the federal funds rate in June." June?! Stocks tanked Thursday, but cooler heads prevailed Friday, leaving the S&P 500 and the Nasdaq ahead for the week, though the Dow ended lower.
Economic reports presented the usual mixed bag of data. We had the good Housing Starts, Building Permits and Existing Home Sales covered above, plus a home builders confidence index showing the majority of respondents see favorable market conditions. But manufacturing keeps struggling, with both the Philadelphia Fed and the NY Empire Indexes reporting contraction in those regions in May. Nationally, Industrial Production was up 0.7% in April, although Capacity Utilization showed factories running at around 75% capacity. Consumer Price Index (CPI) inflation is up 1.1% from a year ago, not quite what the Fed wants to see.
The week ended with the Dow down 0.2%, to 17500; the S&P 500 UP 0.3%, to 2052; and the Nasdaq UP 1.1%, to 4770.
Not a great time was had in the bond market, as all the talk about a possible Fed rate hike sent prices south. The 30YR FNMA 4.0% bond we watch finished the week down .24, at $106.67. In Freddie Mac's Primary Mortgage Market Survey for the week ending May 19, national average 30-year fixed mortgage rates barely moved up, remaining significantly below where they were a year ago. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up-to-the-minute information.
Did you know? Fannie Mae's chief economist thinks "the vote on whether the U.K. will leave the European Union, scheduled to occur about a week after the June FOMC meeting, should keep the Fed from raising interest rates next month."
This Week’s Forecast
New and Pending Home Sales Gain, Economic Growth Stays Weak
Housing continues to recover, as New Home Sales are expected to move up in April. Pending Home Sales, which measure contracts signed on existing homes, are also predicted to grow in April, pointing to a gain in those sales a couple of months out. All this is happening despite a very slow growing economy: the GDP - 2nd Estimate is forecast to show economic growth remaining below 1% for the year.
This Friday, May 27, the bond market closes early, and next Monday, May 30, the stock and bond markets are closed, in observance of Memorial Day.
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 May 23 – May 27
May 24th 10:00 New Home Sales
May 25th 10:30 Crude Inventories
May 26th 08:30 Initial Unemployment Claims
May 26th 08:30 Continuing Unemployment Claims
May 26th 08:30 Durable Goods Orders
May 26th 10:00 Pending Home Sales
May 27th 08:30 GDP - 2nd Estimate
May 27th 10:00 University of Michigan Consumer Sentiment
Federal Reserve Watch
Forecasting Federal Reserve Policy Changes in Coming Months
After last week's release of FOMC Minutes, the majority of economists expect a pass on a rate hike in June, but then see a 0.25% bump in July and another in September. Note: In the lower chart, a 26% probability of change is a 74% certainty the rate will stay the same.
Current Fed Funds Rate: 0.25%-0.5%
After FOMC meeting on:
Jun 15 0.25%-0.50%
Jul 27 0.50%-0.75%
Sep 21 0.75%-1.00%
Probability of change from current policy:
After FOMC meeting on:
June 15th 26%
July 27th 53%
September 21st 64%
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