Inside Lending - December 12, 2016

In the housing market we are in the business of making people's dreams come true.

Lately, some are saying that fewer people may have those dreams realized and the housing recovery may stall. Why? Because mortgage rates have crept up a little. This is patently absurd.Average interest rates are about where they were in 2014 yet the housing recovery was fine. Some say, yes, but home prices were lower, well, so were wages. Plus, it looks like the newly elected administration may remove some of the constraints on lenders that have made it difficult for home buyers to qualify for mortgages.

Pundits may be pessimistic but not so the public. Fannie Mae's chief economist said their latest study revealed "there is evidence of an increase in consumer optimism in the immediate aftermath of the election." Investor's Business Daily reported that their measure of "Economic Optimism rose 3.4 points to 54.8, the highest since November 2006" and even though the vast majority of economists expect a Fed rate hike this week, one prominent international investment strategist feels that if the dollar "continues to strengthen, in anticipation of higher Fed rates, the Fed may actually hold off." Now wouldn't that be a dream come true.

Review of Last Week

The market rally they are calling the Trump Bump resumed in earnest last week after taking a breather the week before. The blue chip Dow ended Friday at a new record, less than 250 points shy of the 20,000 threshold! The broadly based S&P 500 also finished at a record high, while the tech-heavy Nasdaq shot up a none too shabby 3.6%. One portfolio manager explained that the "outlook for lower regulatory hurdles, lower taxes and higher infrastructure investments all paint the picture of a resurgence in growth prospects." She described this as "euphoria surrounding higher cyclical growth after years of stagnation."

The week's economic data included final Q3 Productivity holding at a 3.1% annual rate. This data point might inspire the Fed to hike rates this week. However, as usual, all economic players were not on the same page. Imports grew while exports dipped so the October Trade Deficit ballooned to a larger than expected $42.6 billion. To be fair, this can be explained by the above mentioned stronger dollar, which made our products more costly over there and their products cheaper here. But Michigan Consumer Sentiment vaulted from 93.8 in November to 98.0 for December. Apparently consumers, like investors, expect an upturn in our economic situation.

The week ended with the Dow UP 3.1%, to 19757; the S&P 500 UP 3.1%, to 2260; and the Nasdaq UP 3.6%, to 5445.

Bond prices suffered as investors were lured away by buoyant stocks, higher prices for West Texas crude and the European Central Bank's decision to trim its bond buying program. The 30YR FNMA 4.0% bond we watch finished the week down .21, at $104.98. Freddie Mac's Primary Mortgage Market Survey for the week ending December 8 had national average 30-year fixed mortgage rates edging up. But rates are barely above a year ago. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up-to-the-minute information.

This Week’s Forecast

Yes we know most Fed watchers are treating this week's FOMC Rate Decision as a done deal hike, but they also felt that way last May. The latest data should still indicate a crawling economy. November Housing Starts are forecast down and although Retail Sales should be up, they're growing more slowly. The Consumer Price Index is expected to show inflation slowing as well. We'll see whether this will be enough to restrain the Fed, who'd like to see the economy a bit hotter before subjecting it to higher rates.

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 Dec 12 – Dec 16

Dec 12     14:00     Federal Deficit
Dec 14     08:30     Retail Sales
Dec 14     08:30     Producer Price Index (PPI)
Dec 14     08:30     Core PPI
Dec 14     09:15     Industrial Production
Dec 14     09:15     Capacity Utilization
Dec 14     10:00     Business Inventories
Dec 14     10:30     Crude Inventories
Dec 14     14:00     FOMC Rate Decision
Dec 15     08:30     Initial Unemployment Claims
Dec 15     08:30     Continuing Unemployment Claims
Dec 15     08:30     Consumer Price Index (CPI)
Dec 15     08:30     Core CPI
Dec 15     08:30     Philadelphia Fed Index
Dec 15     08:30     NY Empire manufacturing Index
Dec 16     08:30     Housing Starts
Dec 16     08:30     Building Permits
                                                                                                          
Federal Reserve Watch   

Speculative Forecasting Federal Reserve policy changes in coming months.

It's hard to find an economist who thinks the Fed won't hike this Wednesday. It's also hard to find one that thinks it'll go up more than a quarter percent and most feel it will stay there for a while.

Note: In the lower chart, a 95% probability of change is only a 5% certainty the rate will stay the same.

Current Fed Funds Rate: 0.25%-0.5%

After FOMC meeting on:    

Dec 14     0.5%-0.75%
Feb 1     0.5%-0.75%
Mar 15     0.5%-0.75%

Probability of change from current policy:

After FOMC meeting on:

Dec 14           95%
Feb 1           95%
Mar 15           96%

Call me now, 303.668.3350 or click here to apply!

Apply Now!
Get the Insider Track on Interest Rates!

Cheers!

Scott Synovic
Nations Reliable Lending, LLC
Colorado's Mortgage Expert
www.scottsynovic.com
303.668.3350 Direct

NMLS: 253799 / NRL NMLS: 181407
Regulated by the Division of Real Estate

---