Inside Lending - August 1, 2016

Having dreams, a strong character and a sense of humor are keys to success for those of us who make our living in the housing market. Fortunately, we continue to see the housing recovery making further strides overall. Last week, new single-family home sales were up 3.5% for June, hitting a 592,000 unit annual rate. We're still not where we need to be, but we are 25.4% ahead of sales last year ago.

There were 3,000 new homes added to inventory, though that's still very low by historical standards. The 6.1% boost in the median sales price of a new home should keep builders motivated.

The Pending Home Sales index of contracts signed on existing homes was up 0.2% in June following its 3.7% drop in May. The two numbers indicate existing home sales in July and August will let up a bit. But those sales rose considerably earlier in the year, so the trend remains positive. Let us remember too that home ownership is down, with a bigger part of the population renting. This should create a growing pool of potential buyers as economic conditions slowly improve while rents relentlessly rise. The national Case-Shiller home price index was up 1.2% in May, 5.0% ahead of a year ago. Sellers ought to take note of this--and the low mortgage rates they'll pick up as buyers.

Review of Last Week

Investors were treated to lots of variety, starting with a mixed bag of Q2 corporate earnings. A couple of companies in the Dow disappointed, sending the blue chip index south for the week. But the tech-y Nasdaq saw upside surprises from some big players (bet you can guess the names), pushing it to its highest level in more than a year. There was no dramatic earnings news from companies in the broadly-based S&P 500, so that index finished just a tick below the prior week's all-time closing high. The Fed met Wednesday and quietly left interest rates alone, while offering a lukewarm outlook on the U.S. economy.

Regular Inside Lending readers should be well versed in the details of the painfully slow economic recovery of the last eight years. Friday, we saw evidence that recovery has slowed even more. The Commerce Department's GDP report said the economy skidded to a 1.2% annual growth rate in Q2 (April-June). Oh, and it turns out they overestimated Q1 (January-March) GDP growth, revising that down to a barely visible 0.8%. Well, at least we had the decent housing data covered above, and the Chicago PMI showed Midwest manufacturing activity slipped only a little. But University of Michigan Consumer Sentiment weakened in July.

The week ended with the Dow down 0.7%, to 18432; the S&P 500 down 0.1%, to 2174; but the Nasdaq UP 1.2%, to 5162.

When Q2 GDP growth disappointed dismally on Friday, prudent investors fled to the safety of bonds, sending prices higher. The 30YR FNMA 4.0% bond we watch finished the week UP .14, at $107.17. National average 30-year fixed mortgage rates increased slightly in Freddie Mac's Primary Mortgage Market Survey for the week ending July 28, but still remain near historical lows.

This Week’s Forecast

The nationwide ISM Index should show slow growth for manufacturing, as well as for consumer Personal Spending, not good for the economy. But the expected slow growth of inflation, measured by Core PCE Prices, is good for consumers and for keeping interest rates down. Before the Fed hikes rates, it wants higher inflation, as well as a better jobs picture. It's predicted they'll get that, sort of--a moderate 185,000 new Non farm Payrolls in July, though little gain in Hourly Earnings.  

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 Aug 1 – Aug 5

Aug 1    10:00    ISM Inde
Aug 2    08:30    Personal Income
Aug 2    08:30    Personal Spending
Aug 2    08:30    Core PCE Prices
Aug 3    10:00    ISM Services
Aug 3    10:30    Crude Inventories
Aug 4    08:30    Initial Unemployment Claims
Aug 4    08:30    Continuing Unemployment Claims
Aug 5    08:30    Average Workweek
Aug 5    08:30    Hourly Earnings
Aug 5    08:30    Nonfarm Payrolls
Aug 5    08:30    Unemployment Rate
Aug 5    08:30    Trade Balance
                                                                                                          
Federal Reserve Watch    

The majority of economists do not expect the Fed to go for a rate hike this year, but there's slightly more sentiment for a post-election December increase. Note: In the lower chart, a 12% probability of change is an 88% certainty the rate will stay the same.

Current Fed Funds Rate: 0.25%-0.5%

After FOMC meeting on:

Sep 21    0.25%-0.5%
Nov 2    0.25%-0.5%
Dec 14    0.25%-0.5%

Probability of change from current policy:

After FOMC meeting on:   

Sep 21    12%
Nov 2    12%
Dec 14    33%

Please call me direct with any questions I can answer at 303.668.3350! Apply Now!

Have a great day!

Scott Synovic
Nations Reliable Lending, LLC
Colorado's Mortgage Expert

303.668.3350 Direct
www.scottsynovic.com

---