Inside Lending - December 19, 2016

Last week the Fed hiked the Funds Rate and many in the media were busy misinforming us about the dire implications for the housing market but, sane voices were also heard.

A chief economist for a financial services company said, "higher interest rates will choke off a little bit of demand, but more jobs and more income should stimulate housing."

The chief economist for a real estate database explained that the Fed's investment in mortgage bonds keeps mortgage rates low, and "Chair Yellen promised that this buying program would remain in effect."

The Fed's "dot plot" went from two to three projected rate hikes next year which worried observers who forgot that the 2016 dot plot had four rate hikes, but only one occurred. The Fed must go slow, as the economy is not booming just yet. Housing Starts fell 18.7% in November, to 1.090 million annual units. This followed October's nine year high, with most of the dip on the volatile multi family side. Still, single family starts are up 5.3% the past year, single family homes under construction at an eight year high and single family permits at a nine year high. Plus, December's NAHB index of home builder confidence reached its loftiest reading in 11 years.

Review of Last Week

Last week, the three major stock indexes traveled in the horizontal direction. The broadly-based S&P 500 and the tech-heavy Nasdaq ended slightly down for the week. But the blue-chip Dow finished slightly up, scoring a six-week winning streak, its longest in more than a year. The Dow also wound up fewer than 160 points below the psychologically significant 20,000 level. Downward pressure on stock prices came Wednesday after the Fed finally hiked the Funds Rate as expected, but unexpectedly announced there could be three more rate hikes in 2017 instead of the two they projected in September.

Economic data presented the familiar mix of good stuff and not so good stuff. Retail Sales increased a less than expected 0.1% in November. The Producer Price Index (PPI) had wholesale prices moving ahead 0.4% in November, but only 1.3% the last year. The Consumer Price Index (CPI) was up 0.2% in November and up 1.7% the past year. The Fed's target inflation rate is 2%, but their favorite measure is the Core PCE Prices read coming this Thursday. Manufacturing continues to baffle, as Industrial Production and Capacity Utilization dipped, but the Philly Fed Index of East Coast factory activity zoomed to its highest reading in more than two years.

The week ended with the Dow UP 0.4%, to 19843; the S&P 500 down 0.1%, to 2258; and the Nasdaq down 0.1%, to 5437.

Bonds did not benefit much from the quieter week in the stock market. The 30YR FNMA 4.0% bond we watch finished the week down 1.03, at $103.95. National average 30-year fixed mortgage rates edged a little higher in Freddie Mac's Primary Mortgage Market Survey for the week ending December 15. They're still less than a quarter percent above a year ago. Remember, mortgage rates can be extremely volatile, so please call me at 303.668.3350 for up-to-the-minute information.

This Week’s Forecast

November is expected to show a small drop in Existing Home Sales, happily still at a 5.5 million annual rate. New Home Sales should march up a bit for the month. But the Core CPE Prices measure of inflation is forecast to come in at a quiet 0.1%, which should keep the Fed from getting too frisky with rate hikes. Financial markets are open all five days, as Christmas falls on the weekend.

I wish you and yours all the best this holiday season!

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 19 – Dec 23

Dec 21     10:00     Existing Home Sales
Dec 21     10:30     Crude Inventories
Dec 22     08:30     Initial Unemployment Claims
Dec 22     08:30     Continuing Unemployment Claims
Dec 22     08:30     GDP - 3rd Est.
Dec 22     08:30     Durable Goods Orders
Dec 22     10:00     Leading Economic Indicators (LEI)
Dec 22     10:00     Personal Income
Dec 22     10:00     Personal Spending
Dec 22     10:00     Core PCE Prices
Dec 23     10:00     U. of Michigan Consumer Sentiment - Final
Dec 23     10:00     New Home Sales
                                                                                                          
Federal Reserve Watch   

Speculative Forecasting Federal Reserve policy changes in coming months:

Now that the Fed said there could be three more rate hikes next year, economists are busy guessing when the next one will come. The majority see nothing happening before June.

Note: In the lower chart, a 4% probability of change is a 96% certainty the rate will stay the same.

Current Fed Funds Rate: 0.25%-0.5%

After FOMC meeting on:   

Feb 1     0.5%-0.75%
Mar 15     0.5%-0.75%
May 3     0.5%-0.75%

Probability of change from current policy:

After FOMC meeting on:    

Feb 1             4%
Mar 15           25%
May 3           38%

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

---