Inside Lending - February 13, 2017

Good things are happening in the housing market as Fannie Mae's Home Purchase Sentiment Index (HPSI) reported that housing confidence in December reversed its five-month decline, heading up 2 percentage points, with personal finance optimism reaching a seven-year high.

The chief economist noted: "Three months after the presidential election, measures of consumer optimism regarding personal financial prospects and the economy are at or near the highest levels we've seen in the nearly seven-year history of the National Housing Survey."

Reflecting that increased housing confidence among consumers the Mortgage Bankers Association reported purchase mortgage applications up 2% for the week ending February 3. The National Association of Realtors (NAR) report for Q4 of 2016 saw the best quarterly sales pace for the year, which drove inventory to record lows but the NAR president pointed out this should boost sales activity now: "There are fewer listings but also a little less competition than what's expected this spring. The prospect of higher mortgage rates and more home shoppers in coming months should be enough of an incentive for those serious about buying to start their search now."

Review of Last Week

Last Thursday President Donald Trump said he would deliver on his campaign pledge to move quickly on tax reform, promising to announce a "phenomenal" tax policy in a few weeks. What was "phenomenal" immediately was Wall Street's reaction. Investors sent the three main stock indexes to record highs by the end of the day--and followed that by pushing all three indexes up to another set of record highs on Friday. Many observers believe tax reform has the potential to jolt the economy out of the frustratingly slow growth we've seen since the recession by boosting personal incomes, corporate earnings and well-paying jobs.

All those things would be good for the housing market. There wasn't a lot of economic data to chew on, but we did have a nice $1.4 billion decrease in the Trade Deficit. The Treasury Budget came in just north of $51 billion in the black in January, though the 12-month budget was almost $584 billion in the red in December. The Preliminary University of Michigan Consumer Sentiment reading for February slipped from January but it's still up there, as we've only seen five higher readings in the last ten years. Initial Unemployment Claims dropped by 13,000 for the week, while Continuing Claims edged up but remain just above the two million level.

The week ended with the Dow UP 1.0%, to 20269; the S&P 500 UP 0.8%, to 2316; and the Nasdaq UP 1.2%, to 5734.

As investors scurried over to stocks on Thursday, bond prices fell but recovered Friday thanks to some dip-buying. The 30YR FNMA 4.0% bond we watch finished the week UP .06, at $104.95. National average 30-year fixed mortgage rates dropped in Freddie Mac's Primary Mortgage Market Survey for the week ending February 9, their chief economist noting, "rates are at about the same level at which they started the year."

Where are interest rates headed?

This Week’s Forecast

January reports are expected to show Housing Starts off but Building Permits increasing, indicating builders are ramping up for the spring selling season. CPI and Core CPI inflation should rise, but consumers are still spending. Retail Sales are forecast up a tad overall and Retail Sales ex-auto, excluding volatile auto sales, up by a bigger amount. Pretty good for January. Manufacturing has mixed predictions, down by the Philadelphia Fed Index but up or flat in other reports.

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 February 13th – February 17th

Feb 14     08:30     Producer Price Index (PPI)
Feb 14     08:30     Core PPI
Feb 15     08:30     Consumer Price Index (CPI)
Feb 15     08:30     Core CPI
Feb 15     08:30     NY Empire Manufacturing Index
Feb 15     08:30     Retail Sales
Feb 15     08:30     Retail Sales ex-auto
Feb 15     09:15     Industrial Production
Feb 15     09:15     Capacity Utilization
Feb 15     10:00     Business Inventories
Feb 15     10:30     Crude Inventories
Feb 16     08:30     Initial Unemployment Claims
Feb 16     08:30     Continuing Unemployment Claims
Feb 16     08:30     Housing Starts
Feb 16     08:30     Building Permits
Feb 16     08:30     Philadelphia Fed Index
Feb 17     10:00     Leading Economic Indicators (LEI)
                                                                                                          
Federal Reserve Watch   

Speculative Forecasting Federal Reserve policy changes in coming months:

Most economists can't see a rate hike at the next two meetings, but the majority does expect a quarter percent bump in June.

Note: In the lower chart, a 13% probability of change is an 87% certainty the rate will stay the same.

Current Fed Funds Rate: 0.5%-0.75%

After FOMC meeting on: 

Mar 15     0.5%-0.75%
May 3     0.5%-0.75%
Jun 14     0.75%-1.0%

Probability of change from current policy:

After FOMC meeting on:    

Mar 15           13%
May 3           34%
Jun 14           67%

Where are interest rates headed?

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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

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