Inside Lending - February 20, 2017

January Housing Starts declined 2.6% however there was plenty to be optimistic about. First, January's 1.246 million unit annual rate handily beat expectations. Next, the dip was due to multifamily starts, which are volatile from month to month. Single family starts actually increased in January and are up 6.2% the past year and all this follows a big surge for starts in December.

Looking ahead, Building Permits were up 4.6% in January, to a 1.285 million annual rate, with single family permits up 11.1% over a year ago.

The National Association of Home Builders (NAHB) confidence index dipped a tad to a still high 65. The chairman explained: "Regulatory burdens remain a major challenge," and added also, "NAHB looks forward to working with the new Congress and administration to help alleviate some of the pressures that are holding small businesses back and making homes less affordable." Their chief economist noted, "overall housing market fundamentals remain strong." The Mortgage Bankers Association Builder Application Survey had mortgage applications for new home purchases up 22% in January and up 9.2% from a year ago. Now that's cause for optimism.

Review of Last Week

Friday ended with the three major stock indexes setting new records going into the holiday weekend. The blue chip Dow broke records seven sessions in a row, while the broadly-based S&P 500 posted its fourth straight weekly gain, heading up five of the first seven weeks of 2017. The markets are a leading indicator of the economy and investors clearly see stronger growth coming from the new President's proposed economic policies, including tax cuts, deregulation and fiscal stimulus. Even Fed Chair Janet Yellen, a cautious forecaster, told Congress rates may have to go up faster because of a boost in economic growth.

Economic reports are indeed starting to portray a more vibrant economy. The Producer Price Index (PPI) showed wholesale prices heating up in January. Plus, the Core Consumer Price Index (Core CPI), excluding volatile food and energy prices, is now up 2.3% the past year. Overall Industrial Production tailed off in January although manufacturing, excluding mining and utilities, was up 0.3%. The New York Empire Manufacturing Index surged from +6.5 to +18.7 in February, while the Philadelphia Fed Index of manufacturing jumped from 23.6 to 43.3. Retail Sales also gained more than expected, and this is terrific since consumer spending is the biggest driver of the economy.

The week ended with the Dow UP 1.7%, to 20624; the S&P 500 UP 1.5%, to 2351; and the Nasdaq UP 1.8%, to 5839.

With investors focused on stocks, bond prices suffered but they recovered a bit on Friday as stocks digested some of their gains and money flowed back into bonds. The 30YR FNMA 4.0% bond we watch finished the week down just .03, to $104.92. In Freddie Mac's Primary Mortgage Market Survey for the week ending February 16, national average 30-year fixed mortgage rates dipped for the second week in a row.

Where are interest rates headed?

This Week’s Forecast

This week we see a complete picture of how the housing market did in January. Economists expect nice gains in both Existing Home Sales and New Home Sales. We'll also get to examine the FOMC Minutes from the Fed's February 1 meeting. Analysts will be looking for signs of when we'll see the next rate hike.

U.S. stock and bond markets are closed today in observance of Presidents' 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 February 20th – February 24th:


Feb 22     10:00     Existing Home Sales
Feb 22     14:00     FOMC Minutes
Feb 23     08:30     Initial Unemployment Claims
Feb 23     08:30     Continuing Unemployment Claims
Feb 23     11:00     Crude Inventories
Feb 24     10:00     U. of Michigan Consumer Sentiment - Final
Feb 24     10:00     New Home Sales
                                                                                                          
Federal Reserve Watch   

Speculative Forecasting Federal Reserve policy changes in coming months:

Most economists still do not see a rate hike in March or May but a strong majority does expect a 0.25% jump at the Fed's June 14th meeting.

Note: In the lower chart, an 18% probability of change is an 82% 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           18%
May 3           44%
Jun 14           70%

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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