The Nobel Prize winner quoted above would no doubt have been encouraged by the somewhat contradictory findings of Fannie Mae's latest survey.
Home Purchase Sentiment Index (HPSI) hit an all-time high in May, as more people than ever said it would be a good time to sell their homes.
Unfortunately, fewer of those consumers felt it was a good time to buy. This seeming paradox can be resolved by noting that home prices, nationally, continue to climb.
This is appealing to sellers, but when they then become buyers, many are hampered by the slow wage growth that continues to plague the U.S. economy.
In fact, the HPSI revealed that only 18% of respondents reported their income was significantly higher than it was a year ago. Fannie Mae's chief economist pointed out, "The current low mortgage rate environment has helped...and fewer than half of consumers expect rates to go up in the next year." The CoreLogic Home Price Index posted a 6.2% annual increase in April, but projected the gain would slow to 5.3% in the year ahead. Buyers are still showing up, evidenced by the Mortgage Bankers Association report that purchase applications went up 12% for the week ending June 3. That includes an adjustment made for the Memorial Day holiday.
Review of Last Week
Friday, stock prices went south for the second day in a row, as investors became jittery about the June 23 vote which could see the U.K. exit the European Union. Many analysts worry this so-called Brexit could shock the global economy, but those who don't believe it would matter much in the long run got falling oil prices to fret over anyway. The S&P 500 ended down a tick, the Nasdaq down a bit more, but the Dow ended ahead. Pollsters in Britain say the Brexit vote is too close to call, which is why the Fed is expected to leave rates alone at this week's meeting, waiting for the U.K. result before they risk disturbing things further.
A thin week of economic reports didn't offer much to calm Wall Street nerves. The final read on Productivity in the first quarter showed it declined at a 0.6% annual rate. In the past year, Productivity is up a barely visible 0.7%. Friday saw the University of Michigan Consumer Sentiment index fall to 94.3 in June, landing below its reading a year ago. At least we got Initial Unemployment Claims well under 300,000 for another week. The Federal Deficit came in at $52.5 billion in May versus the $84.1 billion we ran a year ago. The twelve-month deficit "narrowed" to $479.3 billion last month, down from $510.9 billion in April. In Washington, this passes for good news.
The week ended with the Dow UP 0.3%, to 17865; the S&P 500 down 0.1%, to 2096; and the Nasdaq down 1.0%, to 4895.
Falling stock prices and inflation expectations sent investor money straight into bonds. The 30YR FNMA 4.0% bond we watch finished the week UP .04, at $107.02. National average 30-year fixed mortgage rates dropped in Freddie Mac's Primary Mortgage Market Survey for the week ending June 9. This extends the window for home buyers to take advantage of near historically low borrowing costs. Remember, mortgage rates can be extremely volatile, so call me today for up-to-the-minute information.
Did you know?
According to a leading provider of data to lenders, total cash home sales fell to 35% of all closings in the first quarter of this year.
This Week’s Forecast
Retail sales up, home building off, inflation quite and more Fed fun. Another week dominated by Fed yak, this time courtesy of a central bank meeting where the FOMC Rate Decision is universally expected to be a non-event. Retail Sales should be up but growing slower, while Housing Starts are forecast to slide a bit. The Consumer Price Index (CPI) inflation reading is predicted to be up only a tad, one more thing to keep the Fed's foot off the gas.
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 Jun 13 – Jun 17
Jun 14 08:30 Retail Sales
Jun 14 10:00 Business Inventories
Jun 15 08:30 Producer Price Index (PPI)
Jun 15 08:30 Core PPI
Jun 15 08:30 NY Empire Manufacturing Index\
Jun 15 09:15 Industrial Production
Jun 15 09:15 Capacity Utilization
Jun 15 10:30 Crude Inventories
Jun 15 14:00 FOMC Rate Decision
Jun 16 08:30 Initial Unemployment Claims
Jun 16 08:30 Continuing Unemployment Claims
Jun 16 08:30 Consumer Price Index (CPI)
Jun 16 08:30 Core CPI
Jun 16 08:30 Philadelphia Fed Index
Jun 17 08:30 Housing Starts
Jun 17 08:30 Building Permits
Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months... Now the majority of economists expect no rate hike from the Fed at this week's meet and clear through September. Would be nice if they're right. Note: In the lower chart, a 2% probability of change is a 98% certainty the rate will stay the same.
Current Fed Funds Rate: 0.25-0.5%
After FOMC meeting on:
Jun 15 0.25-0.5%
Jul 27 0.25-0.5%
Sep 21 0.25-0.5%
Probability of change from current policy:
After FOMC meeting on:
Jun 15 2%
Jul 27 21%
Sep 21 35%
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