Inside Lending - January 16, 2017

No matter what resolutions we are trying to keep, we should be happy to see the year getting off to a rather good start.

The Mortgage Bankers Association's Weekly Applications Survey for the week ending January 6 had purchase applications up 6% over the week before.

It also showed national average 30-year mortgage rates down for the second week in a row, just like in Freddie Mac's Primary Mortgage Market Survey, covered below.

Fannie Mae reports that consumers who think now is a good time to buy a home increased by two percentage points last month while those confident they will not lose their jobs went up by four points.

Monday the Federal Housing Administration (FHA) announced that "most new mortgages" with a closing or disbursement date on or after January 27, 2017, will see a 25 basis point cut to the annual mortgage insurance premium. The National Association of Realtors (NAR) said this will help more first-time buyers enter the market. The NAR President noted, "Every time we cut the cost of mortgage insurance, it means more borrowers meet the debt-to-income ratio required to purchase a home." The executive director of the Community Home Lenders Association pointed out, "prior FHA premium cut had significant impact in creating new home purchase opportunities."

Review of Last Week

Stocks in the blue-chip Dow and the broadly-based S&P 500 went down a bit for the week, taking a break from their recent bull runs but stocks on the tech-heavy Nasdaq ended the week at a record-breaking level as that index hit its sixth all-time closing high in seven trading days. Wall Streeters are not optimistic about about the technology sector. Financial stocks are up nearly 20% since the election. Surveys continue to report investor optimism about our overall economic future, and even Fed Chair Janet Yellen says the U.S. economy faces no serious short-term obstacles.

The future may be looking up however present economic data remains uninspiring. Retail Sales rose less than expected in December and if you take out automobiles and gas, consumer retail spending grew at the slowest year-on-year pace since early 2014. The Producer Price Index (PPI) for December was in line with expectations, up 0.3%, as higher energy costs drove up wholesale prices. Business Inventories dropped in November, not good, but, worse, the Michigan Consumer Sentiment index fell from December to January. More of us are gainfully employed as Continuing Unemployment Claims sank by 29,000, to 2.09 million.

The week ended with the Dow down 0.4%, to 19886; the S&P 500 down 0.1%, to 2275; and the Nasdaq UP 1.0%, to 5574.

Positive economic sentiment pushed bond prices lower. The 30YR FNMA 4.0% bond we watch finished the week down .11, to $105.06. Nonetheless, national average 30-year fixed mortgage rates dropped for the second week running in Freddie Mac's Primary Mortgage Market Survey for the week ending January 12. The chief economist credited this to "a mixed December jobs report."

This Week’s Forecast

Thursday we should see Housing Starts ramp up in December, though still behind the 1.5 million unit annual rate the experts want. Inflation is forecast to remain benign, with the Consumer Price Index (CPI) barely up and Core CPI, excluding volatile food and energy prices, flat. The Philadelphia Fed Index of manufacturing in the Mid-Atlantic region is expected to drop a bit.

The stock and bond markets are closed Monday, January 16, for Martin Luther King, Jr. Day. There are no economic reports scheduled for Friday, January 20, Inauguration 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 January 16 – January 20
 
Jan 17     08:30     NY Empire Manufacturing Index
Jan 18     08:30     Consumer Price Index (CPI)
Jan 18     08:30     Core CPI
Jan 18     09:15     Industrial Production
Jan 18     09:15     Capacity Utilization
Jan 18     14:00     Fed's Beige Book
Jan 19     08:30     Initial Unemployment Claims
Jan 19     08:30     Continuing Unemployment Claims
Jan 19     08:30     Housing Starts
Jan 19     08:30     Building Permits
Jan 19     08:30     Philadelphia Fed Index
Jan 19     11:00     Crude Inventories
                                                                                                          
Federal Reserve Watch   

Speculative Forecasting Federal Reserve policy changes in coming months:

The majority of economists still think we will not see a second rate hike from the Fed for the next three FOMC meetings.

Note: In the lower chart, a 3% probability of change is a 97% certainty the rate will stay the same.

Current Fed Funds Rate: 0.5%-0.75%

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             3%
Mar 15           24%
May 3           37%

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
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