Fannie Mae's February Home Purchase Sentiment Index reports consumer confidence in housing at an all-time high. This follows January's report in which consumer confidence improved for the first time in five months. Americans who feel now is a good time to buy rose 11 percentage points, while those believing it's a good time to sell rose by seven. Fannie Mae's chief economist added, "Millennials showed especially strong increases in job confidence and income gains."
He continued, "this is a necessary precursor for increased housing demand from first-time homebuyers."
Those looking for more reasons to be confident found it offered up by the CEO of a major provider of real estate data. He unequivocally stated: "the spring home buying season is shaping up to be one of the strongest in recent memory." Another property data provider reported, "the median down payment for loans secured by single family homes and condos was 6% of the median sales price nationwide, the lowest percentage since 2012." Finally the Mortgage Bankers Association pegged purchase applications up 2% for the week ending March 3 with the average purchase loan size at its highest level since 1990. Buyers are clearly more confident.
Review of Last Week
Since the election, traders have been wildly optimistic about prospects for growth in jobs, wages and the economy, sending stocks to record highs but last week, after six up weeks in a row, the S&P 500 and the Nasdaq ended down, along with the Dow, which had seen four straight weeks of gains. Wall Street's enthusiasm was dampened after crude oil dropped below $50 a barrel, thanks to increases in active rigs and inventory. Plus, it looks like the President's proposal to replace Obamacare might take longer to get through Congress, which would delay the corporate and personal tax reform investors are eager to see enacted.
Productivity, Trade Deficit and Federal Budget data came in OK but the jobs report was an absolute winner again. The economy added 235,000 new Non-farm Payrolls in February and the Unemployment Rate sank to 4.7%, even with more than 300,000 more people entering the labor force. The biggest gains were in construction, which helps housing and manufacturing, which spurs job growth in other industries. Best of all, wages are now up 2.8% over last year. All of this great news makes a rate hike Wednesday more likely however job and wage gains are good for real estate and some economists feel slightly higher rates may slow the rise in home prices.
Bonds held their own as the strong jobs report and a Fed rate hike were already priced into the market. Concerns over European monetary policy helped Treasuries on Friday though the 30YR FNMA 4.0% bond we watch finished the week down .64, at $103.94. In Freddie Mac's Primary Mortgage Market Survey for the week ending March 9, national average 30-year fixed mortgage rates edged up, though they remain near historical lows.
Where are interest rates headed?
This Week’s Forecast
Analysts predict upward motion in this week's key data. Housing Starts are expected up for February though Building Permits may tail off. Up a tick are forecasts for inflation, according to the Consumer Price Index (CPI), and February Retail Sales but the big focus of the week will be the Fed meeting. A vast majority of economists say the FOMC Rate Decision will be a quarter percent hike.
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 March 13th – March 17th
Mar 14 08:30 Producer Price Index (PPI)
Mar 14 08:30 Core PPI
Mar 15 08:30 Consumer Price Index (CPI)
Mar 15 08:30 Core CPI
Mar 15 08:30 Retail Sales
Mar 15 08:30 NY Empire Manufacturing Index
Mar 15 10:00 Business Inventories
Mar 15 10:30 Crude Inventories
Mar 15 14:00 FOMC Rate Decision
Mar 16 08:30 Initial Unemployment Claims
Mar 16 08:30 Continuing Unemployment Claims
Mar 16 08:30 Housing Starts
Mar 16 08:30 Building Permits
Mar 16 08:30 Philadelphia Fed Index
Mar 17 09:15 Industrial Production
Mar 17 09:15 Capacity Utilization
Mar 17 10:00 Leading Economic Indicators
Mar 17 10:00 U. of Michigan Consumer Sentiment
Federal Reserve Watch
Speculative Forecasting Federal Reserve policy changes in coming months:
Most Fed watchers see the central bankers hiking rates on Wednesday. Rates should hold in May but there's now a 53% probability of another quarter percent hike in June.
Note: In the lower chart, an 89% probability of change is only an 11% probability the rate will stay the same.
Current Fed Funds Rate: 0.5%-0.75%
After FOMC meeting on:
Mar 15 0.75%-1.0%
May 3 0.75%-1.0%
Jun 14 1.0%-1.25%
Probability of change from current policy:
After FOMC meeting on:
Mar 15 89%
May 3 90%
Jun 14 95%
Where are interest rates headed?
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