Mortgage Blog - May 22, 2017

It looked like the recovery in home building had come to a stop in April as Housing Starts fell 2.6%, to a 1.172 million annualized rate, however, compared to a year ago, starts are still up 0.7% overall. In addition, the April drop was entirely due to a decline in multifamily starts, which are exceedingly volatile on a monthly basis. Single family starts were up 0.4% for the month and are now 8.9% ahead of their pace a year ago. New building permits also dipped 2.5%, to a 1.229 million annual rate but permits for single-family units are up 6.2% versus a year ago, while multifamily permits are up 4.8%.

Much of the home building recovery is still ahead of us. Experts say we need to build about 1.5 million units annually just to cover population growth and replace tear downs. The National Association of Home Builders (NAHB) reported builder confidence in the market for new single family homes went up two points in May, hitting its second highest reading since before the downturn. The NAHB also reported the median size for new single family homes decreased to 2,389 square feet from 2,465 square feet a year ago because builders are bringing much needed entry-level homes to the market.

Review of Last Week

Stocks finished Friday just marginally down for the week but they certainly traveled a rocky road getting there. The S&P 500 hit a record high on Monday then fell big-time on Wednesday as investors feared the turmoil in Washington might jeopardize the Trump administration's pro-growth policies. The term "Trump Slump" emerged in the media, although the S&P 500 ended Wednesday less than 2% below Monday's all-time high. Thursday and Friday, investors re-gained their sanity and stocks re-gained much of their losses, though not enough to end ahead for the five days of trading.    

Expectations for tax reform, deregulation and infrastructure spending are certainly generating economic optimism. The small business confidence survey is at a 13-year high, terrific for the sector that employs most Americans. Consumer confidence is at a 16-year high, fueled by healthy job growth, a pickup in wages, unemployment at a 10-year low, and encouraging housing market indicators. Industrial Production in April rose an unexpected 1.0% overall, the once dormant manufacturing sector growing steadily, along with mining and utilities. Manufacturing sentiment in New York fell but Capacity Utilization climbed nationally.

The week ended with the Dow down 0.4%, to 20805; the S&P 500 down 0.4%, to 2382; and the Nasdaq down 0.6%, to 6084.

Volatility in the stock market generally bodes well for bonds and that was demonstrated last week. The 30YR FNMA 4.0% bond we watch finished the week UP .30, at $105.44. National average 30-year fixed mortgage rates edged down, staying near their lows for the year, in Freddie Mac's Primary Mortgage Market Survey for the week ending May 18th.

Where Are Rates Headed?

This Week’s Forecast

Analysts are predicting both New Home Sales and Existing Home Sales will take a breather in April, undoubtedly caused by decreasing inventories in some regions however we should get a few more indications that the economy is expanding, with the rising numbers for the Q1 GDP, Second Estimate and April Durable Goods Orders excluding transportation, which exclude that volatile sector.

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 May 22nd through May 26th

May 23     10:00     New Home Sale
May 24     10:00     Existing Home Sales
May 24     10:30     Crude Inventories
May 25     08:30     Initial Unemployment Claims
May 25     08:30     Continuing Unemployment Claims
May 26     08:30     Durable Goods Orders
May 26     08:30     Durable Goods Orders
May 26     08:30     GDP - 2nd Estimate
May 26     10:00     U. of Michigan Consumer Sentiment
                                                                                                          
Federal Reserve Watch   

Speculative Forecasting Federal Reserve policy changes in coming months:

The probability of a Fed rate hike in June is still highly likely, at well over 50%, but rates should hold there through September.

Note: In the lower chart, a 79% probability of change is only a 21% certainty the rate will stay the same.

Current Fed Funds Rate: 0.75%-1.0%

After FOMC meeting on:   

Jun 14     1.0%-1.25%
Jul 26     1.0%-1.25%
Sep 20     1.0%-1.25%

Probability of change from current policy:

After FOMC meeting on:     

Jun 14           79%
Jul 26           80%
Sep 20           86%

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

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The material contained in this newsletter has been prepared by an independent third-party provider. The content is provided for use by real estate, financial
services and other professionals only. The material provided is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, there is no guarantee it is without errors.

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