The Mortgage Bankers Association Mortgage Applications Survey for the week ending April 28 reported the seasonally adjusted Purchase Index was 4% up from the week prior. The March CoreLogic Home Price Index was up for the month, just 2.8% off its 2006 however a property economist at a prominent economic research consultancy pointed out Case-Shiller's latest report shows "the pace of house price gains slowed, with the smallest month-on-month rise since July last year."
If home prices concern you check out the Real House Price Index (RHPI) from a leader in settlement services. The RHPI measures price changes adjusted for the impact of income and interest rate changes on consumer house-buying power over time. In other words, it's a good gauge of affordability. Real house prices are 32.8% below the July 2006 peak, and 9.7% below the level in January 2000 and their chief economist adds, "wages continue to grow and the level of affordability in most markets remains high by historical standards." No wonder Consumer Confidence is reported still at strong levels.
Review of Last Week
The stock market has returned to its record-breaking ways. The broadly based S&P 500 ended the week at a record-setting 2399, while the tech-heavy Nasdaq soared to 6101, another record finish. The blue-chip Dow didn't set a record but did close above 21000 for the first time since early March. There were good reasons for these upbeat feelings on Wall Street and you could start with Congress avoiding a government shutdown, having reached an agreement to keep the whole show funded through September. Things are also beginning to look better in the real economic world the rest of us live in.
The ISM Index revealed manufacturing grew in April, just at a slower rate. Core PCE Prices, the Fed's favorite measure of inflation, is up 1.6% the past year, edging toward the central bank's 2% target range. Then, the Fed didn't raise rates at its meeting, saying "the fundamentals" supporting the continued growth of consumer spending "remained solid." In fact, Personal Spending, a key economic driver, is now up 4.7% the past year. The Fed also said, "the labor market has continued to strengthen," and Friday we saw 211,000 Non farm Payrolls were added in April with the Unemployment Rate down to 4.4%, a level not seen since 2001.
The week ended with the Dow UP 0.3%, to 21007; the S&P 500 UP 0.6%, to 2399; and the Nasdaq UP 0.9%, to 6101.
In the bond market, Treasuries hung in there, but other bonds dipped, thanks to that nice April jobs report. The 30YR FNMA 4.0% bond we watch finished the week down .10, at $105.20. National average 30-year fixed mortgage rates remained virtually flat in Freddie Mac's Primary Mortgage Market Survey for the week ending May 4.
Where are interest rates headed?
This Week’s Forecast
After remaining dormant in March, inflation is expected to head up in April. The Consumer Price Index (CPI) and the wholesale Producer Price Index (PPI) are both forecast higher for the month. The economy certainly seems to be getting into better shape, with Retail Sales predicted to be up strongly, both overall and excluding auto sales.
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 8th – May 12th
May 10 10:30 Crude Inventories
May 10 14:00 Federal Budget
May 11 08:30 Initial Unemployment Claims
May 11 08:30 Continuing Unemployment Claims
May 11 08:30 Producer Price Index (PPI)
May 11 08:30 Core PPI
May 12 08:30 Consumer Price Index (CPI)
May 12 08:30 Core CPI
May 12 08:30 Retail Sales
May 12 08:30 Retail Sales Ex-Auto
May 12 10:00 Business Inventories
May 12 10:00 U. of Michigan Consumer Sentiment - Prelim.
Federal Reserve Watch
Speculative Federal Reserve policy changes in coming months:
Many observers feel the markets have already 'baked in' a quarter percent rate hike in June but they don't see any further upward movement through September.
Note: In the lower chart, an 83% probability of change is only a 17% likelihood 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 83%
Jul 26 84%
Sep 20 91%
Where are interest rates headed?
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