Inside Lending - November 28, 2016

Ups and downs. Last week, for example, we had two reports go in opposite directions. The news came on Tuesday that Existing Home Sales headed up 2.0% in October, sailing over the 5.50 million threshold to a way better than expected 5.60 million annual rate and putting those sales up 5.9% over a year ago. This up news was followed by some down data. New Home Sales fell 1.9% in October, landing at a 563,000 unit annual rate. However, thanks to strong prior months, new home sales are still up 17.8% from a year ago.

Also up is the conforming loan limit for 2017, which the Federal Housing Finance Agency raised to $424,100 in most of the U.S., and $636,150 in high-cost counties. Finally, we must comment on the recent up direction of mortgage rates. Some in the media seem greatly concerned that this could be a down for the housing recovery. The fact is rates are still extremely low by historical standards, and future hikes are forecast to be small, all good for buyers. Plus, many economists are expecting faster economic growth, which will expand jobs, accelerate wage gains and drive up the home ownership rate, all good for sellers. We're up for that.

Review of Last Week

On Black Friday, a day famous for its door busters, the three major market indexes wound up record busters. The blue chip Dow, the broadly-based S&P 500 and the tech-heavy Nasdaq all racked up three weeks in a row of stock market gains, setting new record highs. This uptrend in stocks has happened since the election, as investors are betting that President-elect Donald Trump's economic proposals will create higher levels of economic growth. Shouldn't be too hard. The last eight years have seen the economy growing annually at an average 1.1% rate, versus the 3% to 4% growth it was doing before.

Wednesday, FOMC Minutes revealed the Fed felt "relatively close" to raising rates at the last meeting. Wall Street interpreted this as a December rate hike, so there wasn't much reaction in the markets, as investors have already priced that into their stock valuations. Economic data included Durable Goods Orders up a nice 4.8% in October, plus the housing reports covered above. And consumers are pitching in. Online sales on Thanksgiving Day hit $1.15 billion, a 13.6% gain over last year. Interestingly, $449 million of that revenue was spent on mobile devices, 58.6% more than a year ago. Shoppers are busting records too and they are doing it on the go!

The week ended with the Dow UP 1.5%, to 19152; the S&P 500 UP 1.4%, to 2213; and the Nasdaq UP 1.5%, to 5399.

The selling surge in bonds eased up some, but prices still moved down as yields, and rates, moved up. The 30YR FNMA 4.0% bond we watch finished the week down .37, at $105.13. Freddie Mac's Primary Mortgage Market Survey for the week ending November 23 had national average 30-year fixed mortgage rates moving higher for the second week in a row but they are only a tad above where they were a year ago.

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This Week’s Forecast

The Pending Home Sales measure of contracts signed on existing homes is predicted up a bit in October, though not as much as the month before. Personal Spending is also expected up, showing consumers continue to help the economy. But Core PCE Prices should remain quiet, which could quiet the Fed next month. Jobs are also forecast to grow at a quiet pace in November, with just 180,000 new Nonfarm Payrolls. Wage growth should also have quieted to a 0.2% uptick in Hourly Earnings.

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 Nov 28 – Dec 2

Nov 29     08:30     GDP - 2nd Estimate
Nov 29     10:00     Consumer Confidence
Nov 30     08:30     Personal Income
Nov 30     08:30     Personal Spending
Nov 30     08:30     Core PCE Prices
Nov 30     09:45     Chicago PMI
Nov 30     10:00     Pending Home Sales
Nov 30     10:30     Crude Inventories
Nov 30     14:00     Fed's Beige Book
Dec 1        08:30     Initial Unemployment Claims
Dec 1        08:30     Continuing Unemployment Claims
Dec 1        10:00     ISM Index
Dec 2        08:30     Average Workweek
Dec 2        08:30     Hourly Earnings
Dec 2        08:30     Nonfarm Payrolls
Dec 2        08:30     Unemployment Rate
                                                                                                          
Federal Reserve Watch   

Speculative Forecasting Federal Reserve policy changes in coming months:

It is difficult to find an economist who does not think the Fed will hike a quarter percent at its next meeting. We will soon see in two and a half weeks.

Note: In the lower chart, a 94% probability of change is only a 6% certainty the rate will stay the same.

Current Fed Funds Rate: 0.25%-0.5%

After FOMC meeting on: 

Dec 14     0.5%-0.75%
Feb 1     0.5%-0.75%
Mar 15     0.5%-0.75%

Probability of change from current policy:

After FOMC meeting on: 

Dec 14           94%
Feb 1           94%
Mar 15           95%

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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
Regulated by the Division of Real Estate

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