Inside Lending - September 12, 2016

Here is something that perhaps is not worth worrying about - the current low inventory of starter homes.

A recent survey reported that there is actually weaker underlying demand for starter homes and among those who want to buy a home in the future, 75% said they'd prefer to skip purchasing a starter and instead go for one that meets future needs. Specifically, 69% would rather save money now to buy a nicer home in the future, More than a third revealed they want to retire in the first home they buy.

Another thing people worry about is the rise in home prices. Yet a leading real estate technology and data firm reported that home prices are finally leveling off. CoreLogic's Home Price Index and HPI Forecast had home prices up 1.1% in July over June, but predict a slowdown to 0.4% monthly growth in August. Similarly July's 6% year-over-year price rise is projected to fall to a 5.4% annual gain in August. Finally, mortgage originations have been up this year, though many worry that it's mostly refis grabbing today's low rates. But Black Knight's Mortgage Monitor Report had purchase loan originations in Q2 up 52% from Q1, to their highest volume and dollar levels since 2007.

Review of Last Week

For the first three days of the holiday shortened week, everything was fine on Wall Street, the S&P 500 trading inside a 14-point range. Then came Friday's freaky sell off, the Dow losing 394 points and a 2.2% drop for the week, while the S&P 500 and the Nasdaq each ended down 2.4%. This was blamed on hawkish comments from Fed members hinting at a possible near-term rate hike. Boston Fed President Eric Rosengren said "a reasonable case can be made for continuing to pursue a gradual normalization of monetary policy." Dallas Fed President Robert Kaplan said the case for a rate hike has strengthened, though he added the Fed can afford to be patient and deliberate.

Fed Governor Daniel Tarullo sounded more dovish, content to wait for inflation to reach the Fed's 2% target. He's also concerned that "ISM surveys suggest some ground for questioning" the strength of the U.S. economy, as if the dismal 1% GDP rate of economic growth isn't evidence enough. Indeed, Tuesday's ISM Services index took a deep dive in August to its lowest level since early 2010, now barely registering expansion in this dominant sector of our economy. Investor worries over tighter money were also fueled when European Central Bank (ECB) President Mario Draghi revealed that they hadn't considered extending their easy money policies beyond March.

The week ended with the Dow down -2.2%, to 18085; the S&P 500 down -2.4%, to 2128; and the Nasdaq also down -2.4%, to 5126.

Draghi's comments made traders feel the ECB was losing its appetite for bond purchases, so Treasuries fell sharply on Friday. Nevertheless, the 30YR FNMA 4.0% bond we watch finished the week UP .18, at $107.27. After edging higher the week before, national average 30-year fixed mortgage rates headed slightly lower in Freddie Mac's Primary Mortgage Market Survey for the week ending September 8. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up-to-the-minute information.

This Week’s Forecast

Surprisingly, August Retail Sales are expected to shrink--not helped at all by back-to-school buying, even with week-long sales tax holidays in many states. The Consumer Price Index (CPI) and Core CPI are forecast to show consumer inflation quiet, which should keep the Fed quiet as well. Quiet is also the prediction for factory activity, with the Philadelphia Fed Index showing zero growth in that key region.

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 Sep 12 – Sep 16

Sep 14     10:30     Crude Inventories
Sep 15     08:30     Initial Unemployment Claims
Sep 15     08:30     Continuing Unemployment Claims
Sep 15     08:30     Retail Sales
Sep 15     08:30     Producer Price Index (PPI)
Sep 15     08:30     Core PPI
Sep 15     08:30     Philadelphia Fed Index
Sep 15     08:30     NY Empire Manufacturing Index
Sep 15     09:15     Industrial Production
Sep 15     09:15     Capacity Utilization
Sep 15     10:00     Business Inventories
Sep 16     08:30     Consumer Price Index CPI
Sep 16     08:30     Core CPI
Sep 16     10:00     U. of Michigan Consumer Sentiment
         
Federal Reserve Watch   

Forecasting Federal Reserve policy changes in coming months... Well, Fed watchers now are piling on for a post-election rate hike in December, assuming the economy will be strong enough to take it. Note: In the lower chart, a 24% probability of change is a 76% certainty the rate will stay the same.

Current Fed Funds Rate: 0.25%-0.5%

After FOMC meeting on:   

Sep 21     0.25%-0.5%
Nov 2     0.25%-0.5%
Dec 14     0.5%-0.75%

Probability of change from current policy:

After FOMC meeting on: 
Sep 21           24%
Nov 2           29%
Dec 14           59%

Apply Now!
Get the Insider Track on Interest Rates!

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

---