Inside Lending - September 26, 2016

Those who work in the housing market love what we do however success as measured by the economic reports is not too consistent. For example, Housing Starts slipped 5.8% in August, to a 1.142 million unit annual rate but this follows strong reports for June and July and even with the August dip, starts are up 0.9% over a year ago. Home building activity is tempered by the weather in many parts of the country so the numbers can be volatile month to month. That is why it's important to track the underlying trend by looking at the 12-month moving average. This is now the highest it's been since 2008.

New Building Permits dipped down 0.4% in August to a 1.139 million annual rate however compared to a year ago, single-family permits are up 3.8%. The overall rise in home building that began in 2011 is not over and should continue. The NAHB builder confidence index shot up from 59 in August to 65 in September, equaling the highest reading so far during the economic recovery. Existing Home Sales were off 0.9% in August, to a 5.33 million annual rate, but are still up 0.8% from a year ago. Finally, the FHFA index of prices for homes financed with conforming mortgages edged up 0.5% in July, reaching a 5.8% gain versus a year ago.

Hawks are FOMC (Federal Open Market Committee) members who are in favor of a rate hike, and doves are those who think the Fed should wait until employment and inflation targets are met.

Last week, the FOMC met and did not raise rates, as expected but some central bankers seemed to fear that both the U.S. and global economies were nowhere near strong enough to withstand even a quarter percent increase in rates. One commentator called these folks chickens, but their fears were based on facts. Chair Janet Yellen said, "overall consumer price inflation was less than 1% over the last 12 months," a far cry from the 2% Fed target.

The unemployment rate is low, but wage growth is slack: although average household income has picked up recently, it has yet to return to where it was back in 2007, before the recession. In addition, the rate of job growth has slowed from last year. Yellen thinks that one rate increase this year could be "appropriate," but added, "we feel the economy will allow only gradual increases." All this drove a two-day 'relief rally' by Wall Street investors who love low rates as much as we do. That was enough to ward off a Friday slump triggered by a slide in oil prices, so the three major stock indexes posted weekly gains for the second week in a row.

The week ended with the Dow UP 0.8%, to 18262; the S&P 500 UP 1.2%, to 2165; and the Nasdaq UP 1.2%, to 5306.

Bond traders were happy to hear the European Central Bank would keep spending around 80 billion euros a month on bonds with only minor adjustments to the program. The 30YR FNMA 4.0% bond we watch finished the week UP .09, to $107.34. National average 30-year fixed mortgage rates headed back down in Freddie Mac's Primary Mortgage Market Survey for the week ending September 22.

This Week’s Forecast

Analysts expect August New Home Sales to take a hit but Pending Home Sales for existing homes should be up. Core PCE Prices are forecast to indicate inflation is growing very slowly. Unfortunately, the economy is growing slowly as well, with the GDP - 3rd Estimate seen to remain just above 1%. The Chicago PMI read on Midwest manufacturing is predicted above 50, showing a small rate of expansion.

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 26 – Sep 30

Sep 26     10:00     New Home Sales
Sep 27     10:00     Consumer Confidence
Sep 28     08:30     Durable Goods Orders
Sep 28     10:30     Crude Inventories
Sep 29     08:30     GDP-3rd Estimate
Sep 29     08:30     Initial Unemployment Claims
Sep 29     08:30     Continuing Unemployment Claims
Sep 29     10:00     Pending Home Sales
Sep 30     08:30     Personal Income
Sep 30     08:30     Personal Spending
Sep 30     08:30     Core PCE Prices
Sep 30     09:45     Chicago PMI
Sep 30     10:00     U. of Michigan Consumer Sentiment
                                                                                                          
Federal Reserve Watch   

Forecasting Federal Reserve policy changes in coming months. Given Chair Janet Yellen's comments last week, most Fed watchers expect the Fed will vote a small rate hike in December, then stay there a while.

Note: In the lower chart, a 12% probability of change is an 88% certainty the rate will stay the same.

Current Fed Funds Rate: 0.25%-0.5%
After FOMC meeting on:

Nov 2     0.25%-0.5%
Dec 14     0.5%-0.75%
Feb 1     0.5%-0.75%

Probability of change from current policy:

After FOMC meeting on:

Nov 2           12%
Dec 14           54%
Feb 1           58%

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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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