Mortgage Blog - February 5, 2018

The National Association of Realtors reported Pending Home Sales rose in December for the 3rd month in a row, ending 0.5% ahead of a year ago. This index of contracts signed on existing homes foretells sales gains a few months out. The NAR's chief economist predicts existing home sales will hit 5.54 million units in 2018: "larger paychecks most households will see from the tax cuts, and, the healthy labor economy, and job market, will continue to boost demand." Tight inventories in many markets remain a concern.

The Census Bureau reports Q4 home ownership reached its highest level in 3 years. Zillow's Senior Economist feels "after bouncing around near 50-year lows for the past few years, the home ownership rate seems to be gaining sustainable momentum."

Review of Last Week

The bad news was stocks tanked, but, that was blamed on the good news of the January jobs report. A better-than-expected 200,000 jobs were added, and average hourly earnings (wages) are now up 2.9% year-over-year, the highest growth rate since 2009.

Unfortunately, this wage growth can also drive up inflation, which could encourage the Fed to do more than the two additional rate hikes expected this year. Who knows. Some felt the big stock selloff was just a normal correction in a market that's come a little too far a little too fast.

More evidence of a faster growing economy came with Personal Income AND Spending up nicely in December, with Core PCE Prices, the Fed's favorite inflation read, still a ways from their 2% target. The University of Michigan Consumer Sentiment on the economy remains high.

The week ended with the Dow down 4.1%, to 25521; the S&P 500 down 3.9%, to 2762; and the Nasdaq down 3.5%, to 7241.

Bonds headed south from the same inflation concerns that hurt stocks. The 30YR FNMA 4.0% bond we watch fell by .73, to $102.83. In Freddie Mac's latest Primary Mortgage Market Survey, national average 30-year fixed mortgage rates edged up.

Where are interest rates headed?

This Week's Forecast

We're taking a breather from last week's avalanche of reports, with just a few bits of data worth watching. The ISM Services index is expected to show continued growth for the sector of the economy creating the most jobs. We would rather not see growth in our Trade Balance deficit, but it looks like imports will keep besting exports.

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 February 5th through February 9th

Feb 5    10:00 ISM Services
Feb 6    08:30 Trade Balance
Feb 7    10:30 Crude Inventories
Feb 8    08:30 Initial Unemployment Claims
Feb 8    08:30 Continuing Unemployment Claims

Federal Reserve Watch

Speculative Forecasting Federal Reserve policy changes in coming months:

A March rate hike is expected, then no move in May, but another quarter percent bump in June. Note: In the lower chart, a 78% probability of change is a 78% certainty the rate will move.

Current Fed Funds Rate:

After FOMC meeting on:  

Mar 21    1.50%-1.75%
May 2    1.50%-1.75%
Jun 13    1.75%-2.00%

Probability of change from current policy:
After FOMC meeting on: 

Mar 21          78%
May 2           26%
Jun 13           64%

Where are interest rates headed?

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Cheers!

Scott Synovic
Nations Reliable Lending, LLC
Colorado's Mortgage Expert
www.coloradosmortgageexpert.com
303.668.3350 Direct

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