The National Association of Home Builders (NAHB) reports builder confidence came in at 67 in June. Any number over 50 indicates most builders see conditions as good. The reading was not quite as high as May's however the NAHB chairman reassured us, "builder confidence levels have remained consistently sound this year, reflecting the ongoing gradual recovery of the housing market."
Friday, one might have wondered why all that builder confidence did not translate into better looking housing reports. Housing Starts were down 5.5% in May at a lower than expected 1.092 million annual rate, while Building Permits also missed forecasts, dipping to a 1.168 million annual rate. Builder confidence could have been bolstered by the fact that single-family starts are still up 8.5% the past year. Plus, housing completions are up 14.6% the last year, while homes under construction have been trending down since February. This shows builders are busy finishing projects before starting new ones, driven to meet the heightened demand.
Review of Last Week
Investors had plenty to chew on last week with the Fed hiking the Funds Rate amidst a slew of economic reports. The three major stock indexes sent mixed messages as the blue chip Dow wound up with its 21st record close of the year, the broadly based S&P 500 finished the week flat, and the tech-heavy Nasdaq ended down. As expected, our central bank announced it would raise the target range for its Fed Funds Rate by 0.25%, to 1.00%-1.25%. This was the second hike of the year and Wall Street now thinks that will be the last, despite the Fed's earlier call for three hikes in 2017.
In the week's economic data, weekly Initial Jobless Claims fell by 8,000, dropping for the second week in a row, to just 237,000. Economists say this is evidence of growing strength in the job market, which is a good sign for real estate. Other reports came in below expectations, including headline housing numbers, inflation, the Philly Fed index of manufacturing in that region, and Retail Sales, off 0.3% for May. The Retail drop was due to lower gas prices, a good thing, and experts tell us economic reports can be quite volatile month to month. The fact is, economic data averages for 2017 so far are still higher than last year's averages.
The week ended with the Dow UP 1.0%, to 21384; the S&P 500 UP 0.1%, to 2433; and the Nasdaq down 0.9%, to 6152.
Over in bonds, Treasuries rallied on Friday from the economic reports that missed their forecasts. Other bonds also did well but the 30YR FNMA 4.0% bond we watch finished the week down .16, at $105.42. National average 30 year fixed mortgage rates moved up just a bit in Freddie Mac's Primary Mortgage Market Survey for the week ending June 15.
Where Are Rates Headed?
This Week’s Forecast
Taking a breather from last week's heavy dose of economic data and Fed news, we will only have a few things to watch. Wednesday, Existing Home Sales for May are expected to be off, though still above a 5.5 million unit annual pace. Friday, we'll see New Home Sales, forecast to move up nicely, to just a bit below 600,000 units a year.
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 June 19th – June 23rd
Jun 21 10:00 Existing Home Sales
Jun 21 10:30 Crude Inventories
Jun 22 08:30 Initial Unemployment Claims
Jun 22 08:30 Continuing Unemployment Claims
Jun 23 10:00 New Home Sales
Federal Reserve Watch
Speculative Forecasting Federal Reserve policy changes in coming months:
Now that the Fed hiked the rate for the second time this year, investors feel no additional moves will be made until next March.
Note: In the lower chart, a 0% probability of change is a 100% certainty the rate will stay the same.
Current Fed Funds Rate: 1.0%-1.25%
After FOMC meeting on:
Jul 26 1.0%-1.25%
Sep 20 1.0%-1.25%
Nov 1 1.0%-1.25%
Probability of change from current policy:
After FOMC meeting on:
Jul 26 0%
Sep 20 16%
Nov 1 18%
Where are interest rates headed?
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