Mortgage Blog - September 25, 2017

As expected, the ill winds of the recent hurricanes blew no good in the housing market. August Housing Starts slipped 0.8%, to a 1.180 million annual rate but with Hurricane Harvey hitting our fourth largest city late that month, this small dip shouldn't be a concern. Analysts say Hurricane Irma, which impacted our third most populous state may also deflate September numbers. Rebuilding after the storms and solid market fundamentals are expected to send starts to new highs by early next year. Starts are still up 1.4% from a year ago, with single family starts up 1.6% for the month.

Building permits fared better, up 5.7% in August, to a 1.3 million annual rate. This shows positive movement although the National Association of Home Builders sentiment index dipped in September, typical reaction after big storms, coming in at a still high 64. August Existing Home Sales dropped 1.7%, to a 5.35 million annual rate with Harvey also to blame, sales in the Houston area down 25% versus a year ago. Experts say we may not get back to normal selling rates until December. Freddie Mac's latest monthly Outlook sees sales growing next year, as "the economic environment remains favorable for housing and mortgage markets."

Review of Last Week

The Fed met last week and held the Fed Funds rate where it's been, as expected however Federal Open Market Committee (FOMC) members made it clear they would soon tighten monetary policy. This news gave investors pause so after sending stocks to fresh record highs the first half of the week, they cooled things down and held the week's market performance to modest gains in the Dow and S&P 500, also, a minor slip for the Nasdaq. The Fed indicated it would tighten policy in three ways. First starters, 12 of the 16 voting FOMC members think they will hike rates at least a quarter point later this year.

Secondly, the Fed's so-called "dot plot" remains unchanged from June, which scoped out three rate hikes in 2018, following the one expected in December.

Thirdly, before any of these rate hikes occur, the Fed will begin "normalizing" its balance sheet next month. To boost the economy, in addition to cutting interest rates, the Fed bought Treasuries and mortgage bonds to add liquidity to the system. This took its balance sheet from under $1 trillion to around $4.5 trillion. The Fed will now start selling those bonds at a very slow pace, as they don't want to hurt growth. Remember, these moves are a positive sign that the economy is finally expanding at a healthier rate.

The week ended with the Dow UP 0.4%, to 22350; the S&P 500 UP 0.1%, to 2502; and the Nasdaq down 0.3%, to 6427.

A down week in the bond market ended higher for some Treasuries, as North Korean threats inspired a safe haven play on Friday. The 30YR FNMA 4.0% bond we watch finished the week down .05, to $105.31. In Freddie Mac's Primary Mortgage Market Survey for the week ending September 21, national average 30 year fixed mortgage rates edged up slightly. Freddie's chief economist said "this week's uptick...ends a nearly two-month streak of declines."

This Week's Forecast

The forecast is that August New Home Sales will move up but Pending Home Sales will fall back. This measure of contracts signed on existing homes reflects the tight inventories that have constrained this part of the housing market. Core PCE Prices inflation is expected to edge up into the range the Fed likes for a rate hike, so let's watch this carefully. The Chicago PMI should show Midwest manufacturing continues to grow.

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 September 25th - September 29th

Sep 26    10:00   Consumer Confidence    Sep    119.4    122.9
Sep 26    10:00   New Home Sales
Sep 27    08:30   Durable Goods Orders
Sep 27    08:30   Durable Goods Orders - ex trans
Sep 27    10:00   Pending Home Sales    Aug
Sep 27    10:30   Crude Inventories
Sep 28    08:30   Initial Unemployment Claims
Sep 28    08:30   Continuing Unemployment Claims
Sep 28    08:30   GDP - Third Estimate
Sep 29    08:30   Personal Income
Sep 29    08:30   Personal Spending
Sep 29    08:30   Core PCE Prices
Sep 29    09:45   Chicago PMI  
Sep 29    10:00   U. of Michigan Consumer Sentiment - Finall

Federal Reserve Watch

Speculative forecasting Federal Reserve policy changes in coming months:

The financial market is taking the Fed at its word and expecting a quarter point rate hike come December.

Note: In the lower chart, a 2% probability of change is a 98% certainty the rate will stay the same.

Current Fed Funds Rate: 1.0%-1.25%

After FOMC meeting on:   

Nov 1    1.0%-1.25%
Dec 13    1.0%-1.25%
Jan 31    1.0%-1.25%

Probability of change from current policy:

After FOMC meeting on:

Nov 1        2%
Dec 13      73%
Jan 31      74%

Where are interest rates headed?

Call me now, 303.668.3350 or click here to apply!

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

The material contained in this newsletter has been prepared by an independent third-party provider. The content is provided for use by real estate, financial
services and other professionals only. The material provided is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, there is no guarantee it is without errors.

---

As expected, the ill winds of the recent hurricanes blew no good in the housing market. August Housing Starts slipped 0.8%, to a 1.180 million annual rate, but with Hurricane Harvey hitting our fourth largest city late that month, this small dip shouldn't be a concern. Analysts say Hurricane Irma, which impacted our third most populous state, may also deflate September numbers. Of course, rebuilding after the storms and solid market fundamentals are expected to send starts to new highs by early next year. They're still up 1.4% from a year ago, with single family starts up 1.6% for the month.

Building permits fared better, up 5.7% in August, to a 1.3 million annual rate. This shows a positive vibe, although the National Association of Home Builders sentiment index dipped in September, a typical reaction after big storms, coming in at a still high 64. August Existing Home Sales dropped 1.7%, to a 5.35 million annual rate, with Harvey also to blame, sales in the Houston area down 25% versus a year ago. Experts say we may not get back to normal selling rates until December. Freddie Mac's latest monthly Outlook sees sales growing next year, as "the economic environment remains favorable for housing and mortgage markets." All right!

BUSINESS TIP OF THE WEEK... Keep learning. Check into business blogs, articles and books, network locally, go to a major conference. You'll hone your skills, acquire new ones and stay up with your field.

>> Review of Last Week

THE FED HOLDS, THE MARKET HOLDS... The Fed met last week and held the Fed Funds rate where it's been, as expected. But Federal Open Market Committee (FOMC) members made it clear they would soon tighten monetary policy. This news gave investors pause, so after sending stocks to fresh record highs the first half of the week, they cooled things down and held the week's market performance to modest gains in the Dow and S&P 500, and a minor slip for the Nasdaq. The Fed indicated it would tighten policy in three ways. First off, 12 of the 16 voting FOMC members think they will hike rates at least a quarter point later this year.

Secondly, the Fed's so-called "dot plot" remains unchanged from June, which scoped out three rate hikes in 2018, following the one now expected in December. Thirdly, before any of these rate hikes occur, the Fed will begin "normalizing" its balance sheet next month. To boost the economy, in addition to cutting rates, the Fed bought Treasuries and mortgage bonds to add liquidity (more money) to the system. This took its balance sheet from under $1 trillion to around $4.5 trillion. They'll now start selling those bonds, but at a very slow pace, as they don't want to hurt growth. And, remember, these moves are a positive sign that the economy is finally expanding at a healthier rate.

The week ended with the Dow UP 0.4%, to 22350; the S&P 500 UP 0.1%, to 2502; and the Nasdaq down 0.3%, to 6427.

A down week in the bond market ended higher for some Treasuries, as North Korean threats inspired a safe haven play on Friday. But the 30YR FNMA 4.0% bond we watch finished the week down .05, to $105.31. In Freddie Mac's Primary Mortgage Market Survey for the week ending September 21, national average 30-year fixed mortgage rates edged up slightly. Freddie's chief economist said "this week's uptick...ends a nearly two-month streak of declines." Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up-to-the-minute information.

DID YOU KNOW?... A new report says says the best time of year to buy a starter home is from October 1 to December 31, when inventories increase about 7%, leading to listing prices falling 3.1% to 4.8% lower than the rest of the year.

>> This Week's Forecast

NEW HOME SALES UP, PENDING SALES OFF, INFLATION AND MANUFACTURING GROW... They're forecasting August New Home Sales will move up, but Pending Home Sales will fall back. This measure of contracts signed on existing homes reflects the tight inventories that have constrained this part of the housing market. Core PCE Prices inflation is expected to edge up into the range the Fed likes for a rate hike, so let's watch this carefully. The Chicago PMI should show Midwest manufacturing continues to grow.

>> 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 25 - Sep 29

Date    Time (ET)    Release    For    Consensus    Prior    Impact
Tu
Sep 26    10:00    Consumer Confidence    Sep    119.4    122.9    Moderate
Tu
Sep 26
    10:00
    New Home Sales    Aug    577K    571K    Moderate
W
Sep 27
    08:30
    Durable Goods Orders    Aug
    0.7%    -6.8%    Moderate
W
Sep 27
    08:30
    Durable Goods Orders - ex trans    Aug
    0.2%    0.5%    Moderate
W
Sep 27
    10:00
    Pending Home Sales    Aug
    -0.4%    -0.8%    Moderate
W
Sep 27    10:30    Crude Inventories    09/23    NA    4.6M    Moderate
Th
Sep 28    08:30    Initial Unemployment Claims    09/23    275K    259K    Moderate
Th
Sep 28    08:30    Continuing Unemployment Claims    09/16    NA    1.980M    Moderate
Th
Sep 28    08:30    GDP - Third Estimate    Q2    3.0%    3.0%    Moderate
F
Sep 29    08:30
    Personal Income    Aug
    0.2%    0.4%    Moderate
F
Sep 29
    08:30
    Personal Spending    Aug
    0.1%    0.3%    HIGH
F
Sep 29
    08:30
    Core PCE Prices    Aug
    0.2%    0.1%    HIGH
F
Sep 29
    09:45    Chicago PMI    Sep
    58.0    58.9    HIGH
F
Sep 29
    10:00
    U. of Michigan Consumer Sentiment - Final    Sep
    95.4    95.1    Moderate


>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months...The financial market is taking the Fed at its word and expecting a quarter point rate hike come December. Note: In the lower chart, a 2% probability of change is a 98% certainty the rate will stay the same.

Current Fed Funds Rate: 1.0%-1.25%
After FOMC meeting on:    Consensus
Nov 1    1.0%-1.25%
Dec 13    1.0%-1.25%
Jan 31    1.0%-1.25%

Probability of change from current policy:
After FOMC meeting on:    Consensus
Nov 1        2%
Dec 13      73%
Jan 31      74%