Market Update for the Week of December 3, 2018


There is no way to put a positive spin on it. New Home Sales fell 8.9% in October, to a 544,000 annual rate, 12.0% below a year ago. Of course, data is subject to change; September’s sales, in fact, were revised up by 44,000.

But then we learned the Pending Home Sales index of contracts on existing homes slipped 2.6% in October after a September rise. Still, some economists feel a housing market rebound is on its way.

They say: based on population, new home sales are well below historical norms; rising wages will support demand; and we’ve had strong home sales with rising mortgage rates before, once people lowered their expectations.


COOLER FED, HOTTER MARKET… In early October, Fed Chair Jerome Powell said rates were “a long way from neutral,” but Wednesday he changed that to “just below” neutral, sending stocks to their best weekly gains of the year.

With the Fed cooler about rate hikes, the market heated up because investors felt the central bank will now make sure its moves don’t slow the economy. The Street also saw hopeful signs on the U.S.-China trade front.

The second estimate of Q3 GDP showed the economy growing at a healthy 3.5% annual rate. Personal Income and Personal Spending beat estimates, while Core PCE Prices pegged inflation below the Fed’s 2% target. All nice stuff.

The week ended with the Dow UP 5.2%, to 25538; the S&P 500 UP 4.8%, to 2760; and the Nasdaq UP 5.6%, to 7331

The bond market saw mild buying interest in longer-dated securities. The 30YR FNMA 4.0% bond went UP .44, to $100.67. The national average 30-year fixed mortgage rate held in Freddie Mac’s Primary Mortgage Market Survey. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up-to-the-minute information.


The Federal Housing Finance Agency (FHFA) has raised the maximum conforming loan limit for 2019 to $484,350 in most of the U.S., even more in high cost areas. This is up from $453,100 in 2018.


MANUFACTURING AND SERVICES SECTORS, JOBS KEEP GROWING… Like sprouting teenagers, manufacturing, services and jobs are all having growth spurts. ISM Manufacturing and ISM Services should remain solidly in expansion territory for November, and we can expect a big chunk of new Nonfarm Payrolls. Plus, Average Hourly Earnings are forecast to increase, while the Unemployment Rate stays down at 3.7%.

NOTE: Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and higher loan rates.


Forecasting Federal Reserve policy changes in coming months… Rates may be “just below” neutral, but that still leaves room for a hike. The market thinks we’ll get one this month, then nothing for a while, maybe not even in March. Note: In the lower chart, an 83% probability of change is a 17% probability the rate will stay the same.

Current Fed Funds Rate: 2.00%-2.25%

Dec 19 2.25%-2.50%
Jan  30 2.25%-2.50%
Mar  20 2.25%-2.50%


Probability of change from current policy:

Dec 19   83%
Jan  30   21%
Mar  20   50%
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Jim Passi
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1284 West Northwest Hwy.
Palatine, IL 60067
Mobile: 847-899-1813

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