Market Update for the Week of December 17, 2018


Five weeks in a row, the national average 30-year fixed mortgage rate stayed flat or fell. Freddie Mac‘s chief economist feels these rates, with low unemployment, “should support home sales heading into the early winter months.”

A surge in activity has already started. The Mortgage Bankers Association reports that the seasonally adjusted index for purchase mortgage applications was up a solid 3.0% last week from the week before.

We’re even seeing more supply. An online real estate database says housing inventory shot up 5% in November, sending it to a three-year high. This is of course more good news for buyers.


BUMPY RIDE SOUTH… Stock prices bounced up and down all week, with the down direction prevailing, as all three major market indexes ended in “correction” territory, 10% off their highs.

Traders found it harder to fret over U.S.-China trade tensions after the Chinese resumed buying U.S. soybeans and lifted auto tariffs for 30 days. So Wall Streeters worried instead about slower economic growth in China and the eurozone.

Those regions are still growing, though not like we are. Unfortunately, the markets chose to ignore strong Retail Sales and Industrial Production and mild CPI inflation that should keep the Fed from getting aggressive with rate hikes.

The week ended with the Dow down 1.2%, to 24101; the S&P 500 down 1.3%, to 2600; and the Nasdaq down 0.8%, to 6911.

Bonds rose on the disappointing global economic data, then fell on positive U.S. reports. The 30YR FNMA 4.0% bond went down .25, to $101.03. The national    average 30-year fixed mortgage rate fell to its lowest level in three months 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 Administration (FHA) announced it is increasing its FHA loan limit ceiling in high-cost areas to $726,525, and its floor to $314,827. These are for FHA loans assigned on or after January 1, 2019, in most of the country.


HOME BUILDING, GDP, INFLATION OK, EXISTING HOME SALES NOT SO MUCH… Tomorrow’s November Housing Starts and Building Permits should rise, and Wednesday’s Existing Home Sales slip. The GDP-Third Estimate for Q3 is forecast at a strong 3.5% economic growth rate, while the Core-PCE Prices read is expected to peg inflation up, but pretty much within the Fed’s target range.

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… The Fed Funds Futures market is still betting on a small rate hike at Wednesday’s meet, but then no change through March. Note: In the lower chart, a 77% probability of change is a 23% 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   77%
Jan  30   26%
Mar  20   44%
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Jim Passi
Regional Manager
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1284 West Northwest Hwy.
Palatine, IL 60067
Mobile: 847-899-1813

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