MARKET UPDATE
Housing Starts hit a better-than-expected 1.256 million annual rate, up 3.2% for November, though down 3.6% from a year ago. Of course, that’s when starts were way up following Hurricanes Harvey and Irma.
But comparing the first 11 months this year against the same period in 2017 shows starts up 4.7% overall. And the future looks good: Building Permits blasted up 5.0%, the biggest one month gain in more than a year.
Existing Home Sales also surprised, up two months in a row, though down from a year ago thanks to tight supply. Yet inventories are up four months in a row and demand is strong: 43% of homes sold in less than a month!
REVIEW OF LAST WEEK
HOLIDAY SALES… Stocks sold at discount prices as the major market indexes logged their worst weekly losses of the year. Traders worried over tariff “wars,” a partial government shutdown, and whether the Fed would hike too fast.
The Fed did raise rates 0.25% last week, as expected, but reduced the probable number of next year’s hikes to two. They noted, “economic activity has been rising at a strong rate” with inflation “near 2 percent” (under control).
Meanwhile, the economy rocks on. Final Q3 GDP came in at a 3.4% annual rate, the second straight Q of growth above 3%. Personal income is up 4.2% yearly, spending up 4.7%, and Michigan Consumer Sentiment a solid 98.3.
The week ended with the Dow down 6.9%, to 22445; the S&P 500 down 7.1%, to 2417; and the Nasdaq down 8.4%, to 6333.
Bonds gained as stock sales prompted flight-to-safety trades all week. The 30YR FNMA 4.0% bond went UP.42, to $101.45. Following its big drop the week before, the national average 30-year fixed mortgage rate dipped a tick 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.
DID YOU KNOW?
Freddie Mac‘s chief economist noted that “homebuyers are very sensitive to mortgage rate changes–and given the further drop in rates we’ve seen this month, we expect to see a modest rebound in home sales.”
THIS WEEK’S FORECAST
NEW AND PENDING HOME SALES MOVE UP… This week’s housing data should report November gains. New Home Sales are forecast up, and Pending Home Sales are expected to show signed contracts on existing homes also up for the month.
Today, Christmas Eve, stock markets will close early, at 1 p.m., bond markets at 2, and all financial markets will be closed tomorrow, Christmas Day. Happy Holidays to all!
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.
FEDERAL RESERVE WATCH
Forecasting Federal Reserve policy changes in coming months… After last week’s modest rate hike, the Fed Funds Futures market expects no further increases through May. Note: In the lower chart, a 2% probability of change is a 98% probability the rate will stay the same.
Current Fed Funds Rate: 2.25%-2.50%
| AFTER FOMC MEETING ON: | CONSENSUS |
| Jan 30 | 2.25%-2.50% |
| Mar 20 | 2.25%-2.50% |
| May 1 | 2.25%-2.50% |
Probability of change from current policy:
| AFTER FOMC MEETING ON: | CONSENSUS |
| Jan 30 | 2% |
| Mar 20 | 17% |
| May 1 | 23% |
