Market Update for the Week of December 31, 2018


The partial government shutdown postponed Census Bureau New Home Sales data, so we only got the National Association of Realtors (NAR) read that Pending Home Sales showed signed contracts on existing homes slid in November.

But the NAR’s chief economist feels “the latest decline…does not yet capture the impact of recent favorable conditions of mortgage rates.” He sees “steady longer-term growth potential” for home sales.

Freddie Mac‘s chief economist agrees: “the economy remains healthy, so the drop in mortgage rates should stem or even reverse the slide in home sales that occurred during the second half of 2018.”


ROLLER COASTER RALLY… A Santa Claus rally delivered weekly stock gains, but not before it took us on an epic roller coaster ride featuring the Dow’s worst Christmas Eve ever followed by its biggest one-day point gain ever.

The volatility was put to light volumes and computer-driven trading, plus uncertainty over Fed rate policy, global growth, trade negotiations and the partial government shutdown. But economic and corporate fundamentals remain solid.

Supporting that were positive reads on consumer holiday spending, Consumer Confidence and Midwest manufacturing, while Initial and Continuing Unemployment Claims remained phenomenally low.

The week ended with the Dow UP 2.7%, to 23062; the S&P 500 UP 2.9%, to 2486; and the Nasdaq UP 4.0%, to 6585.

Bonds were mixed, with some longer-dated notes posting nice gains. The 30YR FNMA 4.0% bond went UP .35, to $101.80. Continuing its two-month slide, the national average 30-year fixed mortgage rate dropped 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.


October’s Case-Shiller Home Price Index showed annual home price gains slowing nationwide for the third month in a row, an encouraging sign for today’s buyers.


MANUFACTURING, JOBS, WAGES GROW… Economic growth should be the theme this week. Solid expansion is forecast for the ISM Manufacturing Index, while gains are predicted for November Nonfarm Payrolls and Hourly Earnings.

Today, New Year’s Eve, stock markets are open but the bond market closes early, at 2 p.m. All financial markets will be closed tomorrow, New Year’s Day. Happy New Year 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.


Forecasting Federal Reserve policy changes in coming months… The Fed Funds Futures market is certain rates will stay where they are through May. Note: In the lower chart, a 3% probability of change is a 97% probability the rate will stay the same.

Current Fed Funds Rate: 2.25%-2.50%

Jan  30 2.25%-2.50%
Mar  20 2.25%-2.50%
May   1 2.25%-2.50%


Probability of change from current policy:

Jan  30    3%
Mar  20    8%
May   1   11%
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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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