MARKET UPDATE
The National Association of Home Builders (NAHB) said lower mortgage rates have stabilized builder confidence, while “low unemployment, solid job growth and favorable demographics should support housing demand” going forward.
In the absence of data due to the partial government shutdown, the NAHB estimates single-family starts totaled 876,000 units in 2018, a 3% yearly gain, with a Q4 sales dip boosting inventories in some markets.
Freddie Mac’s chief economist says, “consumer mortgage demand and homebuilder construction sentiment are on the mend, which indicates that lower interest rates are beginning to have a positive impact.”
REVIEW OF LAST WEEK
BANKING ON BANKS AND CHINA… Stocks blasted off for the fourth straight week as investors sparked to media reports of progress in the China trade talks, plus unexpected positive earnings and outlooks from the banking sector.
Articles said China is bolstering its economy, offering to balance trade with the U.S. by 2024, and that the U.S. might lift tariffs during negotiations. Though the last item was later refuted, the market remained encouraged.
Some economic reports were postponed by the shutdown, but we did get lower than expected Preliminary Michigan Consumer Sentiment, a dip in PPI wholesale price inflation and stronger Industrial Production.
The week ended with the Dow UP 3.0%, to 24706; the S&P 500 UP 2.9%, to 2671; and the Nasdaq UP 2.7%, to 7157.
Bond prices dropped on the positive China trade news and surging stocks. The 30YR FNMA 4.0% bond went down .30, to $101.67. After dropping for six weeks, the national average 30-year fixed mortgage rate held level 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?
The Mortgage Bankers Association’s latest survey saw purchase mortgage applications rise to their highest level since 2010, climbing 43% for the week and 11% ahead of last year.
THIS WEEK’S FORECAST
EXISTING HOME SALES DIP, NEW HOME SALES COULD BE DELAYED… We expect Existing Home Sales to slip a bit in December, but New Home Sales for the month could be delayed by the shutdown and we have no forecasts.
U.S. financial markets are closed today, Monday January 21, in observance of Martin Luther King Jr. Day.
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… The Fed Funds Futures market believes the central bank has taken its foot off the gas with rate hikes and will coast at the current level for the rest of the year. Note: In the lower chart, a 1% probability of change is a 99% 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 | 1% |
| Mar 20 | 1% |
| May 1 | 7% |
