MARKET UPDATE
We got the belated news December New Home Sales went up 3.7%, to a 621,000 annual rate, closing out a rocky year on an optimistic note. This gave 2018 the most sales since 2007, and the upward trend remains intact.
Following last week’s cool December report, this week’s January Housing Starts came in a hot 18.6% ahead, at a healthy 1.230 million yearly rate. Though starts are down overall from a year ago, single-family starts are up 4.5%.
Freddie Mac’s chief economist noted, “the impact of recent lower rates and a strong labor market has led to a rise in purchase mortgage demand as we start the spring homebuying season.”
REVIEW OF LAST WEEK
WINTER BREAK… After a super strong start to the year, stocks took a break from weekly gains, as the major market indexes all dipped. Traders took profits, fretting over global growth, China trade progress and U.S. economic misses.
The biggest miss was February’s 20,000 new Nonfarm Payrolls, but new jobs have averaged 209,00 a month the past year and unemployment is at 3.8%. Best of all, earnings were up 3.4% from a year ago, the biggest gain in a decade.
On the good side were the housing reports covered above, plus ISM Services spiking to 59.7, signaling strong expansion for the economic sector that provides the bulk of our jobs.
The week ended with the Dow down 2.2%, to 25450; the S&P 500 also down 2.2%, to 2743; and the Nasdaq down 2.5%, to 7408.
Bonds benefited from stock traders’ flight to safety. The 30YR FNMA 4.0% bond ended UP .44, to $102.25. After weeks of moderating in Freddie Mac’s Primary Mortgage Market Survey, the national average 30-year fixed mortgage rate rose a tick, yet has remained below year-ago numbers four weeks in a row. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up-to-the-minute information.
DID YOU KNOW?
The MBA’s Chief Economist reported, “purchase loans are up 2.1% relative to last year, indicating that homebuyers continue to be inspired by the stable rate environment and the modest increase in housing supply.”
THIS WEEK’S FORECAST
JANUARY NEW HOME SALES UP, RETAIL SALES AND INFLATION OK… The upward trend in New Home Sales should continue in January. But Retail Sales are forecast in a holding pattern, down a tick overall, up a tick excluding auto sales. Consumer Price Index (CPI) inflation is seen to stay in 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.
FEDERAL RESERVE WATCH
Forecasting Federal Reserve policy changes in coming months… Wall Street sees no chance for a rate hike in the next four months. The slight probability of change is for a move downward! 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 |
| Mar 20 | 2.25%-2.50% |
| May 1 | 2.25%-2.50% |
| Jun 19 | 2.25%-2.50% |
Probability of change from current policy:
| AFTER FOMC MEETING ON: | CONSENSUS |
| Mar 20 | 1% |
| May 1 | 1% |
| Jun 19 | 6% |
