Market Update for the Week of June 3, 2019


Following their 3.9% surge in March, Pending Home Sales slipped 1.5% in April. Combining these two reads, we can expect a gain in closed Existing Home Sales for May, a trend in the right direction for sure.

No doubt helping all home sales, price increases have seriously slowed. In March, the Case-Shiller home price index rose just 0.3%, and the FHFA index of homes bought with conforming mortgages, a mere 0.1%.

Factoring in rising consumer buying power, First American’s Real House Price Index reveals home prices are in fact 40% below their 2006 peak, and 15% below their January 2000 level, signaling a national shift in affordability.


TARIFFS HEAD SOUTH, TAKE STOCKS ALONG… If tariff-laden tensions with China hadn’t put enough pressure on stocks, threatened tariffs on Mexico sent all three major market indexes south for the week.

A 5% tariff will begin June 10 and increase monthly up to 25% unless Mexico stems the flow of illegal immigrants into the U.S. Although trade tensions have impacted investor sentiment, they haven’t yet hurt the economic data.

The GDP read said the economy grew more than 3% in Q1, personal incomes and consumer spending both rose in April, and PCE inflation was in check. Plus, University of Michigan consumer sentiment climbed yet another month.

The week ended with the Dow down 3.0%, to 24815; the S&P 500 down 2.6%, to 2752; and the Nasdaq down 2.4%, to 7453.

Bonds surged on the Mexican tariff threat, Treasuries hitting new highs for the year. The 30YR FNMA 4.0% bond ended UP .33, at $103.22. In Freddie Mac’s Primary Mortgage Market Survey, the national average 30-year fixed mortgage rate fell to its lowest level since January 2018. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up-to-the-minute information.


The Fed’s SHED report (Survey of Household Economics and Decisionmaking) says 87% of respondents feel it’s important to have a grocery store nearby, followed by shops and restaurants (important to 75%), banks (65%), places of worship or library (48%), park or playground (43%), public transportation (37%).


MANUFACTURING, SERVICES SECTORS GROW, CREATE MORE JOBS… Expect ISM Manufacturing and ISM Services reads to show both those sectors of the economy continuing to grow. We should also see them creating more new jobs–and higher wages–in the May Employment Report.

NOTE: Weaker 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 now expects a quarter percent rate cut in July, which will hold in September. Note: In the lower chart, a 26% probability of change is a 74% probability the rate will stay the same.

Current Fed Funds Rate: 2.25%-2.50%

Jun 19 2.25%-2.50%
Jul 31 2.00%-2.25%
Sep 18 2.00%-2.25%


Probability of change from current policy:

Jun 19    26%
Jul 31    56%
Sep 18    78%
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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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