MARKET UPDATE
After two down months, Existing Home Sales made a broad-based rebound in May, up 2.5%, to a 5.340 million annual rate. Plus, more homes are coming on the market, with inventories up year-over-year now ten straight months.
Following April’s upwardly revised read, May Housing Starts dipped less than 1%, but, posting a 1.269 million annual rate, beat expectations. And home building was up 2.4% in Q1 2019 versus Q4 2018, signaling a rebound.
There’s room for growth in home building, as households have both low debt relative to assets and low debt service relative to incomes. No wonder builder sentiment remains higher than the 2006-2016 annual average.
REVIEW OF LAST WEEK
SUMMER FUN… A new season started Friday, and Wall Street wasted no time getting into the summer fun, as stocks ended ahead for the third straight week, with the Dow and the S&P 500 closing at new record highs.
The Fed got the party going. After their meeting left rates untouched, as expected, their policy statement removed the comment they would be “patient” about cutting rates, which traders interpreted as a cut come July.
The Fed cited “increased economic uncertainties,” although there was the positive trade news that President Trump will have an extended meeting with President Xi at the G-20 economic summit next week.
The week ended with the Dow UP 2.4%, to 26719; the S&P 500 UP 2.2%, to 2950; and the Nasdaq UP 3.0%, to 8032.
Bonds hit their best levels of the year, then retreated Friday. The 30YR FNMA 4.0% bond ended UP .08, to $103.22. The national average 30-year fixed mortgage rate stabilized near its two-year low 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 National Association of Realtors reports 46% of Americans strongly believe now is a good time to sell a home. They note: “sellers understand that the days of large price gains from holding an extra year are over.”
THIS WEEK’S FORECAST
NEW AND PENDING HOME SALES, GDP GROW, INFLATION DOESN’T… The forecasts call for growing reads for both New Home Sales and the Pending Home Sales index of contracts signed on existing homes. The GDP-Third Estimate for Q1 should stay north of 3%, while the Core PCE Price Index is predicted to show inflation remains benign.
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.
FEDERAL RESERVE WATCH
Forecasting Federal Reserve policy changes in coming months… The Fed Funds Futures market says a July rate cut is a sure thing, with another drop likely in September. There’s a 47% possibility of a rate cut in October, but that’s balanced by a 9% likelihood of a hike, so the rate will probably hold. Note: In the lower chart, a 100% probability of change is a 0% probability the rate will stay the same.
Current Fed Funds Rate: 2.25%-2.50%
| AFTER FOMC MEETING ON: | CONSENSUS |
| Jul 31 | 2.00%-2.25% |
| Sep 18 | 1.75%-2.00% |
| Oct 30 | 1.75%-2.00% |
Probability of change from current policy:
| AFTER FOMC MEETING ON: | CONSENSUS |
| Jul 31 | 100% |
| Sep 18 | 84% |
| Oct 30 | 56% |
