MARKET UPDATE
Last week, Freddie Mac’s chief economist observed, “Mortgage rates fell to their lowest level in nine months,” and he feels that this, “combined with continued income growth and lower energy prices…should lead to a firming of home sales.”
Buyers in many areas can also take advantage of the fact that home price growth has slowed in 33 states and 71 of the country’s 100 largest markets, according to data and analytics firm Black Knight.
Their latest Mortgage Monitor also reveals that today’s rates mean about 2.43 million borrowers can now likely qualify to reduce their rate by refinancing. Small wonder mortgage applications jumped more than 20%.
REVIEW OF LAST WEEK
FED FRIENDLY, DATA DECENT, CHINA CLOSING… Stocks bolted ahead for the third week in a row, as investors sparked to market friendly comments from the Fed, good economic data and signs China is closing in on a deal.
Wednesday’s Fed Minutes revealed they could “afford to be patient” about raising rates. The next day, Fed Chair Powell confirmed they will be “flexible” and “patient” with rate hikes and balance sheet reductions.
The important services sector of the economy keeps growing and the latest CPI pegged inflation under the Fed’s 2% target, so no need to heat up rates to cool down prices. Finally, progress was reported on Chinese trade negotiations.
The week ended with the Dow UP 2.4%, to 23996; the S&P 500 UP 2.5%, to 2596; and the Nasdaq UP 3.5%, to 6971.
With stocks surging, bonds lost ground. The 30YR FNMA 4.0% bond went down .09, to $101.97. The national average 30-year fixed mortgage rate dropped significantly 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?
Despite the partial government shutdown, the IRS resumed processing lender requests to verify mortgage applicants’ incomes.
THIS WEEK’S FORECAST
HOME BUILDING, RETAIL SALES MAY BE DELAYED, MANUFACTURING GROWS… December Housing Starts and Building Permits could be delayed by the partial government shutdown, and there are no forecasts. But we should get manufacturing reads, with the closely watched Philadelphia Fed Index expected to show gains in that key region.
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 latest rhetoric from the Fed has Wall Street convinced there won’t be another rate hike this year. Hmmm…. 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 | 8% |
