July home sales slow, but demand stays strong by Ron Schulz

For the week of August 28, 2017 – Vol. 15, Issue 34

>> Market Update

QUOTATION OF THE WEEK… “We don’t need more strength or more ability or greater opportunity. What we need is to use what we have.” –Basil S. Walsh, Irish author

INFO THAT HITS US WHERE WE LIVE Not an inspiring week for housing data, but things weren’t as bad as they first looked. Wednesday, New Home Sales came in down 9.4% in July, at a 571,000 annual rate. Yes, sales for the month weren’t strong, but the dip looked worse, measured against June’s upwardly revised annual selling pace. Plus, the 8.9% drop in sales from a year ago compares this July’s performance to July 2016, which ranked as that year’s largest monthly gain for new home sales. An executive of a firm that provides housing information added, “housing starts are currently outpacing closings, signaling a growing market.”

That same exec reported, “Job growth is the number one fundamental fuel of new home development,” noting that the recent increase in high quality, higher paying jobs, is moving more Americans closer to home ownership. Existing Home Sales in July fared better, off just 1.3%, to a 5.44 million annual rate, and 2.1% ahead of where they were a year ago. Demand stays strong–July was the fourth month in a row a typical listing sold in under 30 days. Realtor.com’s chief economist said, “continued buyer interest in the face of more than five years of price growth is a sign of strong demand, and bodes well for the health of the housing market.”

BUSINESS TIP OF THE WEEK… Searching for a social, video or blog topic? What are the things you never get tired of talking about? Pick one that might sound interesting to your audience, and go!

>> Review of Last Week

BULLS BOUNCE BACK… After the market slid two weeks in a row, stocks last week surged back solidly, the Dow, S&P 500 and Nasdaq all finishing with nice gains. Investors focused on the Fed’s Jackson Hole Symposium, where Chair Janet Yellen said any changes to financial regulations should be modest, and didn’t mention monetary policy. European Central Bank President Mario Draghi also spoke, pushing for open trade and output growth. These speeches gave Wall Streeters the impression rate hikes are a good way off. Also comforting, Treasury Secretary Steven Mnuchin reiterated the debt ceiling will be raised in time to keep the government functioning.

The positive investor mood has sparked strong market performance this year, with the three major indexes near record levels. Low interest rates have helped, as well as rising corporate earnings–see the ‘DID YOU KNOW,’ below. But, most important, the U.S. economy is improving, and about to deliver more growth.
The Atlanta Fed’s “GDP Now” model projects the economy expanding in Q3 at a 3.8% annual rate. The labor market is healthier, with an average 184,000 new jobs a month, the 4.3% unemployment rate is at a 16-year low, and economists think tighter employment conditions will lead to stronger wage growth.

The week ended with the Dow UP 0.6%, to 21812; the S&P 500 UP 0.7%, to 2443; and the Nasdaq UP 0.8%, to 6266.

Bond traders loved that Fed Chair Yellen’s Jackson Hole speech didn’t mention any reduction in their bond buying program, which would send prices down and rates up. The 30YR FNMA 4.0% bond we watch finished the week UP .04, at $105.45. The national average 30-year fixed mortgage rate fell for the fourth week in a row in Freddie Mac’s Primary Mortgage Market Survey for the week ending August 24. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up-to-the-minute information.

DID YOU KNOW?… With 455 of the 505 companies in the S&P 500 reporting, Q2 earnings are up more than 11% over last year. One economist said the threat of recession is “as low, basically, as it ever gets.”

>> This Week’s Forecast

PENDING HOME SALES, INFLATION OK, MANUFACTURING, JOBS UP, GDP NEARS 3%… Not a bad set of economic data is forecast. Pending Homes Sales should keep growing in July. The Fed’s favorite PCE Prices measure of inflation is expected up just 0.1%, a 1.2% annual rate, far below their 2% target for a rate hike. The Chicago PMI and ISM Index should keep showing solid expansion in manufacturing. Just under 200,000 Nonfarm Payrolls are projected to have been added in July, while Q2 GDP should climb closer to a 3% economic growth rate.

>> The Week’s Economic Indicator Calendar

Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.

Economic Calendar for the Week of Aug 28 – Sep 1

 Date Time (ET) Release For Consensus Prior Impact
Tu
Aug 29
10:00 Consumer Confidence Aug 120.3 121.1 Moderate
W
Aug 30
08:30 GDP – 2nd Estimate Q2 2.7% 2.6% Moderate
W
Aug 30
10:30 Crude Inventories 08/26 NA -3.3M Moderate
Th
Aug 31
08:30 Initial Unemployment Claims 08/26 236K 234K Moderate
Th
Aug 31
08:30 Continuing Unemployment Claims 08/19 NA 1.954M Moderate
Th
Aug 31
08:30 PCE Prices Jul 0.1% 0.0% HIGH
Th
Aug 31
08:30 Core PCE Prices Jul 0.1% 0.1% HIGH
Th
Aug 31
08:30 Personal Income Jul 0.3% 0.0% Moderate
Th
Aug 31
08:30 Personal Spending Jul 0.4% 0.1% HIGH
Th
Aug 31
09:45 Chicago PMI Aug 58.9 58.9 HIGH
Th
Aug 31
10:00 Pending Home Sales Jul 0.5% 1.5% Moderate
F
Sep 1
08:30 Average Hourly Earnings Aug 0.2%. 0.3% HIGH
F
Sep 1
08:30 Average Workweek Aug 34.5 34.5 HIGH
F
Sep 1
08:30 Nonfarm Payrolls Aug 183K 209K HIGH
F
Sep 1
08:30 Unemployment Rate Aug 4.3% 4.3% HIGH
F
Sep 1
10:00 ISM Index Aug 56.8 56.3 HIGH
F
Sep 1
10:00 U. of Michigan Consumer Sentiment – Final Aug 97.1 97.6 Moderate

 

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months… The Fed Funds Futures market shows no chance of a rate hike through the end of this year–and into the spring. We’ll see. Note: In the lower chart, a 0% probability of change is a 100% certainty the rate will stay the same.

Current Fed Funds Rate: 1.0%-1.25%

After FOMC meeting on: Consensus
Sep 20 1.0%-1.25%
Nov 1 1.0%-1.25%
Dec 13 1.0%-1.25%

Probability of change from current policy:

After FOMC meeting on: Consensus
Sep 20         0%
Nov 1         8%
Dec 13       42%
Ron Schulz
Senior Loan Officer
NMLS# 266128
13140 Coit Rd # 502
Dallas, TX 75240
Office: 214-346-5279
Mobile: 214-794-4014
Fax: 972-284-0715
ron.schulz@supremelending.com
www.ronschulz.com
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