Homebuilding, Inflation, Retail & Interest Rates all Up! by Ron Schulz

For the week of March 13, 2017 – Vol. 15, Issue 10

>> Market Update

QUOTATION OF THE WEEK… “As is our confidence, so is our capacity.” –William Hazlitt, English essayist, critic, painter and philosopher

INFO THAT HITS US WHERE WE LIVE… If we agree with Hazlitt, the housing market should be headed for a pretty amazing year. Fannie Mae’s February Home Purchase Sentiment Index reports consumer confidence in housing at an all-time high. This follows January’s report in which consumer confidence improved for the first time in five months. Americans who feel now is a good time to buy rose 11 percentage points, while those believing it’s a good time to sell rose by seven. Fannie Mae’s chief economist added, “Millennials showed especially strong increases in job confidence and income gains, a necessary precursor for increased housing demand from first-time homebuyers.”

Those looking for more reasons to be confident found it offered up by the CEO of a major provider of real estate data. He unequivocally stated: “the spring home buying season is shaping up to be one of the strongest in recent memory.” Another property data provider reported, “the median down payment for loans secured by single family homes and condos was 6% of the median sales price nationwide, the lowest percentage since 2012.” Finally the Mortgage Bankers Association pegged purchase applications up 2% for the week ending March 3, with the average purchase loan size at its highest level since 1990. Buyers are clearly more confident.

BUSINESS TIP OF THE WEEK… Checking emails first thing in the morning is bad for business. It lets whatever is there take priority over important activities, such as serving clients and generating new business.

>> Review of Last Week

LET’S NOT GET CARRIED AWAY… Since the election, traders have been wildly optimistic about prospects for growth in jobs, wages and the economy, sending stocks to record highs. But last week, after six up weeks in a row, the S&P 500 and the Nasdaq ended down, along with the Dow, which had seen four straight weeks of gains. Wall Street’s enthusiasm was dampened after crude oil dropped below $50 a barrel, thanks to increases in active rigs and inventory. Plus, it looks like the President’s proposal to replace Obamacare might take longer to get through Congress, which would delay the corporate and personal tax reform investors are eager to see enacted.

Productivity, Trade Deficit and Federal Budget data came in OK, but the jobs report was an absolute winner again. The economy added 235,000 new Nonfarm Payrolls in February and the Unemployment Rate sank to 4.7%, even with more than 300,000 more people entering the labor force. The biggest gains were in construction, which helps housing, and manufacturing, which spurs job growth in other industries. Best of all, wages are now up 2.8% over last year. All this good news makes a rate hike Wednesday more likely. But job and wage gains are good for real estate, and some economists feel slightly higher rates may slow the rise in home prices.

The week ended with the Dow down 0.5%, to 20903; the S&P 500 down 0.4%, to 2373; and the Nasdaq down 0.2%, to 5862.

Bonds held their own, as the strong jobs report and a Fed rate hike were already priced into the market. Concerns over European monetary policy helped Treasuries on Friday, though the 30YR FNMA 4.0% bond we watch finished the week down .64, at $103.94. In Freddie Mac’s Primary Mortgage Market Survey for the week ending March 9, national average 30-year fixed mortgage rates edged up, though they remain near historical lows. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up-to-the-minute information.

DID YOU KNOW?…In a Fox Business Network interview on tax reform, Treasury Secretary Steven Mnuchin said, “Let me first clarify, we are not taking away the charitable deduction and we are leaving the mortgage interest deduction as is. We think those are both very, very important.”

>> This Week’s Forecast

HOMEBUILDING, INFLATION, RETAIL AND INTEREST RATES ALL UP… Analysts predict upward motion in this week’s key data. Housing Starts are expected up for February, though Building Permits may tail off. Up a tick are forecasts for inflation, according to the Consumer Price Index (CPI), and February Retail Sales. But the big focus of the week will be the Fed meeting. A vast majority of economists say the FOMC Rate Decision will be a quarter percent hike.

>> 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 Mar 13 – Mar 17

 Date Time (ET) Release For Consensus Prior Impact
Tu
Mar 14
08:30 Producer Price Index (PPI) Feb 0.1% 0.6% Moderate
Tu
Mar 14
08:30 Core PPI Feb 0,2% 0.4% Moderate
W
Mar 15
08:30 Consumer Price Index (CPI) Feb 0.1% 0.6% HIGH
W
Mar 15
08:30 Core CPI Feb 0.2% 0.3% HIGH
W
Mar 15
08:30 Retail Sales Feb 0,1% 0.4% HIGH
W
Mar 15
08:30 NY Empire Manufacturing Index Mar 14.5 18.7 Moderate
W
Mar 15
10:00 Business Inventories Jan 0.3% 0.4% Moderate
W
Mar 15
10:30 Crude Inventories 3/11 NA +8.2M Moderate
W
Mar 15
14:00 FOMC Rate Decision 3/15 0.75%-1.0% 0.5%-0.75% HIGH
Th
Mar 16
08:30 Initial Unemployment Claims 3/11 242K 243K Moderate
Th
Mar 16
08:30 Continuing Unemployment Claims 3/4 NA 2.058M Moderate
Th
Mar 16
08:30 Housing Starts Feb 1.260M 1.246M Moderate
Th
Mar 16
08:30 Building Permits Feb 1.251M 1.285M Moderate
Th
Mar 16
08:30 Philadelphia Fed Index Mar 25.0 43.3 HIGH
F
Mar 17
09:15 Industrial Production Feb 0.2% -0.3% Moderate
F
Mar 17
09:15 Capacity Utilization Feb 75.4% 75.3% Moderate
F
Mar 17
10:00 Leading Economic Indicators (LEI) Feb 0.5% 0.6% Moderate
F
Mar 17
10:00 U. of Michigan Consumer Sentiment Mar 190K 96.3 Moderate

 

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months… Most Fed watchers see the central bankers hiking rates on Wednesday. Rates should hold in May, but there’s now a 53% probability of another quarter percent hike in June. Note: In the lower chart, an 89% probability of change is only an 11% probability the rate will stay the same.

Current Fed Funds Rate: 0.5%-0.75%

After FOMC meeting on: Consensus
Mar 15 0.75%-1.0%
May 3 0.75%-1.0%
Jun 14 1.0%-1.25%

Probability of change from current policy:

After FOMC meeting on: Consensus
Mar 15       89%
May 3       90%
Jun 14       95%

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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