Market Update: Homeownership 3-year High by Ron Schulz

QUOTATION OF THE WEEK… “The mind is the limit. As long as the mind can envision the fact that you can do something, you can do it, as long as you really believe 100 percent.” –Arnold Schwarzenegger, Austrian-American actor, businessman, philanthropist, politician, former professional bodybuilder

INFO THAT HITS US WHERE WE LIVE … We got hit with a variety of housing market news last week, starting with Monday’s reveal that Existing Home Sales took a bit of a breather in June, dipping 1.8%. But they’re still at a healthy 5.52 million unit annual rate, and up by 0.7% over a year ago. Economists expect real estate to maintain its overall upward trend of the last few years. Of course we do have the headwinds of tight supply and rising prices, with median existing home prices hitting new record highs two months in a row. But demand stays strong, as 54% of the listings sold in June were less than a month old.

Tuesday we learned New Home Sales moved up 0.8% in June to a 610,000 unit annual rate, putting them up 9.1% versus a year ago. The supply increased to 5.4 months, aided by a 3,000 unit gain in inventories. Plus, the median price of new homes sold was down 3.4% versus last year, indicating builders are moving in the right direction. More evidence of this came with the news the homeownership rate increased in Q2 and is up 0.8% from a year ago, to a three-year high. The chief economist of an national real estate site believes “we may have turned a corner when it comes to the steep dive in homeownership we’ve seen over the past 10 years.” All right!

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>> Review of Last Week

EARNING OUR WAY… The S&P 500 wound up the week essentially unchanged, but did hit a new record on Wednesday, while the Nasdaq finished down just a tick. The Dow, however, posted a nice weekly gain, ending at another all-time high, the 29th new high so far in 2017. In the four months following the election, stocks have rallied an impressive 12%, apparently driven by economic optimism. But it’s more than hope that’s powering equities upward. With more than half the S&P 500 companies reporting Q2 results, earnings are up 9.1% year-over-year. Add to that, a steady stream of improving economic fundamentals.

Feeding that stream,
the GDP Advance read for Q2 pegged U.S. economic growth at a 2.6% annual rate. That’s up 2.1% over a year ago and clearly above the anemic annual growth rates we’ve seen in the recovery until now. The Employment Cost Index showed the cost of employing the average U.S. worker was up 0.5% in Q2, another good sign. Picky pundits fretted that these numbers were slightly below expectations. Oh pulease. The Conference Board reported that consumers’ confidence in current conditions remains at a 16-year high, while their confidence in the future edged higher. We’ll go with consumers over the pundits every time.

The week ended with the Dow UP 1.2%, to 21830; the S&P 500 flat, down less than a point, at 2472; and the Nasdaq down 0.2%, to 6375.

Bond prices benefited from the GDP and Employment Cost Index misses, but were beaten back by higher oil prices, better than expected eurozone economic data and Friday’s boost in Michigan Consumer Sentiment. The 30YR FNMA 4.0% bond we watch finished the week down .04, at $105.27. National average 30-year fixed mortgage rates fell again in Freddie Mac’s Primary Mortgage Market Survey for the week ending July 27. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up-to-the-minute information.

DID YOU KNOW?… People who sold their homes in the second quarter of 2017 made an average profit of $51,000, the largest since 2007 and a 26% increase over initial purchase price, the highest average return since 2007. 

>> This Week’s Forecast

PENDING HOME SALES REBOUND, MANUFACTURING, JOBS GROW, BUT NOT INFLATION… June Pending Home Sales are forecast up after slipping in May, so expect higher existing home sales in a few months. The Chicago PMI gauge of Midwest manufacturing and the national ISM Index should show factory activity growing, though a little slower. Growth is also predicted for jobs in June, with just under 200,000 new Nonfarm Payrolls, and, best of all, Hourly Earnings up a bit more. The Fed’s favorite Core PCE Prices inflation measure should stay low enough to squelch rate hikes for a while.

>> 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 Jul 31 – Aug 4

 Date Time (ET) Release For Consensus Prior Impact
M
Jul 31
09:45 Chicago PMI Jul 60.0 65.7 HIGH
M
Jul 31
10:00 Pending Home Sales Jun 1.1% -0.8% Moderate
Tu
Aug 1
08:30 Personal Income Jun 0.3% 0.4% Moderate
Tu
Aug 1
08:30 Personal Spending Jun 0.1% 0.1% HIGH
Tu
Aug 1
08:30 Core PCE Prices Jun 0.1% 0.1% HIGH
Tu
Aug 1
10:00 ISM Index Jul 56.2 57.8 HIGH
W
Aug 2
10:30 Crude Inventories 07/29 NA -7.2M Moderate
Th
Aug 3
08:30 Initial Unemployment Claims 07/29 242K 244K Moderate
Th
Aug 3
08:30 Continuing Unemployment Claims 07/22 NA 1.964M Moderate
Th
Aug 3
10:00 ISM Services Jul 56.9 57.4 Moderate
F
Aug 4
08:30 Average Workweek Jul 34.5 34.5 HIGH
F
Aug 4
08:30 Hourly Earnings Jul 0.3% 0.2% HIGH
F
Aug 4
08:30 Nonfarm Payrolls Jul 181K 222K HIGH
F
Aug 4
08:30 Unemployment Rate Jul 4.3% 4.4% HIGH
F
Aug 4
08:30 Trade Balance Jun -$44.9B -$46.5B Moderate

 

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months… After the Fed stood pat on rates at last week’s meeting, the markets don’t see another hike this year. The probability for one in December is now just south of 50%. 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         5%
Dec 13       49%

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