Inside Lending Market Update: Fed Being Cautious

For the week of October 17, 2016 – Vol. 14, Issue 42

>> Market Update

QUOTE OF THE WEEK… “Worry is like a rocking chair: it gives you something to do but never gets you anywhere.” –Erma Bombeck, American humorist

INFO THAT HITS US WHERE WE LIVE … Well, FOMC Minutes from their September meeting revealed the Fed isn’t going anywhere with rates because they’re worried about the economy. Yeah, yeah, Fed Chair Janet Yellen said, “Our decision does not reflect a lack of confidence in the economy.” But then she expanded on this by saying the Fed preferred to take a more cautious approach to see if current growth would continue. Kinda sounds like she’s worried that it won’t. Nonetheless, the minutes also showed a cadre of Fed members pushing for a rate hike, so many economists feel there’s an increased chance for one in December. Our turn to worry.

One worry that’s going away is whether Millennials will ever have a real impact on the housing market. According to Freddie Mac’s October Insight, this latest and largest generation of homebuyers will actually be key to improving the homeownership rate, which has declined for a decade. Freddie is confident Millennials will finally marry, start families and buy homes at the faster pace posted by previous generations. The Millennial Tracker from Ellie Mae loan origination software reported “In August, Millennial borrowers enjoyed the lowest average interest rates we have seen all year. And we are seeing average loan amounts creep up.” Nice to be getting somewhere.

BUSINESS TIP OF THE WEEK… Good habits are keys to success. Motivation gets you started, but habits keep you going. Just continue repeating actions you want to turn into habits.

>> Review of Last Week

ROCKTOBER… October has indeed gotten off to a rocky start for those toiling on Wall Street. Trading ended Friday with all three major stock indexes down for the second week in a row. This is a little scary for investors and it’s not even Halloween. One fear rocking traders is that the Fed will do a rate hike before the end of the year. As reported above, the minutes released from the Fed’s last meeting seem to indicate this. But Friday, Fed Chair Janet Yellen told a lunch crowd of academics and policy wonks that “temporarily running a ‘high-pressure economy,’ with…a tight labor market” before raising rates might cure the sluggish economy. OK, no hike?

Meanwhile, some of the week’s economic data seemed to point to an economy that could survive a mild hit from the Fed.
Retail Sales finally headed up in September, and by a respectable 0.6%. Unfortunately, they’re up only 2.7% compared to a year ago. The Producer Price Index (PPI) showed wholesale price inflation was up 0.3% in September. Consumer price inflation could follow, something the Fed wants to see. Initial Unemployment Claims, at 246,000 for the week, tied their lowest level in more than 40 years. Yet the University of Michigan Consumer Sentiment index dropped from September’s 91.2, to 87.9 in October, a one-year low. Rock on.

The week ended with the Dow down 0.6%, to 18138; the S&P 500 down 1.0%, to 2133; and the Nasdaq down 1.5%, to 5214.

It was one of those unusual weeks when stocks and bonds sank together. Treasuries were hit hard, so yields went up and interest rates followed. The 30YR FNMA 4.0% bond we watch finished the week down .14, at $107.02. And yes, national average 30-year fixed mortgage rates edged a bit higher, their first move up in a month, in Freddie Mac’s Primary Mortgage Market Survey for the week ending October 13.  Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up-to-the-minute information.

DID YOU KNOW?… A major real estate data firm estimates about 1.5 million residential and commercial properties on the Southeast coast were impacted by Hurricane Matthew. Losses will total between $4 billion and $6 billion, with 90% of insurance claims from wind damage, 10% from the storm surge.

>> This Week’s Forecast

HOME BUILDERS ACTIVE, EXISTING HOME SALES DIP, INFLATION STAYS TAME… Expect to see home building activity growing in September, with both Housing Starts and Building Permits edging ahead. But they still have some distance to go to reach the 1.5 million annual rate some economists say we need to meet population growth and replace tear downs. Existing Home Sales are forecast down a bit in September. At least the CPI should show benign inflation, good for consumers and mortgage rates.

>> 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 Oct 17 – Oct 21

 Date Time (ET) Release For Consensus Prior Impact
M
Oct 17
08:30 NY Empire Manufacturing Index Oct 2.0 -2.0 Moderate
M
Oct 17
09:15 Industrial Production Sep 0.2% -0.4% Moderate
Tu
Oct 18
09:15 Capacity Utilization Sep 75.6% 75.5% Moderate
Tu
Oct 18
08:30 Consumer Price Index (CPI) Sep 0.3% 0.2% HIGH
Tu
Oct 18
08:30 Core CPI Sep 0.2% 0.3% HIGH
W
Oct 19
08:30 Housing Starts Sep 1.168M 1.142M Moderate
W
Oct 19
08:30 Building Permits Sep 1.164M 1.139M Moderate
W
Oct 19
10:30 Crude Inventories 10/15 NA 4.900M Moderate
W
Oct 19
14:00 Fed’s Beige Book Oct NA NA Moderate
Th
Oct 20
08:30 Initial Unemployment Claims 10/15 249K 246K Moderate
Th
Oct 20
08:30 Continuing Unemployment Claims 10/8 NA 2.046M Moderate
Th
Oct 20
08:30 Philadelphia Fed Index Oct 5.5 12.8 HIGH
Th
Oct 20
10:00 Existing Home Sales Sep 5.30M 5.33M Moderate

 

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months… It’s practically a foregone conclusion among Fed watchers that the rate will head north in December, then stay there at the next meet in February. Note: In the lower chart, an 8% probability of change is a 92% certainty the rate will stay the same.

Current Fed Funds Rate: 0.25%-0.5%

After FOMC meeting on: Consensus
Nov 2 0.25%-0.5%
Dec 14 0.5%-0.75%
Feb 1 0.5%-0.75%

Probability of change from current policy:

After FOMC meeting on: Consensus
Nov 2         8%
Dec 14       69%
Feb 1       72%
This information is an advertisement for Ron Schulz. The material provided is for informational and educational purposes only and should not be construed as investment and/or mortgage advice, or a commitment to lend. Although the material is deemed to be accurate and reliable, there is no guarantee of its accuracy. The material contained in this message is the property of Supreme Lending and cannot be reproduced for any use without prior written consent. This message is intended for business professionals only and is not intended for distribution to consumers or other third parties. The material does not represent the opinion of Supreme Lending. EVERETT FINANCIAL, INC. D/B/A SUPREME LENDING (NMLS ID #2129) at 14801 Quorum Dr., #300, Dallas, TX 75254. 877-350-5225. Copyright © 2016. All rights reserved. This is not an offer to enter into an agreement. Not all customers will qualify. Information, rates, & programs are subject to change without prior notice. All products are subject to credit & property approval. Not all products are available in all states. Other restrictions & limitations may apply. Supreme Lending is not affiliated with any government agency. Supreme Lending is required to disclose the following license information: AZ Mortgage Bankers License #BK 0925918, AZ Principal Office: 25030 S 190th St., Queen Creek, AZ 85142; Licensed by the Department of Business Oversight under the CA Residential Mortgage Lending Act-License 4130655; CO Mortgage Company Registration – Regulated by the Division of Real Estate; GA Mortgage Lender License 22114 – GA Residential Mortgage Licensee; IL Residential Mortgage License – Other Trade Name #1 MB.6760323 – IL Residential Mortgage Licensee; KS Licensed Mortgage Company, License #MC.0001578; NV Division of Mortgage Lending Mortgage Banker #4062; Licensed by the N.J. Department of Banking & Insurance – N.J. Residential Mortgage Lender License; NY Mortgage Banker License B501049; Licensed Mortgage Banker-NYS Department of Financial Services; OR Mortgage Lending License ML-4265; PA – Licensed Mortgage Banker by the PA Department of Banking #45048; RI Licensed Lender 20162998LL; TX-SML Mortgage Banker Registration – Residential Mortgage Loan Originator; VA: NMLS ID# 2129 www.nmlsconsumeraccess.org; WA Consumer Loan Company License CL-2129. For all other licenses, visit http://www.nmlsconsumeraccess.org/.
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One Response to “Inside Lending Market Update: Fed Being Cautious”

  1. I very much appreciate the insight.
    It’s going to be helpful to me and many others. Do you have any other sources so that I can dig a little deeper?

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