Forecast for the Week: News on housing, inflation and GDP highlight a packed economic calendar

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The Fed meeting could take center stage amidst a full week of economic reports.

Consumer Confidence kicks off the week on Tuesday followed by the Consumer Sentiment Index on Friday.
• In housing news, the S&P/Case-Shiller Home Price Index will be delivered on Tuesday, New Home Sales Wednesday and Pending Home Sales Thursday.
• Also on Wednesday, the Fed’s two-day Federal Open Market Committee meeting culminates with the monetary policy statement.
• Weekly Initial Jobless Claims will be released as usual on Thursday along with Gross Domestic Product and Durable Goods Orders.
• On Friday, look for Personal Consumption Expenditures, Personal Income and Personal Spending.

Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve. In contrast, strong economic news normally has the opposite result. The chart below shows Mortgage Backed Securities (MBS), which are the type of Bond on which home loan rates are based.

When you see these Bond prices moving higher, it means home loan rates are improving. When Bond prices are moving lower, home loan rates are getting worse.

To go one step further, a red “candle” means that MBS worsened during the day, while a green “candle” means MBS improved during the day. Depending on how dramatic the changes are on any given day, this can cause rate changes throughout the day, as well as on the rate sheets we start with each morning.

As you can see in the chart below, Mortgage Bonds have fallen in recent weeks. Home loan rates have moved higher but remain attractive.

Chart: Fannie Mae 4.0% Mortgage Bond (Friday Sep 21, 2018)

Last Week in Review: August brought mixed results on new home construction and sales of existing homes

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August Housing Starts rose 9.2 percent from July to a seasonally adjusted annual rate of 1.282 million units, above the 1.229 million expected. Single-family starts, which make up the largest share of the residential housing market, were up 1.9 percent while multi-family starts surged 27.3 percent. Housing Starts were flat in the Northeast, but the Midwest, South and West all saw positive gains. Housing Starts were also 9.4 percent higher than August of last year.

Building Permits, a sign of future construction, didn’t fare as well, an unfortunate development for would-be buyers struggling with limited inventory in many areas of the country. From July to August, Building Permits decreased 5.7 percent. They are also 5.5 percent lower than August 2017.

Existing Home Sales managed to stabilize in August after four straight months of declines, the National Association of REALTORS® reported. Existing Home Sales were unchanged in August from July at an annual rate of 5.34 million units, below the 5.37 million expected. Flat sales were due to a balance of gains in the Northeast and Midwest and losses in the South and West. Unsold inventory of existing homes was at a 4.3-month supply, still well below the 6-month supply considered normal. Sales were also down 1.5 percent when compared to August 2017.

Mortgage Bonds have struggled in the latest week due in part to positive gains in Stocks. Home loan rates have ticked higher but remain attractive.

If you or someone you know has questions about home loans, give us a call. We’d be happy to help.

Forecast for the Week: Key housing reports may shed light on whether low inventory shows any signs of improvement

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Housing reports will provide important updates on continued low inventory many homebuyers have been facing.

• Manufacturing news kicks off the week on Monday with the Empire State Index, followed by the Philadelphia Fed Index on Thursday.
• Over in the housing sector, look for the NAHB Housing Market Index Tuesday, Housing Starts and Building Permits Wednesday, and Existing Home Sales Thursday.
• As usual, weekly Initial Jobless Claims will be released on Thursday.

Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve. In contrast, strong economic news normally has the opposite result. The chart below shows Mortgage Backed Securities (MBS), which are the type of Bond on which home loan rates are based.

When you see these Bond prices moving higher, it means home loan rates are improving. When Bond prices are moving lower, home loan rates are getting worse.

To go one step further, a red “candle” means that MBS worsened during the day, while a green “candle” means MBS improved during the day. Depending on how dramatic the changes are on any given day, this can cause rate changes throughout the day, as well as on the rate sheets we start with each morning.

As you can see in the chart below, Mortgage Bonds fell recently. Home loan rates remain attractive.

Chart: Fannie Mae 4.0% Mortgage Bond (Friday Sep 14, 2018)

Last Week in Review: August Retail Sales rose at their smallest level in six months

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Retail Sales disappointed in August, up just 0.1 percent from July. However, July’s figure was revised higher from 0.5 percent to 0.7 percent. Sales were led by non-store retailers and from receipts at gasoline stations, while consumers cut back on spending for cars and clothing. On an annual basis, Retail Sales were up 6.6 percent from August 2017.

Consumer spending is crucial to the U.S. economy. It will be important to see if August’s numbers are just a hiccup and if sales pick up as we approach the holiday shopping season this fall.

Inflation was also in the news, with wholesale inflation tame in August. The Producer Price Index fell 0.1 percent from July, below the 0.2 percent expected due in part to a decline in food prices and a range of services.

The more closely watched Consumer Price Index (CPI) rose 0.2 percent from July to August, as higher costs for gasoline and rents were offset by declining costs for healthcare and apparel. On an annual basis, CPI rose 2.7 percent for the 12 months ending in August, though this was down from the 2.9 percent annual increase in July. Annual Core CPI, which strips out volatile food and energy prices, rose 2.2 percent year over year in August, down from July’s increase of 2.4 percent.

The key takeaway when it comes to inflation is that inflation reduces the value of fixed investments like Mortgage Bonds. Since home loan rates are tied to Mortgage Bonds, tame inflation can help keep Mortgage Bonds and home loan rates from worsening.

For now, despite the tame inflation data, Mortgage Bonds fell in the latest week due in part to the strong Jobs Report for August. Home loan rates remain near historic lows.

If you or someone you know has questions about home loan rates, please reach out. We’d be happy to help.

Forecast for the Week: Inflation and Retail Sales data highlight this week’s calendar

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Did inflation move higher in August? Were Retail Sales solid? We’ll find out in the second half of the week.

• Wholesale inflation data will be reported via the Producer Price Index on Wednesday. The Consumer Price Index follows on Thursday.
• As usual, weekly Initial Jobless Claims will be released on Thursday.
• On Friday, Retail Sales and the Consumer Sentiment Index will be delivered.

Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve. In contrast, strong economic news normally has the opposite result. The chart below shows Mortgage Backed Securities (MBS), which are the type of Bond on which home loan rates are based.

When you see these Bond prices moving higher, it means home loan rates are improving. When Bond prices are moving lower, home loan rates are getting worse.

To go one step further, a red “candle” means that MBS worsened during the day, while a green “candle” means MBS improved during the day. Depending on how dramatic the changes are on any given day, this can cause rate changes throughout the day, as well as on the rate sheets we start with each morning.

As you can see in the chart below, Mortgage Bonds fell in recent days. Home loan rates remain near historic lows.

Chart: Fannie Mae 4.0% Mortgage Bond (Friday Sep 07, 2018)