June 30, 2017
Inflation remained tame in May as measured by the Core PCE rising by 0.1% in May from April, while the Fed’s favorite inflation gauge, the annual Core PCE fell to 1.4%, well below the Fed’s target range of 2%. Personal Incomes in May rose 0.4%, just above the 0.3% expected while Spending was up 0.1%, in line with estimates. With incomes rising more than spending, the personal saving rate rose 5.5% in May from 5.1% in April.
The week, month, quarter and the first half of the year comes to an end today with Mortgage Bonds near unchanged after a volatile week of trading. Stocks, as measured by the S&P 500, are up 8% for the first six months of the year, while mortgage rates fell to the lowest level of 2017 this week to 3.88% as reported by Freddie Mac. The price for a barrel of West Texas Intermediate crude oil has fallen to $45.55 today from $53.72 at the end of 2016.
Just the facts! With the 4th of July being celebrated next week, here are a few facts that may amaze your friends and family at your barbecue for the holiday.Congress made Independence Day an official unpaid holiday for federal employees in 1870. In 1938, Congress changed Independence Day to a paid federal holiday. Only John Hancock actually signed the Declaration of Independence on July 4, 1776. All the others signed later. The stars on the original American flag were in a circle so all the Colonies would appear equal. In 1776, there were 2.5 million people living in the new nation. Today the population of the U.S.A. is 326 million. Barbecue is also big on Independence Day. Approximately 150 million hot dogs and 700 million pounds of chicken are consumed on this day. They also spend $92 million on chips, $167.5 million on watermelon, and $341.4 million on beer. Fireworks have been a major part of Fourth of July since the earliest celebrations.
June 29, 2017
Mortgage rates edged lower in the latest week falling to levels not seen since the week of the November presidential election. Freddie Mac reports that the 30-year fixed rate mortgage fell to 3.88% this week with 0.5 in points and fees. That is down from 3.90% in the previous week though above the 3.48% seen last year this time. Market experts had forecasted that mortgage rates would average 4.50% this year, but so far they have averaged 4.08%.
The final read on first quarter Gross Domestic Product rose by 1.4% from 1.2% in the second reading. And though economic growth ticked higher, it is still an anemic reading. Consumer spending edged higher by 1.1% from 0.6% due in part to an increase in spending on healthcare and financial services, this too is at a low level. The Atlanta Fed has since lowered their second quarter GDP expectations to 2.9% as of today from 4% back in late May.
A new report from online listing real estate agent Trulia revealed that housing inventory declined nearly 9% from last year in the second quarter of 2017. Home inventories have fallen for nine consecutive months and are down a whopping 20% from five years ago. Low inventories have been key in the recent rise in home prices and many experts feel that the shortages are having a big impact on the market with no relief in sight.
June 28, 2017
Fed Chair Yellen was speaking in London yesterday and mentioned that she feels that, “asset valuations are somewhat rich if you use some traditional metrics like price earnings ratios.” Translation: Stock prices may be too high. Ms. Yellen also soothed the Mortgage Bond market by saying the Fed intends to very gradually and predictably shrink its massive $4.5 trillion balance sheet. Ms. Yellen went on to say that she believes there will not be another financial crisis in our lifetimes.
Signed contracts to purchase homes declined for the third straight month due in part to the same theme … a lack of homes on the market for sale. The National Association of REALTORS® reported on Wednesday that Pending Home Sales in May fell 0.8%, below the +0.5% expected, but better than the -1.7% recorded in April. The index was down 1.7% from May 2016 and was the second straight annual decline. Lawrence Yun, NAR chief economist, says “Buyer interest is solid, but there is just not enough supply to satisfy demand. Prospective buyers are being sidelined by both limited choices and home prices that are climbing too fast.”
Mortgage rates remained steady in the latest week and remain at the 2017 lows and just above all-time lows. The Mortgage Bankers Association reports that the 30-year fixed conforming mortgage rate ($424,100 or less) was unchanged at 4.13% with 0.32 in points. The 30-year jumbo rate (greater than $424,100) was essentially unchanged at 4.09% with 0.20 points, while the FHA rate was also near unchanged at 4.02% with 0.41 in points. The survey covers over 75% of all U.S. retail residential mortgage applications, and has been conducted weekly since 1990.
Stocks Letters As Symbol For Shares And The Market
June 27, 2017
Home price gains remained steady across the nation due in part to low home loan rates and a limited supply of homes for sale. The S&P/Case Shiller 20-city Index saw a gain of 5.7% from April 2016 to April 2017. A spokesperson for the index said that home prices continue to rise faster than inflation. “Since demand is exceeding supply and financing is available, there is nothing right now to keep prices from going up,” says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices.
Black Knight Financial Services reported on Tuesday that home prices hit their all-time high in April of $275,000. Home prices rose 3.6% in April from the beginning of 2017 and were up 1.5% from March and up 6% from April 2016. Black Knight reported that the state of Washington continues to outperform the nation, leading all states in monthly appreciation for the third consecutive month and with the Seattle metro area seeing an 8.4% gain in home prices since the start of the year.
The Conference Board released its Consumer Confidence Index for June, which came in at 118.9, above the 116.7 and above the 117.6 recorded in May. The report showed that consumers’ assessment of current conditions improved to a nearly 16-year high in June. On an overall basis, “Consumers anticipate the economy will continue expanding in the months ahead, but they do not foresee the pace of growth accelerating,” said Lynn Franco, Director of Economic Indicators at The Conference Board.
June 26, 2017
Fannie Mae released its second quarter 2017 Mortgage Lender Sentiment Survey revealing that as mortgage demand cools and competition heats up, more lenders are planning to ease credit standards. Concerns regarding economic conditions were a top driver for changes in lending standards. Across the three loan types, the share of lenders who reported growth in purchase mortgage demand dropped to the lowest net reading in years for the second-quarter period.
Demand for products meant to last at least three years fell in May by the most in 18 months, signaling that the manufacturing sector is slowing as the year progresses. May Durable orders fell 1.1% from April for the second straight month of declines. The declines were led by civilian and military aircraft orders, where orders plummeted. However, orders for new automobiles along with industrial machinery, steel and other metals, increased.
As the first half of 2017 comes to an end this week, the closely watched S&P 500 Stock Index is up 9% having benefited from the post-presidential election Stock market exuberance. Plans for lower taxes and regulations along with talk to build infrastructures across the U.S. have led Stock prices higher since early November. The S&P is hovering near its all-time closing high of 2,453 set on June 19. That is in stark contrast to the low of 666 hit back on March 9, 2009, which was the height of the great Recession.
June 23, 2017
Mortgage rates remained just above all-time lows this week, as reported by Freddie Mac. The 30-year fixed-rate mortgage was 3.90 for the week ending June 22 with 0.5 in points and fees. Last year this time the rate was 3.56%. Freddie Mac said that mortgage rates continue to hover near year-to-date lows “amidst ongoing economic uncertainty.”
Americans filing for first time unemployment benefits continue to remain at levels not seen since the early 1970s as the sector contiues to strengthen. Weekly Initial Jobless Claims rose 3,000 to 241,000 in the latest week. This is the 120th consecutive week that claims have been below the 300,000 threshold, the longest stretch since 1970. The four-week moving average of claims, which irons out seasonal abnormalities, rose 1,500 to 244,750 last week, the highest since early April.
The Commerce Department reports that New Home Sales in May jumped nearly 3% from April to an annual rate of 610,000, above the 599,000 expected. From May 2016 to May 2017, sales were up almost 9% with May being the second highest tally of 2017. Tight inventories of just 4.6 month supply, pushed the median price to a record $345,800. A more healthy inventory level is six months’ supply.
Rates paper hole
June 22, 2017
Yesterday, oil prices hit lows not seen since August 2016 and have lost 20% since topping out in February, this despite OPEC’s vow to cut production and balance the market. The S&P energy index has declined 15% this year. Lower oil prices could affect inflation.
The Fed’s favorite inflation gauge, the Core Personal Consumption Expenditure on an annual basis, fell to 1.5% in April, well below the Fed’s target range of 2%. Oil is a major staple of the economy and is used in fueling transportation, heating homes, making plastics and many other consumer products. If oil prices decline, the cost to the end consumer drops, thus lower inflation and vice versa.
In the current low inflation environment, it could be tough for the Fed to raise rates anytime soon. Currently, there is little chance of a hike to the short-term Fed Funds Rate in July, and just a 13% chance in September. Yesterday, Philadelphia Fed President Harker (voter) said he could see the Fed’s balance sheet unwinding beginning in September, but not if inflation weakens. Mr. Harker went on to say that if the balance sheet unwinding were to begin, rate increases would pause. The Fed’s balance sheet is made up of Treasury and Mortgage Backed Securities and is valued at $4.5 trillion.
Digital visualization of oil production
June 21, 2017
May Existing Home Sales rose 1.1% from April to an annual rate of 5.62 million units, above the 5.52 million expected. The median price rose to an all-time high of $252,800. Sales were up 2.7% from May 2016. Low inventories continue to be a problem with supplies at 4.2 months where healthy supply is seen at six months. “We have a housing shortage, we may even use the term housing crisis in some markets,” NAR chief economist Lawrence Yun said.
Mortgage rates were steady in the latest week and remain just above the all-time lows, whilemortgage application volumes rose. The Mortgage Bankers Association reported that its Market Composite Index, a measure of total mortgage loan application volume, rose 0.6% in the latest week. The refinance index jumped 2.1% to 1526.8, the highest level since November 2016, while the purchase index fell 1%. The MBA also reports that the 30-year fixed conforming mortgage rate was unchanged at 4.13%, while jumbo and FHA rates rose 2bp and 4bp, respectively, to 4.08% and 4.04%.
S&P Dow Jones Indices and Experian reported on Tuesday that borrowers are going into default on their first mortgages less often than at nearly any point in the last 13 years. The default rate for first mortgages fell to 0.64% in May, down from 0.69% in April. The default rate in May was the second lowest for any month in nearly 13 years.
June 16, 2017
The Commerce Department reported on Friday that Housing Starts in May fell 5.5% from April to an annual rate of 1.092 million units, below the 1.227 million expected. It was the lowest rate since September 2016 and the third straight month of declines. Starts are down 2.4% from May 2016. Single-family starts, which account for the biggest share of the residential housing market, fell 3.9% to an annual rate of 794,000 units last month, the lowest level in eight months. Builders cited a lack of skilled workers and a rise in building materials for the decline.
The University of Michigan’s Consumer Sentiment Index fell to its lowest level in May since October to 94.5 from the 97.1 recorded in May. The index suggests that there has been a break from the big optimism seen after the presidential election results in November. The decline in sentiment signals a drop in confidence surrounding the economic policies of lower taxes, decreased regulation and infrastructure building that has been slow to come to fruition.
Amazon is now looking to invade the grocery store sector as it announced today that it will be purchasing Whole Foods in a deal worth nearly $14 billion. Wholefoods has hundreds of stores across the U.S. and Amazon will now have a distribution network for groceries. With the announcement, shares of Wal-Mart, Target, CostCo all declined. Buying groceries on line will now most likely become the wave of the not-too-distant future.
June 15, 2017
The Federal Reserved raised the benchmark Fed Funds Rate by 0.25% yesterday, as expected, bringing the rate to the 1% – 1.25% level. That pegs the Prime Rate at 4.25%. The statement didn’t offer many surprises … it read that the labor market has continued to strengthen and that economic activity has been rising moderately so far this year. Household spending has picked up in recent months, and business fixed investment has also continued to expand. The Fed said that inflation on a 12-month basis is expected to remain somewhat below 2% in the near term but to stabilize around the Fed’s 2% target over the medium term.
In Janet Yellen’s news conference following the release of the statement, she said the Fed plans to reduce its $4.5T balance sheet and said it could happen “relatively soon” if the economy evolves in line with expectations. If the taper does begin this year it will happen in the following manner: The Fed will begin allowing a reduction of a maximum of $10 billion of securities ($6B of Treasuries and $4B of mortgage securities) every month. That cap will increase by $10B of securities every quarter until the balance sheet is declining by $50B per month.
In economic news, regional manufacturing data was better-than-expected as the sector continues to experience peaks and valleys. The Philadelphia Fed Index rose to 27.6 in June, now positive for 11 consecutive months. The report said that about one-third of the firms expect to add to their payrolls through the end of the year. In the New York State region, the Empire State Survey surged to 19.8 in June, up from -1.0 in may and well above the 6.0 expected. It was the highest level in more than two years. The new orders, inventory, shipments and employment components all rose during the month.