Inflation in US at low levels in August, Personal spending barely rose, Manufacturing in Chicago surged

September 29, 2017

Inflation in the U.S. continued to run at low levels in August. The Fed’s favorite inflation gauge, the annual Core PCE, rose 1.3% from August 2016, the lowest annual increase since November 2015. The Core PCE strips out volatile food and energy. On a monthly basis, Core PCE rose 0.1% from July. The Federal Reserve continues to say that the low inflation levels are “transitory”, but low inflation levels have been reported for at least seven years. Transitory by definition means lasting only a short time.

Personal spending barely rose in August, which could be due in part to Hurricane Harvey, as it weighed on auto sales. Spending rose 0.1% in August, which was in line with estimates. Consumer spending accounts for two-thirds of U.S. economic activity. Personal incomes were up 0.2% in August, meeting expectations. Personal income refers to an individual’s total earnings from wages, investment enterprises, and other ventures. It is the sum of all the incomes received by all the individuals or household during a given period.

Manufacturing activity in the Chicago area surged in September hitting the highest levels in more than three years. Gains were seen in demand, employment and backlogs. The Chicago PMI rose to 65.2 in September, above the 58.0 expected. Jamie Satchi, economist at MNI Indicators, said: “The strong out turn in September means that on a quarterly basis business activity was broadly unchanged from an already impressive Q2. Looking forward, firms are on record expecting a busy Q4 despite disruptions caused by the recent storms, with just a handful expecting delivery times to lengthen between October through December.”

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Gross Domestic Product grew to more healthy level, Tax Reform Plan rolled out, Mortgage Rates were unchanged

September 28, 2017

The Bureau of Economic Analysis reported on Thursday that the final reading on second quarter Gross Domestic Product (GDP) grew to a more healthy level of 3.1%, up from the anemic 1.2% recorded in the first quarter. It was the best reading since the 3.2% in the first quarter of 2015. GDP was boosted by stronger business and consumer spending. Gross Domestic Product (GDP) is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period. It is considered the broadest measure of economic activity.

The Trump administration rolled out its new tax reform plan yesterday vowing that it would be the largest cut in the history of the U.S. The plan has skeptics wondering how it would be paid for, but Trump advisor Gary Cohn said this morning that the U.S. plans to pay for the entire tax cut through economic growth. The tax plan calls for a repeal of most itemized deductions, AMT and the estate tax. In addition, the current standard deduction of $6,350 for single filers would increase to $12,000 and the $12,700 standard deduction for joint filers would go from $12,700 to $24,000.

Freddie Mac reports that mortgage rates were unchanged in the latest week and remain at historically attractive levels. The 30-year fixed-rate mortgage averaged 3.83% this week with an average 0.6 point added on top of the rate. A year ago this time, the rate was 3.42%. Freddie Mac says average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage.

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Rising Home Prices, Mortgage rates edge higher, Lenders continue to ease credit standards

September 27, 2017

The housing market continues to grapple with rising home prices and limited supplies of homes on the market for sale. The National Association of REALTORS® (NAR) reported on Wednesday that Pending Home Sales fell 2.4% from July, well below the -0.4% expected. The index, 106.3, is now at its lowest reading since January 2016 of 106.1. Lawrence Yun, NAR chief economist, says this summer’s terribly low supply levels have officially drained all of the housing market’s momentum over the past year. “August was another month of declining contract activity because of the one-two punch of limited listings and home prices rising far above incomes.” Mr. Yun went on to say that the housing market is now “essentially stalled.”

The Mortgage Bankers Association (MBA) reported that mortgage rates edged higher in the latest week after the Fed signaled that it will begin to unwind its massive balance sheet consisting of Treasury and Mortgage Backed Securities. The 30-year fixed conforming mortgage rate rose 7 basis point to 4.11%, with 0.40 in points added on top of the rate. The MBA also reported that the purchase index rose 2.8%, while the refinance index fell 3.5%.

Government sponsored entity Fannie Mae released its 2017 Mortgage Lender Sentiment survey this week revealing that lenders continued to ease credit standards in the third quarter. The net share of lenders who reported easing credit standards over the prior three months reached a new high since the survey’s inception in March 2014, after climbing each quarter since Q4 2016. Competition was cited as one of the main reasons for the ease in credit standards.


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New Homes Sales nationwide down due to hurricanes, New Homes Sales in Midwest remain unchanged, Home Price Index showed increase

September 26, 2017

The Commerce Department reported on Tuesday that Hurricanes Harvey and Irma impacted New Home Sales data in August, driving it down 3.4% from July to an annual rate of 560,000 annualized units. This was below the 577,000 expected and an eight-month low. The storm destruction hampered reporting, the Commerce Department said, with “information on the sales status at the end of August collected for only 65% of cases in Texas and Florida counties” affected by the hurricanes. That compares to a normal response rate of 95%.

New Home Sales were 1.2% lower than August 2016, falling in the Northeast, South and West while remaining unchanged in the Midwest. The median sales price of new houses sold in August 2017 was 0.4% higher than last year. Finally, new home inventory had a 6.1- month supply in August, up from 5.7 in July. A six-month supply is seen as a healthy balance between supply and demand.

The S&P Case Shiller 20-city Home Price Index showed a 5.8% increase from July 2016 to July 2017. Gains continue for home prices due in part to limited homes for sale and a robust jobs market. This pace remains double the average wage growth and is unsustainable for the long term – something will have to give. Either wages grow or price gains ease. On a national level, prices rose 5.9% in July from a year ago. A spokesperson from Case-Shiller said home price gains have largely come from the Pacific Northwest.

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Fed Chair Yellen to speak tomorrow, Elli Mae: Origination Insight Report closing rates climbed, Gas prices spiked

September 25, 2017

Several Federal Reserve members will be speaking today, including New York’s William Dudley, Chicago’s Charles Evans and Neil Kashkari from Minneapolis. The Fed’s Dudley said this morning that U.S. fundamentals are favorable and that inflation’s transitory effects are fading. Mr. Dudley went on to say that he expects stronger wage growth with slightly-better-than-average economic growth. Fed Chair Yellen will be speaking tomorrow on topics such as inflation and uncertainty about monetary policy. The speeches come after the Fed announced last week that it will begin to unwind its massive balance sheet beginning in October.

Cloud-based platform provider Ellie Mae released its Origination Insight Report for August late last week revealing that overall closing rates climbed to 71.7%, the highest since January of 2017 and up from 70.6% in July. And despite an uptick in mortgage rates, the percentage of refinances remained steady at 35% of total loans. Ellie Mae went on to say that the percentage breakdown of all closed loans remained steady for the third consecutive month with conventional loans representing 64% of all closed loans, FHA loans representing 22% of all closed loans, and VA loans representing 10% of all closed loans.

After Hurricane Harvey hit the Gulf Coast, gas prices spiked as many refineries went offline due to the disaster. In the past two weeks, refineries have come back on line while gas prices have pushed lower. The national average prices for a regular gallon of gas hit $2.67 in the week following Harvey, but is now $2.57 on average across the nation. Price will most likely continue to edge lower in the coming weeks as fewer drivers are seen on the roads in September, October and in early November.

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Bonds boosted this am, Housing market strong, Rise in home equity

September 22, 2017

Increasing tensions between North Korea and the U.S. are boosting Bond prices this morning as yields ease a bit across the globe. President Trump has imposed new sanctions and China has told their banks to stop doing business with North Korea. In response, Kim Jong Un is threatening to test fire a hydrogen bomb in the Pacific Ocean. The rise in Bonds are coming at the expense of the major Stock indexes. The Dow Jones Industrial Average, the S&P 500 and the NASDAQ are all trading lower this morning.

Freddie Mac reported this week that the housing market will remain relatively strong due in part to the strong labor market and low mortgage interest rates. Home sales are expected to rise modestly in 2018 to 1.33 million units, up from 1.22 million in 2017 with new home sales the primary driver. Freddie Mac says that home sales are expected to rise 2% from 2017 to 2018. “The economic environment remains favorable for housing and mortgage markets,” Freddie Mac Chief Economist Sean Becketti said.

Analytics firm CoreLogic reports that homeowners continue to see their equity rise in their homes, according to its Q2 2017 home equity analysis. CoreLogic analysis shows U.S. homeowners with mortgages, roughly 63% of all homeowners, have seen their home equity increase by a total of $766.1 billion since Q2 2016, an increase of 10.6%, year over year. In Q2 2017, the total number of mortgaged residential properties with negative equity fell 10% from Q1 2017 to 2.8 million homes, or 5.4%t of all mortgaged properties. Compared to Q2 2016, negative equity decreased 21.9% from 3.6 million homes, or 7.1% of all mortgaged properties.

House And Dollar Balancing Showing Investment Or Mortgage

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Economic environment remains favorable for the housing and mortgage markets

September 21, 2017

Freddie Mac released its September Economic & Housing Research Outlook this week revealing that the economic environment remains favorable for the housing and mortgage markets. For several years, Freddie says we have had moderate economic growth of about 2% a year, solid job gains and low mortgage interest rates. Freddie Mac sees those conditions persisting into next year. Freddie Mac sees a gradual increase in housing starts, moderate increases in mortgage rates that will help to reduce house price growth in 2018, and forecasts average U.S. house price growth of 4.9% next year.

In addition, the 30-year fixed mortgage rate is expected to average 4% in 2017 and 4.4% in 2018 while total mortgage originations will be $1.695T in 2018. Freddie Mac also sees the mortgage market shift away from refinance-dominated to a more purchase-oriented market. Freddie Mac forecasts that the refinance share of mortgage activity will decline to 25%, the lowest annual refinance share since 1990. In conclusion, for existing homeowners, rising home prices help increase their home equity. Homeowners looking for home improvement, to consolidate other debt or pay off student debt can cash-out home equity to do so.

And after two months of declines, mortgage rates edged higher in the latest week as Bond prices dropped pushing yields higher. Freddie Mac reports that the 30-year fixed mortgage rate rose 5bp this week to 3.83% with 0.5 added on top of the rate in points and fees. Last year this time the rate was 3.48%. The 15-year fixed rate mortgage was up 5bp to 3.13% this week, up from 2.76% last year.

Red House – Real Estate 3D Render Illustration Theme. Light Blue-Gray Residential Area with Single Red House.

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Existing Home Sales fell due to high prices and low inventories, home values continue to see gains, Holiday sales can increase

September 20, 2017

The National Association of REALTORS® (NAR) reports that Existing Home Sales in August fell 1.7% from July to an annual rate of 5.35 million units versus the 5.42 million expected. From August 2016 until August 2017, sales were up 0.2%. Sales fell for the fourth time in five months due to the ongoing themes: high prices and low inventories. “Steady employment gains, slowly rising incomes and lower mortgage rates generated sustained buyer interest all summer long, but unfortunately, not more home sales,” said Lawrence Yun, NAR chief economist.

The NAR said that the gains seen in the Northeast and Midwest were outpaced by the declines in the South and West. The median existing home price in August was $253,500, up 5.6% from August 2016 and marks the 66th straight month of year-over-year gains. There is just a 4.2 month supply of inventories where more normal levels are around 6 percent. In addition, 51% of existing homes sold closed in less than a month.

It’s just the middle of September but 2017 holiday sales expectations are already being published. Management consulting firm Deloitte reports that holiday sales can increase by 4.5% over last year’s shopping season, according to its annual retail holiday sales forecast. Daniel Bachman, Deloitte’s senior U.S. economist said, “Last year, disposable personal income grew 2% over the year to the holiday period, and we may see that rise to a range of 3.8% to 4.2% this season. Consumer confidence remains elevated, the labor market is strong and the personal savings rate should remain stable at its current low level.”

A person holding a miniature house and some dollar bills for making payments

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Housing Starts Fell for second straight month, Retailer Toys “R” Us filed for bankruptcy

September 19, 2017

The Commerce Department reported that Housing Starts fell in August for the second straight month, slipping 0.8% from July to an annual rate of 1.18 million units; although, this was above the 1.17 million expected. The declines are due in part to shortages of land and skilled labor as well as rising costs for building materials. On a positive note, year-over-year Housing Starts rose 1.4%.

Single-family Housing Starts, which make up the biggest share of the housing market, rose 1.6% with increases in the South and West and declines in the Midwest and Northeast. Multi-family dwellings fell 5.8% from July and are down 23% from August 2016. Building Permits, a sign of future construction, rose 5.7% from July, hitting their highest level since January. The Housing Starts report measures the number of residential units on which construction had begun each month.

Storied retailer Toys “R” Us filed for bankruptcy protection just ahead of the holiday shopping season. The near 70-year-old seller of toys pioneered the big-box format for toy sales and was the place to shop for generations of parents. A heavy debt burden and competition from on line retailers are a few key reasons for the bankruptcy announcement. Toy “R” Us will remain open into the holiday shopping season as it works out a court-supervised reorganization plan.

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Home builder’s confidence slipped, Homes being flipped for profit decreased, Two-day Fed meeting kicks off tomorrow

September 18, 2017

Home builder’s confidence slipped a bit in September from August as the latest hurricanes here in the U.S. raised members’ concerns about the availability of labor and the cost of building materials. The National Association of Home Builders (NAHB) reported on Monday that its Housing Market Index fell three points to 64, below the 67 expected. Any number over 50 indicates that more builders view conditions as good than poor. The NAHB did say, “With ongoing job creation, economic growth and rising consumer confidence, we should see the housing market continue to recover at a gradual, steady pace throughout the rest of the year.”

The amount of homes being flipped for profit decreased in the second quarter of 2017 while returns declined for the third consecutive quarter, reports ATTOM Data Solutions, a multi-sourced property database. There were 53,638 single-family homes and condos flipped during the second quarter of 2017, which was 5.6% of all home sales. That is down from 6.9% in the first quarter though unchanged from the same period as last year. The report defines home flipping as a property that is sold in a short amount of time for the second time within a 12- month period.

The two-day Fed meeting kicks off tomorrow and ends on Wednesday with the 2:00 p.m. ET release of the monetary policy statement. The statement will be accompanied by the Fed’s economic projections. Fed Chair Yellen will hold a news conference following the statement release at 2:30 p.m. ET. At this point in time, there is a near zero percent chance of a hike to the short-term Fed Funds Rate at this week’s meeting.

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