Inflation remained tame, Beige Book economic activity, Mortgage Rates edged lower

November 30, 2017

Inflation remained tame in October. The Fed’s favorite inflation gauge, the annualized Core PCE, rose 1.4% from October 2016, well below the Fed’s 2% target range. Despite low inflation, the Fed is on target to raise rates at next month’s FOMC meeting. Don’t expect many more hikes if inflation doesn’t move higher. Within the report it showed that Personal Spending rose 0.3% in October, below the 0.9% in September.

Yesterday’s Fed Beige Book showed that economic activity continued to increase at a modest to moderate pace in October and mid-November, with a slight improvement in the outlook among contacts in reporting districts. In addition, reports of tightness in the labor market were widespread. The Beige Book precedes the Federal Open Market Committee meeting which will begin on December 12 and end on December 13.

Mortgage rates edged lower this week and remain just above all-time lows. Freddie Mac reports that the 30-year fixed-rate mortgage fell 2bp this week to 3.90% with an average 0.5 in points and fees. 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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GDP Strong, Pending home sales increased, Automation will impact jobs by 2030

November 29, 2017

Solid economic growth was seen from the second reading on third quarter Gross Domestic Product (GDP) where strong business inventory and equipment investment offset an ease in consumer spending. The second read on Q3 GDP rose 3.3%, up from 3.0% in the first reading. This was the best number since Q3 2014. GDP registered 1.2% in the first quarter of 2017 and 3.1% in the second quarter. Consumer spending fell to 2.3% in the third quarter after hitting 3.3% in the second quarter. 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.

After a weak reading in September due to hurricanes Harvey and Irma, signed contracts to purchase existing homes surged in October. The National Association of REALTORS® reports that Pending Homes Sales increased 3.5% in October from September, the highest level since June. However, sales were down 0.6% from a year earlier. The South saw the biggest gain of 7.4%, which was most likely due to pent-up demand after the storms subsided.

A disturbing report on the state of future labor market activity was released by McKinsey research this week saying that a large portion of the global workforce could be displaced by 2030. The report estimates that between 400 million and 800 million people could be displaced by automation and need to find work. The professions that are more physical labor will be the most likely to see automation take over such machine operators and preparing fast food. Jobs that involve content providing, managing people and the like would be least impacted. In addition, jobs like gardeners, plumbers and, health care providers – will likely see less automation.

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Home Prices continue to rise | Confirmation hearing incoming Fed Chair Jerome Powell | Consumer Optimism surged

November 28, 2017

Home prices continued to rise in September buoyed by low mortgage rates, an improving economy and a strong labor market. The September S&P/Case-Shiller 20-City Home Price Index rose 6.2% year over year, above the 5.8% registered in August. It was the biggest increase in more than three years. “Most economic indicators suggest that home prices can see further gains,” David Blitzer, chairman of the S&P index committee, said in a statement. “One dark cloud for housing is affordability — rising prices mean that some people will be squeezed out of the market.”

A confirmation hearing for incoming Fed Chair nominee Jerome Powell will take place at 9:45 a.m. ET today but there should be no surprises. Mr. Powell says he expects interest rates to rise somewhat further and the size of the balance sheet to shrink gradually. Mr. Powell is expected to pursue a similar course to outgoing Fed Chair Janet Yellen. Mr. Powell will be the 16th chairman, which dates back to 1914.

Consumer optimism surged in November fueled by a strong labor market. The Conference Board reported that its Consumer Confidence Index hit 129.5 this month, a 17-year high, above the 124.0 expected and up from the 126.2 recorded in October. Those Americans stating jobs are “plentiful” increased from 36.7% to 37.1%, while those claiming jobs are “hard to get” decreased slightly from 17.1% to 16.9%. Lynn Franco, Director of Economic Indicators at The Conference Board said, “Consumers are entering the holiday season in very high spirits and foresee the economy expanding at a healthy pace into the early months of 2018.”

Consumers shopping for clothes

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Home Equity all time high | Sales of new homes rose | Black Friday sales were up

November 27, 2017

The Federal Reserve reports that home equity hit an all-time high in mid-2017 at $13.9T, up $0.5T from the 2006 peak and up $6T from the lowest point in the Great Recession. Quickly rising home prices are the main reason for the equity gains. Increasing home prices have also helped many homeowners to come out of negative equity. There were 12.2 million homeowners in negative equity at the end of 2009. That number has now decreased to just under 3 million in 2017.

The Commerce Department reported on Monday that sales of new homes rose to their highest level in 10 years due to strong sales across the country. New Home Sales rose 6.2% in October from September to an annual rate of 685,000 units, above the 629,000 expected. September was revised to 645,000 from 667,000. Strong sales were seen in the Northeast, Midwest, South and West. Year-to-date New Home Sales rose 18.7%. There is a 4.9 month supply of new homes for sale on the market, where a six-month supply is seen as a healthy balance between supply and demand.

Shoppers were out in full bloom as they shopped online on Thanksgiving and hit the malls on Black Friday. Black Friday and Thanksgiving online sales show U.S. retailers raking in a record $7.9B, up nearly 18% from a year ago. Cyber Monday is now underway and record online sales are expected to the tune of $6.6 billion. Total holiday sales are expected to come in between $678.75 billion to $682 billion, up from $655 billion last year.

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Mortgage Rates | 2017 year for housing | Inflation “Transitory”

November 22, 2017

Freddie Mac reports that mortgage rates edged lower this week and remain just below the 4% mark. The 30-year fixed-rate mortgage fell 3bp to 3.92% with 0.5 in points and fees. In November 2016, the rate averaged 3.47% for the month. Low rates continue to be a catalyst for the improving housing sector.

Freddie Mac also reported this week that 2017 is shaping up to be the year for the housing sector in a decade. Low mortgage rates, modest economic growth and a strong labor market are the reasons behind the rather strong housing market. However, a lack of homes for sale on the market led to a stall in the this past summer and fall. It’s unlikely the economic environment will be much more favorable for housing and mortgage markets in 2018 and 2019,” Freddie Mac Chief Economist Sean Becketti said. “We forecast that interest rates will remain low by historical standards, but gradually creep higher over the next two years.”

Fed Chair Yellen said last night that she’s uncertain weak inflation is “transitory.” Transitory, by definition means “not permanent.” Seeing inflation at low levels for a decade brings into question whether relatively low inflation is here to stay. If so, long-term rates like mortgage rates will also remain relatively low. It also means the Fed will not be able to hike the short-term Fed Funds Rate as much as it would like in the future.

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Existing Home Sales Rose in October | Lowes reported better earnings | Freddie Mac reported favorable conditions for housing and mortgage markets

November 21, 2017

The National Association of REALTORS® reports that Existing Home Sales in October rose 2% from September to an annual rate of 5.48 million annualized units, above the 5.42 million expected. The 5.48 million is the highest since June’s 5.51 million. However, a severe shortage of homes for sales on the market continues to push prices higher. Gains were seen in all four regions of the country. From October 2016, sales are down 0.9%.

Home improvement chain Lowe’s reported better-than-expected earnings in its latest quarter boosted by hurricane-related purchases. Lowe’s reported earnings per share of $1.05 versus the $1.02 expected. The company said lumber, plumbing and electrical supplies, and appliances were in big demand for the stores. Looking ahead, Lowe’s expects sales to increase 5% for fiscal year 2017.

Government-sponsored entity Freddie Mac reported on Monday that despite modest economic growth, solid job gains provide favorable conditions for housing and mortgage markets. Through the first 10 months of 2017, mortgage rates remained low by historical standards while the 30-year fixed-rate mortgage has remained below 4% since July. Freddie Mac went on to say with house prices outpacing income, low mortgage rates are the one factor helping to support homebuyer affordability.

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Thanksgiving holiday is underway | Price of gasoline | US Stocks higher

November 20, 2017

The Republican tax bill pushed through the House last week while the Senate bill will be voted on after the Thanksgiving holiday. Congress is off for the Thanksgiving holiday, which began Friday. There should be few to no headlines this week on tax reform. The U.S. Stock markets began the holiday shortened week higher, after the Dow Jones Industrial Average and the S&P 500 fell two straight weeks in a row on Friday.

With Thanksgiving travel already underway, motorists will be looking at prices at the pumps before heading out of town. There will be an estimated 45.5 million Americans driving to their Thanksgiving destinations this year, up 3.2% from 2016. The national average price for a regular gallon of gasoline is $2.54, up from $2.45 a month ago. One simple piece of advice, leave earlier than usual to ensure you get to your destination on time and drive carefully.

Just the facts. AAA forecasts nearly 51 million Americans will travel more than 50 miles or more for Thanksgiving. According to the USDA, 244 million turkeys were projected to be raised in the U.S. in 2016. 859 million pounds of cranberries were projected to be produced in the United States in 2016. The president traditionally receives a turkey in a ceremony at the White House a few days before Thanksgiving Day. President Harry S. Truman started the tradition and President George H. W. Bush was the first to pardon the bird and not eat it. In 1941, Congress ruled that the fourth Thursday in November will be observed as Thanksgiving Day and a federal legal holiday.


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New Construction, Single Family Home Starts

November 17, 2017

New construction on homes surged to a one-year high in October due in part to disruptions in September caused by Hurricanes Harvey and Irma. The Commerce Department reported that Housing Starts surged to an annual rate of 1.29 million units, up 13.7% from September versus the 1.198 million expected. However, starts were down nearly 3% from a year ago.

Single-family Housing Starts, which account for the largest share of the housing market, rose 5.3%. Total Housing Starts rose in the Midwest and South while the Northeast and West saw losses. Starts on multi-family dwellings of five or more units rose a whopping 37.4% from September to October. Building Permits, a sign of future construction, rose 5.9% to an annual rate of 1.297 million.


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Weekly Initial Jobless Claims rose, 30-Fixed Rate mortgage, Mortgage delinquencies down

November 16, 2017

In economic news, Weekly Initial Jobless Claims rose 10,000 to 249,000 and above the 234K expected. First-time claims are hovering near levels seen back in the early 1970’s as the labor market is near to being very healthy. The November Philadelphia Fed Manufacturing Index fell to 22.7 from 27.9 in October. The index has been positive for 16 consecutive months. The report went on to say that firms continue to expect growth in both activity and employment over the next six months.

The Mortgage Bankers Association’s (MBA) Michael Fratantoni, chief economist and senior vice president of research and technology, recently said that the MBA believes the 30-year fixed-rate mortgage will rise to 4.6% in 2018, then above 5% in 2019 and 2020. Freddie Mac sees the rate at 4.4% next year. As far as housing prices, the MBA says that home prices can’t continue to increase at the current pace and sees a stabilization but not a decrease.

Credit reporting agency TransUnion reports that serious mortgage delinquencies decreased in the past 12-months to the lowest levels since the recession. Serious delinquencies are considered 60 or more days past due. The serious mortgage borrower delinquency rate fell nearly 16% annually to 1.91% by the end of the third quarter of 2017. The average mortgage debt per borrower also rose from $193,489 last year, reaching $199,417.

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Retail sales ticked up in October, Consumer Inflation data, Business Activity in New York declined

November 15, 2017

Retail Sales slowed in October after the big gain in September, which was boosted by post-hurricane spending. Retail Sales rose a modest 0.2%, just above the 0.1% expected and down from the 1.9% registered in September. Year over year, sales were up 4.6%. Despite the small gains in October, only a few sectors were weak: building material suppliers, gas stations and non-store retailers. Heading into the holiday shopping season, the National Retail Federation expects total sales of $678.75 billion to $682 billion, up from $655.8 billion last year.

Tame consumer inflation data was reported in October after a spike in gas prices pushed the index higher in September. The Consumer Price Index rose just 0.1% in October, in line with estimates, while the year-over-year number fell to 2% from 2.2%. When stripping out food and energy, year-over-year Core CPI was 1.8%. Gasoline prices fell 2.4% in October after the big 13.1% surge in September, which was the largest gain since June 2009.

Business activity in the New York region declined in November. The Empire State Index fell to 19.4 from 30.2 in October and below the 24.6 expected. Within the report, labor market indicators reflected moderate employment gains and little change in hours worked. Looking ahead, firms were very optimistic about the six-month outlook. The index for future business conditions climbed five points to 49.9, and the index for future new orders rose nine points to 53.7, a multiyear high. Employment and the average workweek were expected to increase in the months ahead.

Office people celebrating together

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