interest rates
THE FED HOLDS, STOCKS FOLD! SINGLE FAMILY BUILDING PERMITS HIGHEST SINCE 2008.
INFO THAT HITS US WHERE WE LIVE… Some people felt there was really nothing to say after Housing Starts dropped 3.0% in August, to a 1.126 million annual rate. But, as usual, a deeper dive into the data gives us plenty to talk about. While it’s obvious that home building took a summer break in August, it’s been pretty active the last 12 months, with starts in that period up 14.9% for single-family units and up 16.6% overall. Some see that trend continuing at least through the end of 2016. They say that with population growth and tear downs, housing starts need to get to about 1.5 million units annually, so there’s lots of recovery still to come.
We could get there sooner than some think, since new building permits went up 3.5% in August, climbing to a 1.170 million yearly rate. In fact, single-family permits are now at their highest level since January 2008. No wonder the National Association of Home Builders confidence index reached its best reading since October 2005. Before the Fed left rates unchanged on Thursday, Freddie Mac’s chief economist said, “Even if the Fed decides to raise short-term interest rates, we don’t expect a significant impact on the housing market.” A good thought to remember whenever the Fed finally hikes rates. He added: “We’re still on track for the best year of home sales since 2007.”
THE FED HOLDS, STOCKS FOLD… Regular Inside Lending readers weren’t surprised by the Fed’s decision last week to hold rates down. Our prior edition pegged the probability of a rate hike at just 23%. The mass media felt otherwise, hinting rates would likely go up at Thursday’s meeting. This was strange, as the probabilities we report come from public sources respected by many economists. After the Fed’s rate hold, stocks folded, as the Dow fell 290 points Friday, leaving it and the S&P 500 down for the week and the Nasdaq barely ahead. This was blamed on the Fed’s doubts about U.S. and global economic strength, but Friday was also a volatile quarterly “quadruple witching” day.
Some analysts see the current stock downturn as purely a technical correction, driven by investors taking profits after a long bull market run. These folks point out that although the economy is far from booming, it is making progress, if ever so slowly. One aspect of that progress was the 0.2% gain for Retail Sales in August. Unfortunately, the manufacturing sector didn’t fare as well, with Industrial Production, Capacity Utilization, the New York Empire and Philadelphia Fed Indexes all posting declines. On the other hand, Initial Unemployment Claims dipped to their lowest level in two months, while Continuing Unemployment Claims fell to 2.237 million.
The week ended with the Dow down 0.3%, to 16385; the S&P 500 down 0.2%, to 1958; and the Nasdaq UP 0.1%, to 4827.
Bonds did well, strongly rallying as global stock markets and oil prices suffered steep declines. The 30YR FNMA 4.0% bond we watch finished the week UP .12, to $106.20. Freddie Mac’s Primary Mortgage Market Survey for the week ending September 17 showed national average fixed mortgage rates largely unchanged. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up to the minute information.
DID YOU KNOW?…”Quadruple witching” day is when stock index futures, stock index options, stock options, and single stock futures all expire. Since investors must close out of their positions, there’s usually high volatility and trading volumes. It’s the third Friday of the last month of each quarter.
This Week’s Forecast
HOME SALES UP AND DOWN, BUSINESS INVESTMENT OFF, ECONOMY GROWS… The typically mixed bag of economic data includes August Existing Home Sales, forecast a bit down, and New Home Sales, a bit up. Durable Goods Orders should show business investment slightly on the wane, yet the GDP – 3rd Estimate is expected to report economic growth holding at 3.7%.
>> 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 Sep 21 – Sep 25
| Date | Time (ET) | Release | For | Consensus | Prior | Impact |
| M Sep 21 |
10:00 | Existing Home Sales | Aug | 5.50M | 5.59M | Moderate |
| W Sep 23 |
10:30 | Crude Inventories | 9/19 | NA | -2.104M | Moderate |
| Th Sep 24 |
08:30 | Initial Unemployment Claims | 9/19 | 271K | 264K | Moderate |
| Th Sep 24 |
08:30 | Continuing Unemployment Claims | 9/12 | 2.248M | 2.237M | Moderate |
| Th Sep 24 |
08:30 | Durable Goods Orders | Aug | -2.0% | 2.2% | Moderate |
| Th Sep 24 |
10:00 | New Home Sales | Aug | 515K | 507K | Moderate |
| F Sep 25 |
08:30 | GDP – 3rd Estimate | Q2 | 3.7% | 3.7% | Moderate |
| F Sep 25 |
08:30 | GDP Deflator – 3rd Est. | Q2 | 2.1% | 2.1% | Moderate |
| F Sep 25 |
10:00 | U. of Michigan Consumer Sentiment – Final | Sep | 87.0 | 85.7 | Moderate |
Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months…The Fed’s move last week to leave the Funds Rate unchanged has led most economists to think we won’t see a hike now til next year. Note: In the lower chart, an 11% probability of change is an 89% certainty the rate will stay the same.
Current Fed Funds Rate: 0%–0.25%
| After FOMC meeting on: | Consensus |
| Oct 28 | 0.00%-0.25% |
| Dec 16 | 0.00%-0.25% |
| Jan 27 | 0.00%-0.25% |
Probability of change from current policy:
| After FOMC meeting on: | Consensus |
| Oct 28 | 11% |
| Dec 16 | 39% |
| Jan 27 | 49% |
WHAT WILL THE FEDS DO ON THURSDAY? …LAGGING NEW CONSTRUCTION NOT HELPNG STRONG HOUSING MARKET AND JOB GROWTH!
NFO THAT HITS US WHERE WE LIVE…For the housing market to get ahead, we need more homes to get started, but that’s not happening fast enough. A recent study by the National Association of Realtors (NAR) noted that job market growth is powering a strong housing market, but it’s also linked to declines in new home starts. The study revealed that in 146 metro areas with big employment gains, new home construction is “underperforming.” The NAR’s chief economist explains, “as the labor market began to strengthen, homebuilding failed to keep up.” This “lagging new home construction — especially single-family — has kept available inventory far below balanced levels.”
The NAR study also noted that low inventory has been a persistent problem in recent years. Home builders, however, should be eager to pick up the slack, as another study reported new homes are selling at their highest rate since February 2007, before the financial crisis. Oh, well, at least consumers, though cautious, remain upbeat, according to Fannie Mae’s new monthly Home Purchase Sentiment Index (HPSI). Its first reading shows respondents a bit concerned about rising mortgage rates and unstable economic conditions. But they’re also optimistic about the job market and their own household finances, so they aren’t turning away from the housing market.
>> Review of Last Week
WAITING UP… The theme for the holiday-shortened trading week was, “let’s wait and see if the Fed raises rates September 17, before we decide whether the bulls or the bears will prevail.” It’s this kind of mindset that results in the ton of volatility we’ve been seeing on Wall Street. The prior week, the Fed waiting game sent stock prices down, but last week, waiting sent the markets up. All three major indexes scored solid weekly gains, though it’s hard to say this shows investors feel positive. The fact is, with everyone fixated on this week’s Federal Reserve meeting, analysts expect the markets will remain volatile right up to the policy statement Thursday at 2 p.m..
After that, who knows? Meanwhile, we can all reflect on last week’s small grouping of economic data. Initial Unemployment Claims stayed under 300,000, dropping for the week by 6,000, to 275,000, while Continuing Unemployment Claims came in at a not-too-shabby 2.260 million. But the preliminary Michigan Consumer Sentiment read for September plummeted to 85.7, its lowest level in a year, and a huge 6.7% monthly drop from the final 91.9 measure for August. Observers think this reflects consumer reaction to the crazy stock market. The Producer Price Index (PPI) showed wholesale price inflation went nowhere in August, which might give the Fed pause.
The week ended with the Dow UP 2.1%, to 16433; the S&P 500 UP 2.1%, to 1961; and the Nasdaq UP 3.0%, to 4822.
In spite of Friday’s stock rally, bonds by and large held up, with Treasuries enjoying their own surge. The 30YR FNMA 4.0% bond we watch finished the week down .07, at $106.08. National average fixed mortgage rates were virtually unchanged according to Freddie Mac’s Primary Mortgage Market Survey for the week ending September 10. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up to the minute information.
DID YOU KNOW?… A leading provider of data to the mortgage market reports that total home equity in July grew by almost $1 trillion, reaching its highest level since 2007. It is now 2.5 times bigger than it was at the end of 2011.
>> This Week’s Forecast
RETAIL UP, HOUSING STARTS DOWN, INFLATION MILD, SO WHAT WILL THE FED DO?… What will the Fed’s September FOMC Rate Decision be? We get the answer on Thursday. Most economists still say the central bank won’t start hiking rates until end of year, but the truth is, no one knows. The economy keeps giving mixed signals. Retail Sales are forecast to grow slower in August. Housing Starts should be down, Building Permits up. Overall Consumer Price Index (CPI) inflation is expected to contract, with Core CPI barely going up. The Fed wants to see inflation at 2% before raising 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 Sep 14 – Sep 18
| Date | Time (ET) | Release | For | Consensus | Prior | Impact |
| Tu Sep 15 |
08:30 | Retail Sales | Aug | 0.3% | 0.6% | HIGH |
| Tu Sep 15 |
08:30 | NY Empire Manufacturing Index | Sep | 0.3 | -14.9 | Moderate |
| Tu Sep 15 |
09:15 | Industrial Production | Aug | -0.2% | 0.6% | Moderate |
| Tu Sep 15 |
09:15 | Capacity Utilization | Aug | 77.8% | 78.0% | Moderate |
| Tu Sep 15 |
10:00 | Business Inventories | Jul | 0.1% | 0.8% | Moderate |
| W Sep 16 |
08:30 | Consumer Price Index (CPI) | Aug | -0.1% | 0.1% | HIGH |
| W Sep 16 |
08:30 | Core CPI | Aug | 0.1% | 0.1% | HIGH |
| W Sep 16 |
10:30 | Crude Inventories | 9/12 | NA | 2.570M | Moderate |
| Th Sep 17 |
08:30 | Initial Unemployment Claims | 9/12 | 275K | 275K | Moderate |
| Th Sep 17 |
08:30 | Continuing Unemployment Claims | 9/5 | 2.254M | 2.260M | Moderate |
| Th Sep 17 |
08:30 | Housing Starts | Aug | 1.160M | 1.206M | Moderate |
| Th Sep 17 |
08:30 | Building Permits | Aug | 1.159M | 1.119M | Moderate |
| Th Sep 17 |
10:00 | Philadelphia Fed Index | Sep | 6.5 | 8.3 | HIGH |
| Th Sep 17 |
14:00 | FOMC Rate Decision | 9/17 | 0%-0.25% | 0%-0.25% | HIGH |
| F Sep 18 |
10:00 | Leading Economic Indicators (LEI) | Aug | 0.2% | -0.2% | Moderate |
>> Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months… The majority of economists still don’t see a rate hike coming out of this week’s FOMC meeting, but a growing majority do expect a small rise in December. Note: In the lower chart, a 23% probability of change is an 77% certainty the rate will stay the same.
Current Fed Funds Rate: 0%–0.25%
| After FOMC meeting on: | Consensus |
| Sep 17 | 0.00%-0.25% |
| Oct 28 | 0.00%-0.25% |
| Dec 16 | 0.25%-0.50% |
New Home Sales Avg. Fastest Sales Pace Since 2008 but China’s Economy and Interest Rates A Concern!
We certainly need no lengthy explanations concerning what’s doing in the new home market. In July new single-family home sales headed up 5.3%, to a 507,000 unit annual rate, and are now up 25.8% over a year ago. These sales cooled off in June, but looking at the past year, new home sales averaged their fastest sales pace since 2008. Consequently, inventories gained by 4,000, yet the months’ supply dropped from 5.3 in June to 5.2 in July. That faster selling pace gives builders a nice opportunity to step up construction activity and inventories. Remember, new home sales are still well below historic levels.
Meanwhile, the Case-Shiller Home Price index edged up 1.0% in June and now stands 4.5% ahead of a year ago. Prices are up in all 20 major metro areas the index tracks. The Federal Housing Finance Agency (FHFA) index of prices for homes financed with conforming mortgages went up 0.2% in June and registered a 4.5% hike over a year ago. For those questioning existing home sales, what Pending Home Sales did in July provided a nice short answer. This measure of contracts signed on existing homes went up 0.5% for the month, following its 1.7% dip in June. That dip means existing home sales may slip in August, but they gained almost 10% the three prior months.
Check this out. The Dow Jones Industrial Average drops almost 600 points Monday, then sinks another 34 Tuesday. Wednesday it shoots UP over 600 points, followed by an almost 400 point hike on Thursday. Friday ends flat after all the tumult, leaving a modest weekly gain for the Dow and the broadly based S&P 500, but a bigger boost for the tech-heavy Nasdaq. What caused this whirlwind of volatility? Analysts put it to investor uncertainty about China’s troubled economy, plus worries over when the Fed might start raising interest rates. The central bankers met at Jackson Hole, but comments from officials were hard to interpret.
U.S. economic data painted the now familiar picture of a plodding recovery. Positive moves included the housing reports covered above and a 2% gain in Durable Goods Orders for July. The best news was the second estimate of GDP for the second quarter, which had the economy growing at a 3.7% annual rate. Personal Income and Spending were up in July, both good reads, and Core PCE Prices went up just 0.1%. This is bad news to the Fed, which wants to see higher inflation before raising rates. University of Michigan Consumer Sentiment slipped in July, but this contrasted sharply with the Consumer Confidence Index, which hit a 6-month high in August!
The week ended with the Dow UP 1.1%, to 16643; the S&P 500 UP 0.9%, to 1989; and the Nasdaq UP 2.6%, to 4828.
Bonds had a mixed week, with investors buying because of worries over China and selling over concerns a Fed rate hike will come soon. The 30YR FNMA 4.0% bond we watch finished the week down .05, at $106.11. National average fixed mortgage rates dipped to their lowest levels since May in Freddie Mac’s Primary Mortgage Market Survey for the week ending August 27. This was put to Chinese financial market instability. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up to the minute information.
DID YOU KNOW?… A recent survey reports that out of 75.3 million millennials, age 18 to 29, 93% want to own a home in the near future.
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 Aug 31 – Sep 4
| Date | Time (ET) | Release | For | Consensus | Prior | Impact |
| M Aug 31 |
09:45 | Chicago PMI | Aug | 54.7 | 54.7 | HIGH |
| Tu Sep 1 |
10:00 | ISM Index | Aug | 52.6 | 52.7 | HIGH |
| W Sep 2 |
08:30 | Productivity-Rev. | Q2 | 2.7% | 1.3% | Moderate |
| W Sep 2 |
08:30 | Unit Labor Costs-Rev. | Q2 | -0.8% | 0.5% | Moderate |
| W Sep 2 |
10:30 | Crude Inventories | 8/29 | NA | -5.452M | Moderate |
| W Sep 2 |
14:00 | Fed’s Beige Book | Sep | NA | NA | Moderate |
| Th Sep 3 |
08:30 | Initial Unemployment Claims | 8/29 | 273K | 271K | Moderate |
| Th Sep 3 |
08:30 | Continuing Unemployment Claims | 8/25 | 2.261M | 2.269M | Moderate |
| Th Sep 3 |
08:30 | Trade Balance | Jul | -$43.1B | -$43.8B | Moderate |
| Th Sep 3 |
10:00 | ISM Services | Aug | 58.4 | 60.3 | Moderate |
| F Sep 4 |
08:30 | Average Workweek | Aug | 34.6 | 34.6 | HIGH |
| F Sep 4 |
08:30 | Hourly Earnings | Aug | 0.2% | 0.2% | HIGH |
| F Sep 4 |
08:30 | Nonfarm Payrolls | Aug | 217K | 215K | HIGH |
| F Sep 4 |
08:30 | Unemployment Rate | Aug | 5.2% | 5.3% | HIGH |
>> Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months… A growing minority of economists see a rate hike in September or October, while a slim majority expect it in December. Note: In the lower chart, a 28% probability of change is a 72% certainty the rate will stay the same.
The Interest Rate vs. the Annual Percentage Rate
When applying for a mortgage, potential borrowers may consider two terms interchangeable: the interest rate and the annual percentage rate. They sound like the same thing but are, in fact, much different.
The confusion over the terms comes up a lot during the busy spring home-shopping season. “People are always asking me what [the APR] means,” says Mathew Carson, a mortgage broker with San Francisco, Calif.-based First Capital Group.
The interest rate reflects the base cost of borrowing money and is a percentage of the principal loan amount. For example, the average interest rate for a 30-year, fixed-rate jumbo mortgage was 4.04% the week ending May 15, according to HSH.com, a mortgage website. In this case, a borrower with a $1 million mortgage would have a $4,797 monthly payment. (Payment is amortized using the loan amount and term, but doesn’t include escrow for property taxes or homeowners insurance.)
The annual…
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Make the most of the low interest rates because they won’t be around forever
The cut in official interest rates brought them to the lowest level since the early 1960s. It was a move expected by many but perhaps not welcomed by all.
Cutting rates recognises the fragile state of our economy that could further unnerve consumer confidence. It is hoped that the rate cut will give that much-needed stimulus to business investment and consumer spending.
In his announcement, Reserve Bank governor Glenn Stevens acknowledged the Board wanted to “reinforce recent encouraging trends in household demand”. That’s a worrying thought considering the low wages growth.
There is only so much the RBA can do to repair economic growth back to trend. It really lies now with the state and federal budgets.
Low rates tend to attract higher activity levels putting upward pressure on price. The booming Sydney market and issues of affordability must be addressed. The Domain Group reported Sydney’s median house price is now $914,056 and could be set to…
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Good News for ‘Typical’ Home Buyers
(Above is a map detailing the investment purchases in 2014 by region.)
In a speech delivered earlier this year, Secretary for HUD Julián Castro, called 2015 “A Year of Housing Opportunity”. A recent report by The National Association of Realtors (NAR) revealed that investment home sales decreased 7.4% in 2014 to an estimated 1.02 million.
What does this mean for the ‘typical’ homebuyer?
Lawrence Yun, NAR’s Chief Economist gave some insight:
“Despite strong rental demand in many markets, investment property sales have declined four consecutive years to their lowest share since 2010 as rising home prices and fewer distressed properties coming onto the market have further reduced the number of bargains available to turn into profitable rentals.”
This is great news for the housing market. If fewer properties are being sold to investors, they are instead being sold to American families who are entering the housing market in droves.
Details…
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FOMC Meeting Forecast – The FED
FEDS LOOKING AT RATE HIKES, BUT NOT UNTIL MAYBE JUNE AT THE EARLIEST OR MORE PROABABLY SEPTEMBER. @realtorcouture
Who can forget the last 2014 FED´s meeting, when Janet Yellen talked for the first time of a possible date for rate hike, and talked about the probability of a couple of months, and not before April? During the December meeting, the FED said that it would be “patient” on rates, and said it was unlikely they will change the economic policy at least for a “couple of meetings”, with Chair Janet Yellen clarifying then that a couple of meetings meant not before April. At the time, the Central Bank was confident on the economic outlook, saying that that the “economic activity has been expanding at a solid pace” and market run to price in a rate hike for June.
But as the months went by, persistent softness in the economy, with macroeconomic data printing some horrid numbers, has diminished hopes the Central Bank will act that soon.
On…
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REALTY EXECUTIVES CORNERSTONE & THE RICK O’CONNOR GROUP HAVE WELCOMED A NEW EXECUTIVE!
REALTY EXECUTIVES CORNERSTONE & THE RICK O’CONNOR GROUP HAVE WELCOMED A NEW EXECUTIVE!
The Rick O’Connor Group and Realty Executives Cornerstone are proud to announce that we now have a new Executive joining our team. Todd Couture has become the newest member of our bustling agency as of April 2015. A graduate of ISU, Todd is an Illinois native with strong ties to the McHenry County community as a whole. He was born and raised in Woodstock, where his parents still live, and his father, Fred Spitzer recently retired from a position with the Woodstock Police Department. Todd, his wife Jennifer who works as a nurse practitioner, and their nearly 9 month old daughter, Mika, now live in Huntley.
Todd, who studied economics and English while in school, has proven his ability to adapt in a small business environment and is looking forward to tackling the real estate realm. He has a strong background in sales and is hoping to apply that in this booming industry. Todd expects to use his existing business knowledge, paired with the real estate experience of our office, to launch his career as a broker at full-speed during the spring market.
Beyond work, Todd enjoys spending time with his family and keeping up with community events. He founded two social media pages on Facebook and Twitter called Huntley 360. Todd says the goal of these pages is “informing Huntley and the surrounding areas about what is happening: from sports, kids in the community, places to go, and community updates to home values and market information.” Growing up with five siblings, Todd has an excellent understanding of the importance of a sense of community and intends to try to convey that in his real estate endeavor.
“I chose Realty Executives because of Rick O’Connor,” Couture explained. “Seeing his success over 30+ years intrigued me. I know if I can be mentored by defining what success is on all levels of Rick’s experience, I want to be a part of that,” he stated. We are very excited to add Todd to our Realty Executives family and know he will find success in this industry. When asked what drives him, Todd explained “my passion is about relationships in the community. I want to help build the community as a whole.”
“We are all very excited to have Todd join our team of Executives,” explained Rick O’Connor, Owner and Managing Broker of Realty Executives Cornerstone. “He has already demonstrated a strong desire to be a study of the marketplace and to become one of the area’s top real estate professionals. He will make a great addition to our Cornerstone family.” Welcome aboard Todd Couture!
RealtorCouture 