Monday - June 26
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.
Friday - June 23
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.
Thursday - June 22
Yesterday, oil prices hit lows not seen since August 2016 and have lost 20% since topping out in February, this despite OPECÃ¢ï¿½â¢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.
Wednesday - June 21
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.
Tuesday - June 20
Residential real estate company Redfin reports that despite the shortage of supply, home sales increased 7.5% in May from last year, while the median sale price rose 6.8% year-over-year to $288,000. Inventories fell to just 2.7 months of supply where a typical number is around six months. This anemic supply number is the reason for the continued increase in sales prices. In addition, the typical home went under contract in 37 days, setting a new record for home-selling speeds.
Fannie Mae reported its June Economic and Housing Outlook revealing that the current economic expansion, now in its ninth year, is forecasted to see full year 2017 Gross Domestic Product at 2.0%. After anemic consumer spending of 0.6% in the first quarter of 2017, it is expected to rise by 3.1% in the April-May-June period. In the housing market, a labor market shortage and tight inventory is constraining sales and pushing prices higher. Fannie Mae expects total home sales to rise 3.2% this year and total single-family mortgage originations to drop about 21% to $1.62 trillion.
The National Association of Home Builders reported on Monday that demand for new construction grows as housing stock ages. Housing stock has increased to 37 years, up from 31 a decade ago, which bodes well for remodelers and the Home Depot's and Lowe's of the world. In addition, the aging market of homes could spark a demand for new construction down the road.
Monday - June 19
Housing shortages are increasingly becoming a problem in the markets as would be buyers are finding it more difficult to purchase a home. The National Association of REALTORS® said the shortage problem could soon turn into a "housing emergency if the discrepancy between housing demand and housing supply widens further, " said Lawrence Yun, NARs chief economist. The report went on to say that a lack a skilled workers to build new homes has been a problem over the past year.
The Bond market did lose a bit of ground this morning in response to New York Fed President Dudley's (voter) remarks. He said he is generally pleased with U.S. economy, while the unemployment and inflation levels are good. He added that wage growth and inflation should pick up after hovering at low levels in the past few years. Mr. Dudley went on to say that the recent yield curve flattening is not a negative sign that the Fed is hiking too much.
Despite the summer driving season upon us, which has historically led to higher prices at the pumps, gas prices declined in the latest survey. The national average price for a regular gallon of gasoline fell to $2.29, down from $2.34 a month ago. A year ago, prices were at $2.33. The all-time high was $4.11 recorded back on July 17, 2008. With a great deal of oil flowing through the pipes across the U.S., it does bode well for low gas prices.
Thursday - June 15
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.
Wednesday - June 14
Inflation at the consumer level declined in May led lower by cheaper gas prices, shelter, and clothing. The Consumer Price Index (CPI) fell 0.1% versus the unchanged estimate. The Core CPI, which strips out volatile food and energy, rose 0.1%, just below the 0.2% expected. The report will be closely dissected by the Fed members at today's Federal Open Market Committee meeting as to the path of future monetary policy.
Consumer spending eased in May as evidenced by a weak Retail Sales report, which declined the most since January 2016. May Retail Sales fell 0.3% from April led lower by a drop in purchases of motor vehicles, a decline in discretionary spending and lower receipts at gasoline stations. Sales were up nearly 4% from a year ago. Within the report it did show a 0.8% increase in Internet sales.
A shooting occurred early this morning at a Republican baseball practice which left five wounded in Alexandria, Virginia. The shooter is said to be in custody. The practice comes before the annual baseball game between Republicans and Democrats tomorrow, which is a charity event. House Majority Whip Steve Scalise was among those wounded and has been reported in good condition after undergoing surgery.
Tuesday - June 13
Foreclosure filings edged higher in May from April, but are significantly lower from last year this time, reports ATTOM Data Solutions. Filings rose to a total of 81,495, up 5% last month from April, but down 19% from a year ago. One out of every 1,636 housing units had a foreclosure filing in May 2017. There were 27,086 completed foreclosures on properties in May, up 4% from April but a decline of 20% from last year.
Real estate website Zillow reported on Tuesday that owning a home is getting more and more expensive for people seeking the American dream. The report showed that homes listed for sale in more than half of the nation's 35 largest markets will require a greater share of income than the median-valued home required historically. "Homes have gotten so expensive in many major cities that even with low mortgage rates, monthly costs for homes that are currently for sale are starting to be unaffordable," said Zillow Chief Economist Dr. Svenja Gudell.
Inflation at the wholesale level was unchanged in May, due in part to lower energy costs. The headline May Producer Price Index (PPI) was unchanged after spiking in April. However, when stripping out food and energy, the Core PPI rose 0.3% versus the 0.2% expected. In addition, year-over-year PPI was up 2.4%and Core PPI came in at 2.1%, slightly elevated. On a year-over-year basis, the Producer Price Index has heated up from last year coming in at 2.4% in May, which is up from 0.0% in May 2016.
Monday - June 12
The two-day Fed meeting begins tomorrow and ends Wednesday with the 2:00 p.m. ET release of the monetary policy statement. It is expected that the short-term Fed Funds Rate will rise by 0.25% to the 1.0% - 1.25% range. The hike in rates is most likely factored into the markets, but the wording in the statement as far as what the Fed has in store for its massive $4 trillion balance sheet, will be a key factor for the investing community.
There were 6.0 million job openings nationwide as of 4/30/17, the largest number ever reported for a statistic that has been tracked since December 2000. That number has climbed 2.3 million (from 3.7 million) in the last 4 years. For our nation's 6.9 million out-of-work citizens, the record total of job openings may point to a "shortage of skills" that has prevented them from gaining employment (source: Department of Labor).
Construction employment rose in May to the highest level since October 2008, according to the Associated General Contractors of America. There were 7,100 jobs added in residential construction and 4,400 in nonresidential. There was a total of 6,881,000 total construction jobs in May, up 2.9% from a year ago. “Construction firms continued adding new jobs at a faster rate than the broader economy during the past year as demand for their services remains strong,” said Ken Simonson, the trade association’s chief economist.
Friday - June 9
Fannie Mae released its Home Purchase Sentiment Index (HPSI) for May showing that the net share of Americans that think now is a good time to buy a home reached a record low. The HPSI fell 0.5 percentage points to 86.2 after a 2.2 point gain in April. Those Americans who feel that now is a good time to sell a home reached a record high. This is only the second time in the surveys history that the net share of those saying it’s a good time to sell surpassed the net share of those saying it’s a good time to buy.
The major Stock indexes hit record intraday highs in today's trading session after investors shrugged off the testimony from former FBI Director Comey and the elections in the U.K. The Dow (21,287), NASDAQ (6,341) and S&P (2,445) all rose as the week comes to an end. The markets have been on a torrid pace higher since the November elections and were given an additional boost after strong corporate quarterly earnings.
The retail sector has taken a beating lately due to lower revenues and store closings across the country. It has been reported that more than 1,000 stores closed their doors for good in recent weeks. Luxury retailer Michael Kors said it will be closing 100 stores this week. Since October 2016, more than 10,000 retail workers have lost their jobs. One industry insider feels that all is not lost for retail, it just needs a face lift.
Thursday - June 8
Mortgage rates continued to edge lower this week as Bond prices rose and yields declined. The 30-year fixed rate mortgage fell to 3.89% from 3.94% in the previous week with 0.5 in points and fees. A year ago the rate was 3.60%. A spokesperson from Freddie Mac said recent mixed economic data and increasing uncertainty are continuing to push rates to the lowest levels in nearly seven months.
Americans filing for first time unemployment benefits fell in the latest week and remain near multi-decade lows as the sector continues to gain strength. Weekly Initial Jobless Claims fell 10,000 to 245,000 but were above the 240,000 expected. First time claims have remained below the 300,000 mark for 118 straight weeks, the longest stretch since 1970, when the labor met was smaller. The four-week moving average, which irons seasonal abnormalities, rose 2,250 to 242,000 last week. Those who continue to claim benefits after an initial week declined 2,000 to 1.92 million in the week ended May 27.
CoreLogic reported on Thursday that due to rising home prices, 91,000 residential properties regained equity in the first quarter of 2017. The number of mortgaged residential properties with equity is now at 48.2 million. CoreLogic went on to report that approximately 3.1 million homes, or 6.1% of all residential properties with a mortgage, were still in negative equity at the end of the first quarter of 2017. "Since home equity is the largest source of homeowner wealth, the increase in home equity also supports consumer balance sheets, spending and the broader economy.” said Frank Martell, president and CEO of CoreLogic.
Wednesday - June 7
The Mortgage Bankers Association (MBA) reported on Wednesday that mortgage rates edged lower in the latest week and remain just above all-time lows. The 30-year fixed conforming mortgage rate declined to 4.14% from 4.17% with 0.32 points on top of that rate. The 30-year jumbo rate fell to 4.08% from 4.11% with 0.21 in points, while FHA loans fell to 4.01% from 4.03% with 0.39 points. The MBAs Market Composite Index, a measure of total mortgage loan application volume, rose 7.1%, while the refinance index rose 3.4% and the purchase index gained 10%.
The National Association of Home Builders (NAHB) recently surveyed 11,300 registered voters on the subject of home ownership. The survey said that more than two-thirds of Americans believe that owning a home is an essential part of the American dream. The NAHB said that a key component in the ability of families of all income levels to become home owners is the mortgage interest deduction, which has been a cornerstone of American housing policy since the inception of the tax code more than 100 years ago.
A newly released white paper by ATTOM Data Solutions revealed that utility costs can add 25% to monthly housing costs and 21% for renters. The paper went on to report that monthly utility costs require 7% of a person's average wages across 931 counties analyzed. When utility costs are included, buying a median-priced home requires more than 43% of a person’s income, the study showed.
Tuesday - June 6
CoreLogic reports that home prices, including distressed sales, rose 6.9% from April 2016 to April 2017, due in part to low home loan rates and a lack of homes for sale on the market. Month-over-month, prices were up 1.6% from March to April. Looking ahead, CoreLogic sees a 5.1% gain from April 2017 to April 2018. CoreLogic reports that in “some metro areas, there has been a bidding frenzy as multiple contracts are placed on a single home.”
Oil prices continue to drift lower on output concerns as West Texas Intermediate oil falls further from the $50/barrel mark. Concerns that diplomatic tensions between Qatar and several Arab states could undermine efforts by OPEC to reduce oil production is weighing on prices. WTI oil is at $47.32 a barrel. However, for the week of May 26, gasoline consumption hit an all-time high during the Memorial Day holiday weekend. American drivers used a record 413 million gallons/day of gas during the week ending on May 26. The national average price for a regular gallon of gas is at $2.36.
At the Federal Open Market Committee meeting scheduled for June 13-14, it is expected that Fed members will vote to raise the benchmark Fed Funds Rate by .25% bringing that rate to 1.25%. Despite low inflation, Fed Fund Futures are pricing in a 95% probability of a hike next week. Despite May Non-farm Payrolls coming in below expectations, the labor market remains strong with first time unemployment benefits at 40 year lows and the Unemployment Rate at a 16-year low. The two-day meeting ends Wednesday with the 2:00 p.m. ET release of the monetary policy statement.
Monday - June 5
Rental prices in the top 10 markets seem to be cooling down a bit after a long period of increases. Rent Cafe reports that in six of the top ten rental markets, average rents have declined year over year. An industry expert says renters should be more optimistic going forward seeing that rising rents are slowing even is places like San Francisco and New York. One reason for the slowdown is new apartment buildings entering the nation's hottest rental markets.
Mortgage originations continued to decline in the first quarter of 2017 led by a drop in refinancing. Black Knight reports that total originations fell 34% in the first quarter of 2017 from the fourth quarter of 2016 while refinance applications fell 45% during the same time period. Refinance originations are down 20% from last year. In the purchase market, originations rose 3% from last year and are up 21% quarter to quarter.
The June Federal Open Market Committee meeting will take place next week on June 13 and 14 with the monetary policy statement being released at 2:00 p.m. ET on Wednesday. It is most likely that the short-term Fed Funds rate will increase from the 1.0% to 1.25% levels. In addition to a rate hike, the Fed members will most likely discuss ways to begin decreasing its massive $4.5 trillion dollar balance sheet that consists of treasury and Mortgage Backed Securities.
Friday - June 2
The Labor Department reported that Non-farm Payrolls rose by 138,000, below the 185,000 expected. March and April numbers were revised lower by 66,000. The Unemployment Rate fell to a 16-year low of 4.3% and is at a new post-crisis low. The Labor Force Participation Rate declined to 62.7% from 62.9%. Total unemployment, or the U6 number, fell to 8.4%, down from 9.4% last year. Rounding out the report, average hourly earnings rose 0.2% versus the 0.3% expected and up 2.5% from May 2016. The average workweek was steady at 34.4.
Wal-Mart thinks it could close the gap in its fight against on line behemoth Amazon by way of its own employees. Wal-Mart has started a test that has its employees deliver local packages to customers on there way home from work. Employees will be paid extra for the deliveries and offered overtime pay as necessary. However concerns over the risk, cost and liability associated with such deliveries have come up. Wal-Mart had revenues of $486 billion in 2016, but still pay $10 hour for a big chunk of workers. A industry advocate for workers said "instead of Wal-Mart paying its workers what they deserve for their work, Wal-Mart is merely offering to pay more — for more work."
Thursday - June 1
Hiring in the private sector surged in May signaling that second quarter economic growth could be above the anemic growth seen in the first quarter. ADP reported that private payrolls surged by 253,000 in May, well above the 185,000 expected. The big gains were seen in the small business and construction sector, key metrics for the U.S. labor force. Today's report comes ahead of tomorrow's Non-farm Payrolls report where it is expected that employers added 185,000 workers, which includes the private and public sectors.
Construction spending in April posted its largest decline in a year, falling in both private and public projects, though the numbers in March were revised higher. The Commerce Department reported that construction spending fell 1.4% in April from the 1.1% gain recorded in March, which was revised from -0.2%. Within the report it showed that private construction dropped 0.7%, the largest decline in a year, while residential construction also fell 0.7% after six straight monthly increases.
Mortgage rates continued to edge lower in the latest week, though the decline was minimal at best. Freddie Mac reports that the 30-year fixed conforming mortgage rate fell to 3.94% this week from 3.95% last week with 0.5 in points and fees added on top of the rate. It was the lowest rate since the week of November 17, 2016. At the end of last year, many predicted that mortgage rates would average 4.50% in 2017, but they have been in the range of 4.12% so far this year. Last year this time the rate was 3.66%.