Inside Mortgage Lending Newsletter

For the week of February 15, 2016 – Vol. 14, Issue 7

>> Mortgage Market Update

QUOTE OF THE WEEK… “I don’t have a bank account because I don’t know my mother’s maiden name.” –Paula Poundstone, American comedian

INFO THAT HITS US WHERE WE LIVE … Plenty of people last week were banking on getting a mortgage at today’s fine rates, as mortgage applications shot up 12% compared to the previous week, according to the Mortgage Bankers Association (MBA). Their report showed most of the gain came from a new wave of home owners refinancing to latch onto the dropping rates. But the MBA said purchase applications were up too, evidence that home buyers are also taking advantage of the current rate environment. The unadjusted MBA Purchase Index was up 7% over the prior week and is now 25% above where it was the same week a year ago.

The MBA Builder Application Survey delivered more good news. Mortgage applications for new home purchases shot up 14% in January, a nice rebound from December’s dip in new home purchases. The average loan size for new homes dropped off a little versus December, but the MBA estimates there were 38,000 new homes sold in January, an 11.8% jump for the month. Based on their data, the MBA estimatesnew single-family home sales hit a seasonally adjusted annual rate of just under 500,000 units in January. Finally, the National Association of Realtors Metro Home Price report said an average of 89% of measured metro areas experienced home price gains in 2015.

BUSINESS TIP OF THE WEEK… Dream big but set goals. Successful people are overreachers, but they’re also disciplined goal setters. Don’t let your big vision for the future distract you from hitting the near-term goals that will get you there.

>> Review of Last Week

BIG FINISH NOT QUITE BIG ENOUGH… Friday saw stocks post their largest daily gains this month, stopping a five-day losing streak. Unfortunately, the big Friday finish wasn’t quite big enough to avoid a second straight weekly loss for the major indexes, although the drops were all a bit milder this time. Nervous types in the analytical community worried that the market’s bearish performance indicates a looming recession. Since the beginning of 2016, the blue-chip Dow and the broadly-based S&P 500 are down more than 8%, while the tech-y Nasdaq is off more than 13%. Cooler heads pointed out that stocks don’t always lead the economy and this is just a long-overdue correction.

Looking at what fueled Friday’s rally, you might want to side with the cooler heads. Traders sparked whenJanuary Retail Sales came in up 0.2%, beating expectations, while the 0.1% drop first reported for December was revised to show 0.2% growth for that month too! These numbers strongly imply consumer confidence is on the rise. The University of Michigan Consumer Sentiment survey claimed economic expectations have softened, but this off-putter was quickly offset by a hefty spike in oil prices, their biggest one-day gain in seven years. Plus, Initial Unemployment Claims remained below the 300,000 level for the 49th week in a row.

The week ended with the Dow down 1.4%, to 15974; the S&P 500 down 0.8%, to 1865; and the Nasdaq down 0.6%, to 4338.

Bond prices dipped under selling pressure, as stocks and oil prices rallied on Friday. The 30YR FNMA 4.0% bond we watch finished the week down .18, at $106.59. For the week ending February 11, Freddie Mac’s Primary Mortgage Market Survey reported national average 30-year fixed mortgage rates slid for the sixth week in a row. They’re now below where they were for the same week a year ago. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up to the minute information.

DID YOU KNOW?… Fannie Mae’s January Home Purchase Sentiment survey stayed at an all-time high of 85% of respondents saying they are not concerned about losing their jobs. A healthy sign for housing.

>> This Week’s Forecast

HOME STARTS UP, FED SHARES MINUTES, FACTORIES FLOUNDER, INFLATION FLAT… We get a take on home building in January and, happily, Housing Starts are expected to continue heading up. Wednesday’s release of the FOMC Minutes from the Fed’s last meeting will be closely read to see if another rate hike is truly off the table for a while. Factory activity is floundering, predicted to still show contraction in February’s Philadelphia Fed Index. And the Consumer Price Index (CPI) is forecast to report overall inflation down just a little and Core CPI prices up just a little, which should keep the Fed from edging rates up.

The stock and bond markets are closed Monday, February 15, for Washington’s birthday (also known as Presidents Day).

>> 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 Feb 15 – Feb 19

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months… The latest take from Fed-watching economists is that the central bankers won’t entertain another rate hike for the first half of the year.  Note: In the lower chart, a 4% probability of change is a 96% certainty the rate will stay the same.

Current Fed Funds Rate: 0.25%-0.5%

Probability of change from current policy:

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