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Inside Mortgage Lending Newsletter

For the week of March 21, 2016 – Vol. 14, Issue 12

>> Mortgage Market Update

QUOTE OF THE WEEK… “The most efficient labor-saving device is still money.” –Franklin P. Jones, American journalist

INFO THAT HITS US WHERE WE LIVE … Fortunately, last week we got evidence there’s more money to be made in the housing market, as Housing Starts zoomed ahead 5.2% in February. That puts them at a 1.178 million unit annual rate, up an impressive 30.9% from a year ago. Single-family starts remain strong, up 37.0% in the past year, reaching their highest level since 2007. Multi-family starts haven’t done too badly either, up 18.7% in the last year, with the number of multi-family units under construction at their highest level since the early 1970s. New Building Permits did dip 3.1% in February, although single-family permits are still a healthy 16.8% above a year ago.

The experts say starts should ultimately get to around 1.5 million units per year, so with permits and starts both at the 1.1 million level, there’s clearly lots more recovery ahead. The National Association of Home Builders confidence index stayed at 58 in March, indicating more survey respondents are reporting good market conditions. Confidence is in the air, as four out of five current homeowners and individuals making over $50,000 believe now is a good time to buy a home. This is from the National Association of Realtors Housing Opportunities and Market Experience (HOME) survey. Equally encouraging, 56% of survey participants feel now is a good time to sell.

BUSINESS TIP OF THE WEEK… When a challenge appears, don’t let the fear of failure cause you to seek ways to avoid it. To overcome a challenge, you first have to meet it head on.

>> Review of Last Week

ALIVE FOR FIVE… The stock market is showing some real vitality, as equities logged their fifth straight weekly gain. This put both the broadly-based S&P 500 and the blue-chip Dow stock indexes into positive territory for the year. Plus, the Dow advanced six days in a row, posting its longest winning streak since back in October. Investors felt good about the recovery in oil prices, but the big boost came from the Fed, which didn’t touch rates (expected), but then dialed back their outlook from four rate hikes this year to just two. This lowered their rate projections to just 0.875% by the end of this year and 1.9% by the end of 2017. Sounded good to Wall Streeters (and to the rest of us).

The down side to all this is that the Fed thinks there’s still a great deal of economic uncertainty going forward. Indeed, the week provided evidence of the so-called “fragility” of this economic recovery. Both the PPI measure of wholesales prices and the CPI gauge of consumer prices dipped in February, drifting further away from the Fed’s 2% inflation target. Retail Sales also contracted last month, while Michigan Consumer Sentiment fell some for March. Yet Empire Manufacturing showed growth in factory activity in the New York region for the first time since last July. And we had that very nice Housing Starts number. Fortunately, economic uncertainty goes both ways.

The week ended with the Dow UP 2.2%, to 17599; the S&P 500 UP 1.4%, to 2050; and the Nasdaq UP 1.0%, to 4796.

The bond market saw a rally at the end of the week, helped by that lower than expected consumer sentiment read and the weak-ish economic data. The 30YR FNMA 4.0% bond we watch finished the week UP .05, at $106.69. Nevertheless, national average 30-year fixed mortgage rates edged up for the third week in Freddie Mac’s Primary Mortgage Market Survey for the week ending March 17.Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up to the minute information.

DID YOU KNOW?… The Mortgage Bankers Association Weekly Applications Survey reported the seasonally adjusted Purchase Index moved up 0.3%, to its highest level since January. Good stuff.

>> This Week’s Forecast

EXISTING HOME SALES OFF, NEW HOMES SALES ON, GDP WEAK… February Existing Homes Sales are expected to be off a bit, though still comfortably above a 5 million unit annual rate. But New Home Sales should stay on track, heading up to more than half a million units per year. Unfortunately, economists are still forecasting economic growth at an anemic 1% annual rate in Q4, according to the GDP – 3rd Estimate.

The stock and bond markets will be closed on Good Friday, March 25.

>> 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 Mar 21 – Mar 25

 Date Time (ET) Release For Consensus Prior Impact
Mar 21
10:00 Existing Home Sales Feb 5.37M 5.47M Moderate
Mar 23
10:00 New Home Sales Feb 511K 494K Moderate
Mar 23
10:30 Crude Inventories 3/19 NA 1.317M Moderate
Mar 24
08:30 Initial Unemployment Claims 3/19 268K 265K Moderate
Mar 24
08:30 Continuing Unemployment Claims 3/12 NA 2.227M Moderate
Mar 24
08:30 Durable Goods Orders Feb -2.9% 4.9% Moderate
Mar 25
08:30 GDP – 3rd Estimate Q4 1.0% 1.0% Moderate
Mar 25
08:30 GDP Deflator – 3rd Est. Q4 0.9% 0.9% Moderate

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months… More economists think there could be a second Fed rate hike midyear, although the majority still see the current rate range staying where it is through the end of July. Note: In the lower chart, a 7% probability of change is a 93% certainty the rate will stay the same.

Current Fed Funds Rate: 0.25%-0.5%

After FOMC meeting on: Consensus
Apr 27 0.25%-0.50%
Jun 15 0.25%-0.50%
Jul 27 0.25%-0.50%

Probability of change from current policy:

After FOMC meeting on: Consensus
Apr 27         7%
Jun 15       38%
Jul 27       47%
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