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Inside Mortgage Lending Newsletter

For the week of September 19, 2016 – Vol. 14, Issue 38

>> Market Update

QUOTE OF THE WEEK… “Logic will get you from A to B. Imagination will take you everywhere” –Albert Einstein, German-born American theoretical physicist

INFO THAT HITS US WHERE WE LIVE … Home flippers certainly let their imaginations take them places and they’re currently on the move. The U.S. Home Flipping Report from ATTOM Data Solutions saw home flipping reach its highest level since 2010. They define a flip as a property sold in an arms-length sale for the second time in a 12-month period. The 51,434 homes and condos flipped in Q2 were 14% more than in Q1, putting the annual gain up 3% over last year. The firm’s senior vp pointed out that “an increasing number of flippers are financing their purchases,” so a “favorable lending environment” has fueled the “frenzy we’ve seen over the past five quarters.”

The report also said flippers are realizing a much bigger gross ROI this year, averaging 49% so far, versus just 27% back in 2006. A strong majority of home owners and renters also feel now is a good time to buy, according to the National Association of Realtors latest HOME (Housing Opportunities and Market Experience) Survey. However, the NAR’s chief economist found that young adults can be hesitant because they don’t realize there are mortgage options “that do not require a 20% down payment.”In fact, NAR data reveals that over the last 35 years, “the average median down payment has been 5% for first-time buyers.” Gotta get the word out.

BUSINESS TIP OF THE WEEK… Star athletes see things happening before others do, then burst into action to put themselves in the right place at the right time. We can all do the same–always staying alert to opportunities for success.

>> Review of Last Week

FED FEARS DISAPPEAR… It was a volatile week on Wall Street, as investors were kept on edge prognosticating over this week’s Fed meeting. In addition to wondering if our central bank was going to increase interest rates come Wednesday, traders were also stressed about the Bank of Japan’s policy meeting the same day. (It’s a global economy!) As the week wore on, stocks recovered, fears of a September rate hike evaporating after the report that Retail Sales dropped -0.3% in August when they should have been boosted by back-to-school spending. Versus a year ago, Retail Sales are up 1.9%, pretty much matching the tepid growth of the overall economy.

Friday we saw the Consumer Price Index (CPI) go up 0.2% in August. You might think this higher than expected inflation reading would have rekindled fears of a Fed rate hike, but the CPI is up only 1.1% from a year ago, far from the Fed’s 2% target. The Producer Price Index (PPI) reported non-existent inflation for wholesale prices. Other reads on the economy were mixed. Factory capacity and output remain down nationally, with both Capacity Utilization and Industrial Production slipping in August. But the Philly Fed index vaulted to +12.8, showing manufacturing expansion at least in that region. Finally, University of Michigan Consumer Sentiment did not improve in September. Surprised?

The week ended with the Dow UP 0.2%, to 18123; the S&P 500 UP 0.5%, to 2139; and the Nasdaq UP 2.3%, to 5245.

Bonds hate inflation, so Friday’s hot CPI number sent Treasuries and other bonds mostly lower. The 30YR FNMA 4.0% bond we watch finished the week down .02, at $107.25. Freddie Mac’s Primary Mortgage Market Survey for the week ending September 15 reported the national average 30-year fixed mortgage rate up a tad to pre-Brexit levels, but still well below where it was 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?… Income growth drives home buyer demand, so it’s good news that in 2015, household income posted its first real increase in eight years, up 5.2%. The bad news? At $56,516, income is still below where it was in 2007.

>> This Week’s Forecast

HOUSING STARTS SLIP, EXISTING HOMES SELL, THE FED STAYS PUT… This week’s key data goes up, down and nowhere at all. Analysts predict Housing Starts will dip in August and Building Permits will go up. August Existing Home Sales are also forecast up, to a 5.5 million annual rate. But the Fed isn’t expected to go anywhere with their FOMC Rate Decision. Nonetheless, every word in the policy statement and Chair Janet Yellen’s presser will be heavily scrutinized.

>> 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 19 – Sep 23

 Date Time (ET) Release For Consensus Prior Impact
Sep 20
08:30 Housing Starts Aug 1.186M 1.211M Moderate
Sep 20
08:30 Building Permits Aug 1.160M 1.152M Moderate
Sep 21
10:30 Crude Inventories 9/17 NA -0.559M Moderate
Sep 21
14:00 FOMC Rate Decision 9/21 0.375% 0.375% HIGH
Sep 22
08:30 Initial Unemployment Claims 9/17 262K 260K Moderate
Sep 22
08:30 Continuing Unemployment Claims 9/10 NA 2.143M Moderate
Sep 22
10:00 Existing Home Sales Aug 5.50M 5.39M Moderate

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months… In spite of last week’s weak economic reports, a slight majority of economists still feel there will be a rate hike after the election. Note: In the lower chart, a 12% probability of change is an 88% certainty the rate will stay the same.

Current Fed Funds Rate: 0.25%-0.5%

After FOMC meeting on: Consensus
Sep 21 0.25%-0.5%
Nov 2 0.25%-0.5%
Dec 14 0.5%-0.75%

Probability of change from current policy:

After FOMC meeting on: Consensus
Sep 21       12%
Nov 2       21%
Dec 14       55%
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