Home Prices Continue to Rise

Last Week in Review:
Job growth eased in July while annual inflation remained tame in June and home prices continued to rise.

Non-Farm Payrolls rose by 157,000 new jobs in July, below the 190,000 expected, the Bureau of Labor Statistics reported. However, the figures for May and June were revised higher by a total of 59,000 new jobs. The Unemployment Rate also fell to 3.9 percent. For the past three months, job growth has averaged 224,000 compared to 195,000 in the same period in 2017. Hobby and retail toy employment fell by 32,000 jobs in July, largely due to the closing of Toys R Us, which hurt headline Non-Farm Payrolls and could be a one-off number. Overall, the labor market continues to produce solid numbers.

Home prices rose steadily across the nation in May. The S&P CoreLogic Case-Shiller 20-City Home Price Index rose 6.5 percent from May 2017 to May 2018. This was in line with expectations and just below the 6.7 percent recorded in April. On a monthly basis, home prices were up 0.7 percent from April to May.

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The Fed met and left its benchmark Fed Funds Rate unchanged, as expected. This is the rate banks use to lend money to each other overnight, and it does not directly impact home loan rates. The Fed noted that economic activity is growing at a strong rate and the labor market continues to strengthen.

If these strong signs for the economy continue, Stocks could benefit at the expense of Mortgage Bonds and the home loan rates tied to them. However, many factors impact both Stocks and Bonds, so it’s important to keep an eye on the overall picture. For instance, low inflation is typically good news for fixed investments like Mortgage Bonds, and the annual Core Personal Consumption Expenditures edged lower to 1.9 percent in June. This was down from the 2 percent recorded in May and below the Fed’s 2 percent target range.

For now, home loan rates remain attractive and near historically low levels.

Economic Growth Surged in the Second Quarter of 2018

Last Week in Review:
Home sales slumped in June while second quarter economic growth soared.

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Existing Home Sales declined for the third straight month in June, falling 0.6 percent from May to an annual rate of 5.38 million units, the National Association of REALTORS® reported. Declines in the West and South outpaced gains in the Northeast and Midwest. From June 2017 to June 2018, sales fell 2.2 percent. Inventory of homes for sale on the market was at a 4.3-month supply, well below the 6-month supply seen as normal.

Lawrence Yun, NAR chief economist, says, “The root cause is without a doubt the severe housing shortage that is not releasing its grip on the nation’s housing market. What is for sale in most areas is going under contract very fast and in many cases, has multiple offers.”

Sales of new homes also fell 5.3 percent from May to June to an annual rate of 631,000, below the 670,000 expected. This was their lowest level since October 2017. However, sales were up 2.4 percent from June of last year. New Home Sales surged in the Northeast, but declined in the West, Midwest and South. The ongoing hurdles of rising lumber costs and shortages of labor and land were partly to blame.

Economic growth surged in the second quarter of 2018 due in part to a big rise in consumer spending. The Bureau of Economic Analysis reported that Gross Domestic Product (GDP) rose 4.1 percent from the 2.2 percent recorded in the first quarter. The report also showed that consumer spending jumped 4 percent in the second quarter from the dismal 0.5 percent in the first quarter. GDP is the monetary value of all finished goods and services produced within a country’s borders in a specific time period. It is considered the broadest measure of economic activity.

Mortgage Bonds were weighed down by the strong GDP report as well as the positive news that trade concessions with the EU were announced. Home loan rates remain near historic lows.

Housing Starts Fall in June

Last Week in Review:
June saw Housing Starts slump and Retail Sales jump.

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U.S. homebuilders broke ground on fewer homes than expected in June, due in part to higher costs for lumber, lack of available land and a shortage of construction workers. June Housing Starts fell 12.3 percent from May to an annual rate of 1.173 million units. This was the lowest level since September 2017, as Housing Starts declined in all four major regions of the country. Starts were down 4.2 percent from June of last year.

Single-family starts, which make up the bulk of residential housing, fell 9.1 percent in June from May. Multi-family dwellings of five or more units plunged 20.2 percent month over month. Building Permits, a sign of future construction, also declined 2.2 percent from May to an annual rate of 1.273 million. June’s figures were a disappointment given that a lack of inventory has been an ongoing challenge to homebuyers in many areas of the country.

Retail Sales went in the opposite direction in June, as they were up 0.5 percent from May, the Commerce Department reported. May’s figure was also revised sharply higher to 1.3 percent from 0.8 percent. From June 2017 to June 2018, sales rose 6.6 percent.

The Retail Sales report is considered the most-timely indicator of broad consumer spending patterns. The key takeaway is that people spend more when they are less concerned about the economy and their employment. Strong Retail Sales typically signal a belief that the economy is doing well.

Mortgage Bonds continued to trade in a sideways pattern in recent days due in part to the mix of economic data. Home loan rates remain near historic lows.

Annual Inflation Heating up

Last Week in Review:
Annual inflation ticked up while small business optimism neared record highs.

The Consumer Price Index (CPI) rose 2.9 percent in the 12 months ending in June, up slightly from the 2.8 percent annual reading in May. This was the largest annual increase since the year ending in February 2012, and it was led higher by energy costs. On a monthly basis, CPI increased 0.1 percent in June. Core CPI, which strips out volatile food and energy prices, rose 0.2 percent in June and was up 2.3 percent year over year.

The Producer Price Index (PPI), which measures wholesale inflation, rose 3.4 percent year over year in June, the largest increase in more than six years. The rise was also due in part to increasing energy prices. From May to June, PPI was up 0.3 percent.

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Rising inflation is always a concern for fixed investments, like Mortgage Bonds, since inflation reduces their value. Home loan rates are tied to Mortgage Bonds, so they are negatively impacted when Mortgage Bonds worsen. However, many factors influence the markets. For example, if trade issues heat up, Bonds could benefit at the expense of Stocks if investors seek a safer haven for their money.

In the latest week, Stocks benefited from positive earnings and the news that the NFIB Small Business Optimism Index remained near record highs in June. Mortgage Bonds and home loan rates remain attractive and near their best levels historically.

Jobs skyrocket in June

Last Week in Review:
The Jobs Report for June was better than expected. The holiday-shortened trading week saw market volatility due to global trade issues.

Non-Farm Payrolls rose by 213,000 new jobs in June, above the 195,000 expected, the Bureau of Labor Statistics reported. The figures for April and May were also revised higher by a total of 37,000 new jobs. Professional and business services, manufacturing, and health care saw an increase in jobs, while retail trade lost jobs.

The Unemployment Rate rose to 4.0 percent, while the Labor Force Participation Rate edged higher to 62.9 from 62.7 as more Americans entered the labor force.

There was a downside, however, as the lack of meaningful wage growth continues. Average hourly earnings increased just 0.2 percent in June, after the 0.3 percent rise in May. Over the last year, average hourly earnings were up 2.7 percent.

Home loan rates moved lower in the latest week as Mortgage Bonds improved due to the volatility in the markets.

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New Home Sales Rise

Last Week in Review:
Sales of new homes rose in May while annual inflation readings edged higher. First quarter GDP disappointed.

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Sales of new homes rose 6.7 percent from April to an annual rate of 689,000, the Commerce Department reported. However, April’s sales figure was revised lower to 646,000 from the original reading of 662,000. From May 2017 to May 2018, sales surged 14.1 percent. There was a 5.2-month supply of new homes for sale on the market, just below the 6 months that is considered normal.

The final reading on Gross Domestic Product for the first quarter of 2018 came in at 2.0 percent, below the second reading of 2.2 percent. GDP is the monetary value of all finished goods and services produced within our borders in a specific time. It is considered the broadest measure of economic activity. GDP readings between 2.5 to 3.0 percent are considered healthy, so the final reading for the first quarter was a disappointment. However, many forecasters are expecting a stronger GDP reading for the second quarter.

The inflation-measuring Personal Consumption Expenditures (PCE) and Core PCE, which excludes volatile food and energy prices, both ticked up 0.2 percent from April to May, in line with expectations. However, on an annual basis Core PCE ticked up to 2.0 percent, after rising 1.8 percent annually in April. The bottom line for inflation is that it reduces the value of fixed investments like Mortgage Bonds. Home loan rates are tied to Mortgage Bonds, so rising inflation can also cause rates to move higher.

For now, home loan rates remain attractive historically.

Existing Home Sales are down 3 percent from last May

Last Week in Review:
Existing Home Sales fell in May. Housing Starts signaled potential hope for would-be buyers.

May Existing Home Sales fell 0.4 percent from April to an annual rate of 5.43 million units, the National Association of REALTORS® reported. From May 2017 to May 2018, Existing Home Sales were down 3 percent. While sales rose in the Northeast in May, they fell in the Midwest, West and South. Inventory of homes for sale on the market remains low with a 4.1-month supply, below the 6 months seen as normal.

Lawrence Yun, the NAR chief economist, said, “Inventory coming onto the market during this spring’s buying season … was not even close enough to satisfy demand.”

The latest Housing Starts report had some good news for would-be buyers struggling with limited inventory, as the Commerce Department reported that new home construction surged in May. Housing Starts rose 5 percent from April to an annual rate of 1.350 million units, which is also a 20.3 percent increase from May 2017.

Single-family starts, which account for the largest share of the housing market, rose 3.9 percent from April to May and were up 18.3 percent annually. Multi-family dwellings of five or more units rose 11.3 percent monthly and jumped 27.4 percent annually.

However, future new construction could ease a bit as Building Permits fell 4.6 percent monthly after declining in April.

Stocks struggled in the latest week due in part to escalating trade war tensions while Mortgage Bonds leveled off after a few weeks of high volatility. Home loan rates remain near historically low levels.

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Retail Sales Rise

Last Week in Review:
Retail Sales were on the rise while inflation showed some warming signs. The Fed also hiked its benchmark rate.

The Commerce Department reported that Retail Sales jumped 0.8 percent from April to May, well above the 0.4 percent expected. From May 2017 to May 2018, Retail Sales were up 5.9 percent. When stripping out autos, Retail Sales jumped 0.9 percent. If consumer spending continues in a similar fashion, the U.S. economy will continue to grow at a solid pace in the months ahead.

As expected, the Fed raised the benchmark Federal Funds Rate by 0.25 percent, bringing the new target range to 1.75 to 2 percent. The Fed Funds Rate is the short-term rate at which banks lend money to each other overnight. It is not directly tied to long-term rates on consumer products like purchase or refinance home loans. The Fed noted that the economy is doing well and that investors should look for four increases to the Fed Funds Rate this year, up from the three previously mentioned.

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The Fed also raised the inflation forecasts for 2018 and 2019. The May Producer Price Index, which measures wholesale inflation, rose 3.1 percent on an annual basis, the largest increase since January 2012.

The more closely watched Consumer Price Index (CPI) rose 2.8 percent annually. Core CPI, which strips out volatile food and energy prices, rose 2.2 percent annually. However, the monthly CPI reading was a bit muted, showing inflation rose 0.2 percent from April to May, below expectations.

The key takeaway is that inflation reduces the value of fixed investments like Mortgage Bonds. Since home loan rates are tied to Mortgage Bonds, rising inflation could lead to an uptick in rates, which is why inflation data is always important to monitor.

For now, home loan rates remain near historic lows.

Home Price Climb Continues

Last Week in Review:
Home prices continue to rise while geopolitical and trade war uncertainty eased.

Research firm CoreLogic reported that home prices, including distressed sales, rose 6.9 percent from April 2017 to April 2018, while there was a 1.2 percent gain from March to April of this year. Looking ahead, CoreLogic forecasts a 5.3 percent increase in home prices from April 2018 to April 2019.

CoreLogic Chief Economist Frank Nothaft noted that “new construction has failed to keep up with and meet new housing growth or replace existing inventory.

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Also of note, there was good news from the labor sector, as weekly Initial Jobless Claims continue to hover near lows seen in the early 1970’s.

Headlines from across the globe had an impact on the markets in recent days. However, the smoothing of the political turmoil in the Eurozone and easing trade issue woes lifted some of the uncertainty that had driven investors into the safer haven of the Bond market. Mortgage Bonds have been edging lower as a result. Investors may also be awaiting the upcoming Fed meeting June 12-13, as it has the potential to move the markets.Also of note, there was good news from the labor sector, as weekly Initial Jobless Claims continue to hover near lows seen in the early 1970’s.

At this time, home loan rates remain historically attractive.

Job Growth Heats Up in May

Last Week in Review:
Geopolitical headlines moved the markets. May job growth beat expectations.

Market_Trends_2018-06-04The Bureau of Labor Statistics reported that Non-Farm Payrolls rose 223,000 in May, above expectations and up from 159,000 in April. April and March were revised for an increased total of 15,000 more jobs than previously reported. May Average Hourly Earnings also rose 0.3 percent, in line with estimates, and up from 0.1 percent in April. Year over year, earnings were up 2.7 percent in May, from the 2.6 percent for the year ended in April. The Unemployment Rate for May fell to 3.8 percent, the lowest level since April 2000. Overall, the Jobs Report was strong and shows a strengthening labor market.

Annual Core Personal Consumption Expenditures (PCE) showed that inflation rose 1.8 percent in April, while March was revised lower to 1.8 percent from 1.9 percent. Core PCE, which excludes volatile food and energy prices, is the Fed’s favorite inflation gauge. While inflation remains steady, it is still below the Fed’s 2 percent target. Since inflation reduces the value of fixed investments, like Mortgage Bonds, it can hurt Mortgage Bonds and the home loan rates tied to them. It will be important to see where inflation heads in the coming months.

In housing news, home prices continued to edge higher in March due in a large part to low inventories of homes for sale on the market. The S&P Case-Shiller 20-City Home Price Index rose 6.8 percent from March 2017 to March 2018, matching the February gain.

Although the second reading on first quarter 2018 Gross Domestic Product was also released last week, it came and went with little fanfare, near unchanged from the first reading. The real market mover was the geopolitical events throughout Europe. Political turmoil in Italy and Spain pushed investors into the safe haven of the Bond markets early in the week, but those fears eased in recent days as both countries came to an agreement.

Mortgage Bonds were able to squeak out small gains in the latest week as they rose to near 2018 highs. Home loan rates declined and remain historically attractive.

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