It didn’t take long to find out that the Fed’s decision to increase the Funds Rate by 0.25% at their mid-December meeting didn’t have much negative impact on either mortgage rates or the housing market. Freddie Mac’s mortgage rate report at the end of the month said the the Fed Funds rate hike is having a limited impact on mortgage interest rates thus far. Mortgage rates went up a little on a good Consumer Confidence number one week, then down last week thanks to investor worries over oil prices and global economic growth. Normal stuff. In December, Fannie Mae’s Home Purchase Sentiment Index actually went up 2.4 points, to 83.2.

Some negative types felt the Fed rate hike was a “disaster” for the housing market, pointing to a steep 28% drop in weekly overall mortgage applications. But a prominent economic research consultancy noted that, taking refinance applications out of the mix, purchase mortgage applications were up 10.5%, month over month, for December, hitting their highest level since early 2010. Their property economist believes, “housing demand will be able to withstand a rise in interest rates, thanks to an improving labor market and easing credit conditions.”  Even with the rate hike, December’s existing home sales should rebound to 4.80 to 5.11 million annual sales, according to some analysts.

BUSINESS TIP OF THE WEEK… Never fear a follow-up. If it’s been a long time since you’ve gotten back to a prospect, give it a shot anyway. “Faint heart ne’er won fair lady.”
>> Review of Last Week
UNHAPPY NEW YEAR… In New York City, the Happy New Year hoopla was completely over last week, both in Times Square and a few miles south on Wall Street, where stocks kicked off 2016 in a most unhappy fashion. It was the worst opening week for the U.S. market in history, with all three major indexes suffering serious losses. For most of the week, the selloff was chiefly inspired by troubles in China. The CSI 300 index for their stock market fell 9.9% in a week that featured two days when trading was suspended to stop losses, plus a devaluation of the Yuan. Investors also worried about dropping oil prices, watching West Texas crude settle at $32.88, its lowest price since December 2008.

Investors are concerned over economic growth. China was a growth engine for the world economy and global growth is now down to 3%. In the U.S., we saw 292,000 nonfarm payrolls added in December and the unemployment rate staying at 5.0%, but for good reason: almost half a million people entered the workforce. November and October job gains were also revised higher. Unfortunately, this great jobs growth was accompanied by absolutely no wage growth, which would help boost the economy and inflation. This restrains the Fed, since they need both more economic growth and more inflation to keep raising rates. ISM Manufacturing was down in December, ISM Services up.

The week ended with the Dow down 6.2%, to 16346; the S&P 500 down 6.0%, to 1922; and the Nasdaq down 7.3%, to 4644.

Investors ignored the good December Nonfarm Payrolls number and flocked to the safe play of bonds. The 30YR FNMA 4.0% bond we watch finished the week up .52, at $106.36. Freddie Mac’s Primary Mortgage Market Survey for the week ending January 7 reported national average 30-year fixed mortgage rates moved down to start the year. Their chief economist ascribed this to “concerns about overseas economic developments.” Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up to the minute information.

DID YOU KNOW?… A leading apartment information service reports that rents were up 6.4% year-over-year in December, significantly higher than the 2.8% long-term average.>>This Week’s Forecast
RETAIL RISES, FACTORIES FIZZLE… The most important economic report this week is Retail Sales for December, expected to be up, though by a measly 0.1%. This is not great growth during the holiday buying season, but at least consumers are contributing more than they did the month before. Manufacturing, however, continues to languish. Both Industrial Production and the New York Empire Index are forecast to show contraction. Michigan Consumer Sentiment is predicted flat, not bad considering it’s at a 92.6 level.
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.

By Troy Lepisto 505-670-6399