Market Update Santa Fe Las Campanas For The Week of October 17, 2016

QUOTE OF THE WEEK… “Worry is like a rocking chair: it gives you something to do but never gets you anywhere.” –Erma Bombeck, American humorist

INFO THAT HITS US WHERE WE LIVE … Well, FOMC Minutes from their September meeting revealed the Fed isn’t going anywhere with rates because they’re worried about the economy. Yeah, yeah, Fed Chair Janet Yellen said, “Our decision does not reflect a lack of confidence in the economy.” But then she expanded on this by saying the Fed preferred to take a more cautious approach to see if current growth would continue. Kinda sounds like she’s worried that it won’t. Nonetheless, the minutes also showed a cadre of Fed members pushing for a rate hike, so many economists feel there’s an increased chance for one in December. Our turn to worry.

One worry that’s going away is whether Millennials will ever have a real impact on the housing market. According to Freddie Mac’s October Insight, this latest and largest generation of homebuyers will actually be key to improving the homeownership rate, which has declined for a decade. Freddie is confident Millennials will finally marry, start families and buy homes at the faster pace posted by previous generations. The Millennial Tracker from Ellie Mae loan origination software reported “In August, Millennial borrowers enjoyed the lowest average interest rates we have seen all year. And we are seeing average loan amounts creep up.” Nice to be getting somewhere
>> Review of Last Week
ROCKTOBER… October has indeed gotten off to a rocky start for those toiling on Wall Street. Trading ended Friday with all three major stock indexes down for the second week in a row. This is a little scary for investors and it’s not even Halloween. One fear rocking traders is that the Fed will do a rate hike before the end of the year. As reported above, the minutes released from the Fed’s last meeting seem to indicate this. But Friday, Fed Chair Janet Yellen told a lunch crowd of academics and policy wonks that “temporarily running a ‘high-pressure economy,’ with…a tight labor market” before raising rates might cure the sluggish economy. OK, no hike?

Meanwhile, some of the week’s economic data seemed to point to an economy that could survive a mild hit from the Fed. Retail Sales finally headed up in September, and by a respectable 0.6%. Unfortunately, they’re up only 2.7% compared to a year ago. The Producer Price Index (PPI) showed wholesale price inflation was up 0.3% in September. Consumer price inflation could follow, something the Fed wants to see. Initial Unemployment Claims, at 246,000 for the week, tied their lowest level in more than 40 years. Yet the University of Michigan Consumer Sentiment index dropped from September’s 91.2, to 87.9 in October, a one-year low. Rock on.

The week ended with the Dow down 0.6%, to 18138; the S&P 500 down 1.0%, to 2133; and the Nasdaq down 1.5%, to 5214.

It was one of those unusual weeks when stocks and bonds sank together. Treasuries were hit hard, so yields went up and interest rates followed. The 30YR FNMA 4.0% bond we watch finished the week down .14, at $107.02. And yes, national average 30-year fixed mortgage rates edged a bit higher, their first move up in a month, in Freddie Mac’s Primary Mortgage Market Survey for the week ending October 13. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up-to-the-minute information.

DID YOU KNOW?… A major real estate data firm estimates about 1.5 million residential and commercial properties on the Southeast coast were impacted by Hurricane Matthew. Losses will total between $4 billion and $6 billion, with 90% of insurance claims from wind damage, 10% from the storm surge.
>> This Week’s Forecast
HOME BUILDERS ACTIVE, EXISTING HOME SALES DIP, INFLATION STAYS TAME… Expect to see home building activity growing in September, with both Housing Starts and Building Permits edging ahead. But they still have some distance to go to reach the 1.5 million annual rate some economists say we need to meet population growth and replace tear downs. Existing Home Sales are forecast down a bit in September. At least the CPI should show benign inflation, good for consumers and mortgage rates.
>> 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.