Month: June 2017

Next Tuesday we celebrate the 241st birthday of our country.  Having a holiday in the middle of the week is always kind of nice, isn’t it?  Throw in some apple pie and fireworks and everybody’s happy–unless of course they are apple or sulfur intolerant.  I’m sure that’s a thing for some people.

The Fed’s favorite inflation-meter du jour is the Personal Consumption Expenditures index.  It tracks the price of all of the stuff we buy, including apple pie and fireworks, but it leaves out some pretty major expenses like housing and medical care (which are through the roof right now).  Due to these exclusions, the PCE dropped from a 1.7% increase last month to 1.4% this month, thanks in large part to super cheap oil (and gas).  It takes oil to manufacture stuff and is takes gas to ship stuff–even if you have Amazon Prime.  That 1.4% is well under the Fed’s 2.0% target, and a good reason to not raise rates again for now.

More and more prognosticators are warning of an over-bought stock market and calling for a correction.  So far, I don’t see it, but that’s what makes market corrections so scary, nobody sees them coming.  On the bright side, if stocks drop, so will interest rates.  And low interest rates make it possible to afford a more expensive home.

The third estimate for the first quarter GDP came in at 1.4% growth, slightly higher than the previous guess of 1.2%.  At the same time, the GDP Price Index fell from 2.2% to 1.9%.

Initial Jobless Claims were reported at 244,000, higher than expectations, and higher than last week’s 241,000 claims.  The Jobs Report comes out next Friday.

Mortgage Bond pricing has fallen 50 bps over the last three days, putting upward pressure on interest rates.  There is no quantifiable stimulus for the global bond yields moving higher, apart from the ECB President’s comments the other day saying that they would.  It’s like the foreshadowing of the guy who painted the orange flames on this truck

The market was expecting Pending Home Sales to increase 0.5% last month; in actuality they dropped 0.8%, bringing the index down 1.7% from this time last year–further proof of a declining inventory across the whole country.  This could be part of the reason why tiny houses are gaining popularity–that and there are fewer toilets to scrub.

European Central Bank President Mario Draghi said that deflation in the European Union is no longer a concern, and that the ECB will taper its way out of Quantitative Easing (remember that word?) in 2018.  Mr. Draghi called this period of time “reflation”, and the bond markets were quick to extrapolate inflationary  from the address.  Consequently, the bond market opened down about 25 bps this morning.  Our own Central Banker, Janet Yellen, speaks to the world in 90 minutes

The Case Shiller Home Price Index moderating from 5.9% last month to 5.7% this month would argue against the inference of inflation, though still a very healthy appreciation rate.

Building Permits are down 5.0% and Housing Starts dropped 5.5% today, compared to this time last month.  That’s the slowest that the new construction market has been since last summer, and is also the third straight month of decline.  Most of the slowing has been occurring in the multi-family apartment buildings; single family construction has not suffered quite as much.

The downturn in new builds along with a slowing tech sector in stocks is helping mortgage bonds stay above the 200 day moving average: a good indicator that interest rates are staying low for now.

Prior to the Fed rate announcement at 12:15 PM, there are a couple things influencing rates this morning.  The first is a shooting at a GOP baseball practice of all places, where five people, including at least one congressman, were shot.  Retail Sales dropped 0.3% last month, compared to the 0.4% gain from the month before.  Additionally, the Consumer Price Index declined 0.1%, while it had improved 0.2% the prior month.  All of these factors have helped mortgage pricing rally up 44 bps to start the day.  The big swing though will come with the Fed decision and subsequent remarks.

The Fed has almost $2 trillion dollars in mortgage holdings.  As loans have paid off, they have been reinvesting the proceeds of the sales, to the tune of around $30 billion each month, making the Fed the single largest buyer of mortgages in the world.  At the last meeting, they hinted that they were going to start letting some of those assets bleed off.  With the Fed not acquiring as many new mortgages, long-term rates will head upward.  We’ll wait to see what they say on the topic in their statement three hours from now.  

Stocks and Bonds are up this morning as the Fed starts their two-day Open Market Committee meeting.  The Fed’s goal is balance.  They seek to regulate the velocity of economic growth in our country: not too fast and not too slow.  The statement from the last FOMC meeting reiterated their objective of a 2.0% growth rate.

The Producer Price Index released today dropped from 0.4% last month to 0.3% this month, while the Core PPI (excluding food and energy) fell from 0.5% to 0.0%. Tomorrow’s Consumer Pricing numbers will tell help tell the whole story of the rising (or not) cost of goods.  A 0.25% bump in short-term rates tomorrow is a given.  The last few times that the Fed has raised rates, our mortgage rates actually improved.  So stay tuned!

I spent the last week in Moab, biking the White Rim Trail and floating the Colorado River with my 15 year old son, Isaac.  It was around 100 degrees every day; at one point my GPS said that it was 112.  I don’t know if I have been that thirsty for a prolonged period in my entire life.  We clamored for any shade we could find, which was pretty sparse until the sun went down.  Now that I am back in the office and hearing continued reports of our hot housing market, I have more sympathy for would-be buyers clamoring for deals.  Our job as professionals assisting buyers is just like my river guide helping our group navigate the rapids.  Stay pointed in the right direction, paddle hard when necessary, and have a lot of fun.

The Fed begins their two day Open Market Committee meeting tomorrow, and is expected to raise short-term rates by 0.25% on Wednesday.  The wording of their statement at the conclusion of the meeting about the condition of the economy, and their plan for the future of their four trillion dollars in holdings will determine the direction of longer term rates–like mortgages.  Drink plenty of water because we’ll also see some hard-core data releases along the way.