Supreme Lending’s weekly mortgage update!


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>> Market Update
QUOTE OF THE WEEK… “The trees that are slow to grow bear the best fruit.”–Moliere, French playwright and actor

INFO THAT HITS US WHERE WE LIVE… If the great French dramatist were alive today, he probably wouldn’t be concerned by signs of slower growth in the housing market. Perhaps we shouldn’t be either. Pending Home Sales dipped a miniscule 1.1% in June, but climbed for three straight months before that. This National Association of Realtors (NAR) index of contracts signed on existing homes was also above the 100 “average” level of contract activity for the second month in a row. The NAR’s chief economist said he expects existing home sales to edge up in the second half of the year.

That economist also observed, “The good news is that price appreciation has decreased to its slowest pace since March 2012 behind much-needed increases in inventory.” He added, “With rents rising 4% annually, potential buyers are less likely to experience sticker shock.” Corroborating that, the S&P/Case Shiller 20-City Composite index showed prices up 9.3% year over year in May, down from April’s 10.8% year over year gain. Analysts say the expanding inventory that’s slowing these price gains is a favorable trend, as it maintains affordability while increasing options for buyers.

BUSINESS TIP OF THE WEEK… In business, preparation is more critical than planning. When the unexpected happens, plans go out the window. But if you’re well-prepared, you can adapt with composure, and not panic.
>> Review of Last Week
NOBODY’S LAUGHING… Funny week on Wall Street. Funny strange, not funny ha-ha. The Dow suffered its biggest weekly loss since January and the S&P 500 registered its worst weekly drop in over two years, while the Nasdaq dipped more than 2%. The strange part was that all this selling happened amidst a flurry of decent economic data. The Q2 GDP–Advanced reading had the economy growing at a 4% annual clip, after its Q1 –2.1% decline. Plus, Consumer Confidence hit its highest level since October 2007 and ISM Manufacturing solidly beat estimates. But the economic good news was bad news for investors who fear it may cause the Fed to raise rates sooner.

That too was a strange reaction, given the Fed’s statement Wednesday that they expect to keep rates low a good while longer. But there were disappointments. Pending Home Sales, the Chicago PMI manufacturing read, and Michigan Consumer Sentiment all fell short of expectations. The July Employment Report also missed, with 209,000 new nonfarm payrolls, although this was the sixth month in a row the number was above 200,000, describing a sustained if not especially strong recovery. The Unemployment Rate ticked up to 6.2%, yet that happened because the labor force grew, a good thing, showing more people are now hopeful they’ll find a job.

The week ended with the Dow down 2.8%, to 16493; the S&P 500 down 2.7%, at 1925; and the Nasdaq down 2.2%, to 4353.

It was a mixed week in the bond market as global concerns brought in “safe haven” investors but inflation worries sparked some selling. The 30YR FNMA 4.0% bond we watch finished the week down .03, at $105.15. For the week ending July 31, Freddie Mac’s Primary Mortgage Market Survey reported national average mortgage rates little changed from the week before. They remain near their lows for 2014. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up to the minute information.

DID YOU KNOW?… Unit Labor Costs, coming this week, is defined as the ratio of hourly compensation to labor productivity; increases in compensation increase Unit Labor Costs and increases in productivity reduce them.
>> This Week’s Forecast
SERVICES SECTOR EXPANDS, PRODUCTIVITY UP, LABOR COSTS EASE… After last week’s tsunami of economic data, we now get a trickle of reports. Tuesday’s ISM Services are expected to continue to show expansion in the sector of the economy that provides over 80% of our jobs. Unfortunately, the trade deficit is also forecast to expand in the June Trade Balance report. Productivity is predicted up for Q2, causing a smaller gain in Unit Labor Costs. This could keep inflation in check going forward.

>> 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 Aug 4 – Aug 8
Date Time (ET) Release For Consensus Prior Impact
Tu
Aug 5 10:00 ISM Services Jul 56.5 56.0 Moderate
W
Aug 6 08:30 Trade Balance Jun –$45.2B –$44.4B Moderate
W
Aug 6 10:30 Crude Inventories 8/2 NA –3.697M Moderate
Th
Aug 7 08:30 Initial Unemployment Claims 8/2 308K 302K Moderate
Th
Aug 7 08:30 Continuing Unemployment Claims 7/26 2.525M 2.539M Moderate
F
Aug 8 08:30 Productivity–Prelim. Q2 1.4% –3.2% Moderate
F
Aug 8 08:30 Unit Labor Costs Q2 2.0% 5.7% Moderate

>> Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months… The policy statement from last week’s FOMC meeting said “it likely will be appropriate to maintain the current…federal funds rate for a considerable time after the asset purchase program ends,” expected to happen at the October meeting. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same.
Current Fed Funds Rate: 0%–0.25%
After FOMC meeting on: Consensus
Sep 17 0%–0.25%
Oct 29 0%–0.25%
Dec 17 0%–0.25%

Probability of change from current policy:
After FOMC meeting on: Consensus
Sep 17 <1% Oct 29 <1% Dec 17 <1%