July 30, 2018
Market Commentary Housing plus GDP
Housing and GDP dominated the news last week, with mortgage rates nudging slightly upward. Both Existing and New Home Sales moved downward again, creating some discussion that we may be at the peak for this cycle with some predicting a significant downturn to come. However, it is likely too early to predict any real dramatic future plunge according to experts. GDP for Q2 blasted to its highest level since 2014, leading some to predict years of supercharged growth. The majority of economists don’t share that view, and few are predicting an annual GDP rate over 3.0% for 2018.
This week could be a huge week for financial markets. In addition to the ISM Indices, Consumer Confidence, and monthly employment data, the Fed meeting adjourns on Wednesday. The market is expecting no change in the Fed’s rates, but we could get hints as to whether this strong GDP report, coupled with a solid labor market and moderate inflationary pressure, are enough to shift Fed policy to signal the potential for the Fed to consider adding another rate increase in the near future.
Half of U.S. Homes Regain Peak Value
According to Zillow.com, half of the homes in the U.S. have fully recovered their value and are now worth more than they were prior to the recession. 52% of single family homes have regained their value, while only 38% of condos and coops have regained their peak value.
Some markets have almost completely recovered. Nine of the 50 largest metro areas have had homes reach at least 95% recovery:
Denver, Colo. (99.6 percent)
San Antonio, Texas (98.8 percent)
Austin, Texas (98.7 percent)
San Jose, Calif. (98.7 percent)
Nashville, Tenn. (97.9 percent)
Dallas (97.7 percent)
Seattle (97.3 percent)
Houston (97 percent)
Salt Lake City (97 percent)
Six harder-hit areas have recovered less than 10% of their peak values:
Las Vegas (0.8 percent)
Hartford, Conn. (3.7 percent)
Orlando, Fla. (5.4 percent)
Riverside, Calif. (6.5 percent)
Baltimore (8.7 percent)
Miami (9.6 percent)
Read more: https://www.zillow.com/research/half-homes-peak-values-june-2018-20781/
FHFA Forced To Pause New Credit Score Decision
An estimated 7.6 million Americans may have the equivalent of a 620 credit score if a new model could be adopted for those lacking traditional credit scores. FHFA was due to issue an update on its process of developing that new score, but a bill that passed in May has taken precedent. The new law will undo some of the changes made by Dodd-Frank Wall Street Reform and Consumer Protection Act. A new credit score may still in the future, but no timeline is set.
This Week’s Top Economic Reports and Events
PCE Prices (core)
Even with the Fed’s stated comfort in letting inflation run hot for a while, a spike to 0.3% or higher could help press mortgage rates upward.
With consumer moods relatively flat recently, and an unexpected decrease could help generate some downward pressure on rates.
ISM Manufacturing Index
With manufacturing powering along strongly, an unexpected increase in this reading would almost certainly help push all interest rates higher.
If we see another decrease in the unemployment rate, with participation moving upward, a reading over 200K would likely move rates upward.
ISM Services Index
With a small decrease expected in both ISM Indices, a drop for both below 58 would create some firm downward pressure on rates.
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