Market Watch

by: Sharon Campbell

>> Market Update

QUOTE OF THE WEEK… “Small opportunities are often the beginning of great enterprises.” –Demosthenes, Greek orator and statesman

INFO THAT HITS US WHERE WE LIVE… Last week’s small opportunity that could turn into a great enterprise in the housing market came from reports by a few real estate data firms. One observed that as home prices continue to increase, demand from move-up buyers does too. After gaining value on rising equity, those buyers can then come up with a substantial down payment on a new home. Another firm pointed out that thanks to the recovery in home prices, 18.5 million homeowners now have at least 20% equity. That’s 40% of all homeowners who are in a prime position to sell.

The same firm added that there are an additional 8.3 million homeowners who should have at least 20% equity in the next 15 months. That’s assuming home prices keep appreciating at the rate they have. They very well may. A monthly real estate trends report from an online listing site said the median price of homes for sale in August was up more than 6% versus a year ago. Inventory, at 1.98 million in August, was up slightly from July, but down 2.5% from a year ago. The CEO commented, “… we are now looking at a housing market that much more closely resembles ‘normal.'” Nice words, those.

BUSINESS TIP OF THE WEEK… Never provide a service without delivering at least just a little bit more than the client expects.

>> Review of Last Week

TWO IN A ROW… Stocks last week posted their second consecutive gain, the Dow registering its best performance since January. Investors were starting to feel that this Wednesday’s FOMC meeting would result in a smaller reduction in the Fed bond buying program than had originally been feared. The thinking was that the disappointing August employment report might give the Fed pause about tapering its $85 billion a month in asset purchases to boost the economy. Some feel the central bankers might make a small reduction in Treasury purchases, but maintain mortgage bond buying at the current level to help keep mortgage rates low.

The week’s economic data certainly did not show much evidence of a strengthening economy. August Retail Sales, up 0.2%, fell short of expectations and University of Michigan Consumer Sentiment came in way lower than forecast. It was encouraging at first to see that Initial Weekly Unemployment Claims fell to 292,000, their lowest level since April 2006. Unfortunately this wasn’t a sign of a healthier job market, as a labor department official suggested the impressive drop was because of “faulty” reporting in two states that had experienced some computer glitches.

The week ended with the Dow up 3.0%, to 15376; the S&P 500 up 2.0%, to 1688; and the Nasdaq up 1.7%, to 3722.

Even though stocks were surging, Treasuries posted modest gains in a bond market that benefited from investors’ cautious tone approaching this week’s Fed meeting. The FNMA 3.5% bond we watch ended the week up .09, to $98.30. Average fixed mortgage rates remained unchanged in Freddie Mac’s Primary Mortgage Market Survey for the week ending September 12. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up to the minute information.

DID YOU KNOW?… Fannie Mae reported that consumers polled in August anticipate home prices to go up 3.4% in the next 12 months.

>> This Week’s Forecast

INFLATION OK, HOUSING STILL HOLDING, BUT WILL THE FED TAPER?… TheConsumer Price Index (CPI) for August is forecast to show inflation still in check.Housing Starts are expected up a little for August, and Building Permits should hold steady. Existing Home Sales are predicted to dip slightly but remain well north of the 5 million unit annual rate for August.

Interesting as all this is, the real focus will be on Wednesday’s FOMC meeting. We’ll finally learn if the Fed will begin tapering its bond buying program. If so, we’ll then want to note if that includes mortgage bonds. Any reduction of those bond purchases will negatively affect 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.

Economic Calendar for the Week of Sep 16 – Sep 20

 Date Time (ET) Release For Consensus Prior Impact
M
Sep 16
08:30 NY Empire Manufacturing Index Sep 9.0 8.6 Moderate
M
Sep 16
09:15 Industrial Production Aug 0.5% 0.0% Moderate
M
Sep 16
09:15 Capacity Utilization Aug 77.8% 77.6% Moderate
Tu
Sep 17
08:30 Consumer Price Index (CPI) Aug 0.2% 0.2% HIGH
Tu
Sep 17
08:30 Core CPI Aug 0.2% 0.2% HIGH
W
Sep 18
08:30 Housing Starts Aug 910K 896K Moderate
W
Sep 18
08:30 Building Permits Aug 943K 943K Moderate
W
Sep 18
10:30 Crude Inventories 9/14 NA –0.219M Moderate
W
Sep 18
14:00 FOMC Rate Decision 9/18 0%–0.25% 0%–0.25% HIGH
Th
Sep 19
08:30 Initial Unemployment Claims 9/14 340K 292K Moderate
Th
Sep 19
08:30 Continuing Unemployment Claims 9/7 2.880M 2.871M Moderate
Th
Sep 19
10:00 Existing Home Sales Aug 5.30M 5.39M Moderate
Th
Sep 19
10:00 Philadelphia Fed Index Sep 9.0 9.3 HIGH
Th
Sep 19
10:00 Leading Economic Indicators (LEI) Index Aug 0.6% 0.6% Moderate

 

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months… The FOMC meetsWednesday but no one expects the Fed Funds Rate to move from its super low level.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 18 0%–0.25%
Oct 30 0%–0.25%
Dec 18 0%–0.25%

Probability of change from current policy:

After FOMC meeting on: Consensus
Sep 18      <1%
Oct 30      <1%
Dec 18      <1%