Market Watch

QUOTE OF THE WEEK… “I was obliged to be industrious. Whoever is equally industrious will succeed equally well.” —Johann Sebastian Bach, German composer
… We who toil in the housing market may not be as successful as the Baroque musical genius, but we should do all right this year. Fannie Mae projects overall economic growth to rise from 2.6% in 2013 to 2.9% in 2014, with housing’s contribution expected to double from 0.3% to 0.6%. Fannie Mae economists also expect a modest rise of about 2% in existing homes sales for the year, and a strong 20.2% gain for new home sales. The median price for an existing home will go up 6.7% on an annual basis, to $208,000, while the new home median price is expected to rise 6.8%, to $283,000. 
The Mortgage Bankers Association (MBA) is forecasting purchase loan originations to reach $677 billion for 2014, 3.8% higher than 2013. Looking back to December, Housing Starts came in down 9.8%, to a 999,000 unit annual rate. But 
single-family starts are up 7.6% from December a year ago. Most significantly, builders started 928,000 homes in 2013, which is up 18.4% over 2012 and the strongest year for new home starts since 2007. New building permits were down 3.0% In December, to a 986,000 annual rate, but single-unit home permits are up 4.5% versus a year ago. Analysts have noted the underlying trends for home building continue to rise.
BUSINESS TIP OF THE WEEK… The first step in achieving growth is to adjust your thinking. Understand that growth is mandatory: if you don’t grow, sooner or later, you’ll shrink.

>> Review of Last Week

UP AND DOWN… The Dow snapped a two-week losing streak and the tech-heavy Nasdaq scored another weekly gain, but the S&P 500 was off a smidge. These mixed stock market performances matched the up and down economic reports of the week. We’re quite used to this now. The downward moves came from data on housing, which showed new construction contracted in December after the November surge. Plus, the preliminary Michigan Consumer Sentiment reading for January fell, while December Retail Sales disappointed, up just 0.2%.
But on closer inspection, if you took out auto sales, Retail Sales were up a decent 0.7% for the holiday month. Job openings rose to 4 million in November, up from 3.93 million the prior month, reaching their highest level in five years. Industrial production went up 0.3% in December and is 3.7% ahead for the year. Manufacturing in New York in December and in the Philadelphia region in January also posted strong gains. Finally, weekly jobless claims fell by 2,000, as the four-week moving average dropped by 13,500 from the previous reading.
The week ended with the Dow up 0.1%, to 16459; the S&P 500 down 0.2%, to 1839; and the Nasdaq up 0.5%, to 4198.
The mixed economic data sent bond prices up, as investors remained wary after the prior week’s negative jobs report. The FNMA 3.5% bond we watch ended the week up .13, to $100.20. National average fixed mortgage rates fell again for the week ending January 16 in Freddie Mac’s Primary Mortgage Market Survey. This was attributed to “signs of a weakening economic recovery.” Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up to the minute information. DID YOU KNOW?… A National Association of Home Builders survey reported that in 2013 the average new home was 300 square feet larger, at 2607 square feet, but the average lot shrank from about a half-acre to one-third of an acre, compared to 2011.

>> This Week’s Forecast

EXISTING HOME SALES HOLD AS LEADING INDICATORS GAIN… This holiday-shortened week is also short on economic reports, which all come Thursday. Somewhat encouraging for the housing recovery, December Existing Home Sales should hold just under the 5 million unit annual rate. The December Leading Economic Indicators (LEI)index is forecast to continue moving ahead. We’ll also watch weekly Initial Unemployment Claims to see if they keep trending lower.
The stock and bond markets are closed Monday, January 20, in observance of Martin Luther King, Jr. Day.

>> 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 Jan 20 – Jan 24

 Date Time (ET) Release For Consensus Prior Impact
Th  Jan 23 08:30 Initial Unemployment Claims 1/18 327K 326K Moderate
Th Jan 23 08:30 Continuing Unemployment Claims 1/11 2.900M 3.030M Moderate
Th Jan 23 10:00 Existing Home Sales Dec 4.90M 4.90M Moderate
Th Jan 23 10:00 Leading Economic Indicators (LEI) Dec 0.2% 0.8% Moderate
Th Jan 23 11:00 Crude Inventories 1/18 NA –7.658M Moderate


>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months… Economists expect the Fed’s super low Funds Rate to stay where it is for a while longer. 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
Jan 29 0%–0.25%
Mar 19 0%–0.25%
Apr 30 0%–0.25%

Probability of change from current policy:

After FOMC meeting on: Consensus
Jan 29      <1%
Mar 19      <1%
Apr 30      <1%