IN THIS ISSUE
Last Week in Review: Housing Starts hit a three-month low. Consumer inflation pops.
Forecast for the Week: The Fed's favorite inflation gauge caps off this data-rich week.
LAST WEEK IN REVIEW
"This could be the start of something new." Vanessa Hudgens and Zac Efron. Across the country, builders are still breaking ground on new homes, though the number has declined thanks, in part, to Mother Nature. The good news is that more than one million homes are waiting to be built.
January Housing Starts hit a three-month low. Starts, which measure the beginning of excavation on a home's foundation, fell 3.8 percent from December to an annual rate of 1.099 million units. This was lower than the 1.171 million expected. All four major regions across the country saw declines, but a big East Coast snowstorm caused a halt in some late-month construction in the area. In line with expectations, January Building Permits, a sign of future construction, hit 1.202 million units.
In other news, key regional manufacturing data from New York and Philadelphia continues to paint a bleak picture with yet another month of contraction. The sector is still being weighed down by a stronger dollar and weak overseas demand, which are plaguing expectations of future business conditions for the first half of this year.
Finally, the January Core Consumer Price Index (CPI), which is an inflation measure that strips out volatile food and energy, rose 0.3 percent. This was the largest gain since August 2011. Year-over-year, Core CPI rose by 2.2 percent, the largest increase since June 2012. Blame rising rents and higher medical costs.
Why is this important? Inflation has been a non-issue for many years. If January's increase becomes a trend rather than a one-time pop in inflation, home loan rates could move higher. Rates are tied to Mortgage Bonds, and inflation reduces the value of fixed investments like Bonds.
For now, home loan rates remain near historic lows.
Fixed Mortgage Rates Unchanged
30-year fixed-rate mortgage (FRM) averaged 3.65 percent with an average 0.5 point for the week ending February 18, 2016, unchanged from last week. A year ago at this time, the 30-year FRM averaged 3.76 percent.
Attributed to Sean Becketti, chief economist, Freddie Mac.
"After another week of financial market oscillations driven by rumors of potential limits on oil production, the 10-year Treasury yield edged up 5 basis points, and the 30-year mortgage rate remained unchanged at 3.65 percent. Despite this week's uptick in Treasury yields, the 10-year is still 54 basis points lower than it stood at the end of 2015, while the mortgage rate has dropped only 36 basis points over the same period."
FORECAST FOR THE WEEK
Housing news, consumer attitudes and personal spending are plentiful.
- Housing data kicks off on Tuesday with the S&P/Case-Shiller Home Price Index and Existing Home Sales, followed by New Home Sales on Wednesday.
- Consumer Confidence will be released on Tuesday, while the Consumer Sentiment Index is coming on Friday.
- Durable Goods Orders join weekly Initial Jobless Claimson Thursday.
- Friday brings the second read on fourth quarter 2015 Gross Domestic Product, along with Personal Income, Personal Spending and the Fed's favorite inflation gauge, Personal Consumption Expenditures.
Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve. In contrast, strong economic news normally has the opposite result.
When you see these Bond prices moving higher, it means home loan rates are improving. When Bond prices are moving lower, home loan rates are getting worse.
By: Michael Borodinsky
Vice President/Regional Builder Branch Manager | Caliber Home Loans
Call Michael: 732-382-2654
Email Michael: Michael.Borodinsky@caliberhomeloans.com
Follow Michael on Twitter: @mikeborodinsky