QUOTE OF THE WEEK… “The barriers are not erected which can say to aspiring talents and industry, ‘Thus far and no farther.'” –Ludwig van Beethoven, German composer
INFO THAT HITS US WHERE WE LIVE… There seem to be no barriers in sight to the housing market recovery. Friday saw Housing Starts up 5.9% in July, hitting an 896,000 unit annual rate. Those looking for signs of impeded progress were quick to point out that all the gain was due to multi-family starts, which rebounded after their steep drop in June, while single-family starts slipped 2.2% for the month. But the underlying home building trends remain upward. Single-family starts are up 15.4% over a year ago and the total number of homes under construction is up 30% versus a year ago.
Experts say the upward trend in home building should continue for at least a couple of years. They believe population growth and tear downs will require starts to ultimately rise to about 1.5 million units per year, most likely by 2015. This level of building puts the number of homes increasing at the same rate as the population. Building Permits headed up 2.7% in July, with permits for single-unit homes up 17.9% over a year ago. The National Association of Home Builders reported their Builders Confidence Index at its highest level since November 2005.
BUSINESS TIP OF THE WEEK… Grow your email list by offering on your website a free article, podcast, or other short piece that speaks to a question, pain, or concern of your audience. Visitors get the download by entering their names and emails.
>> Review of Last Week
SUMMER FALL… Stocks dropped, as the Dow suffered its worst week of the year. The S&P 500 didn’t do much better and the tech-heavy Nasdaq only dipped less because one major stock posted a strong gain for the week. Negatives included Michigan Consumer Sentiment way off the mark, Housing Starts down for single-family homes, and two corporate giants giving downbeat guidance going forward. But it was also true that many traders were away on vacation, so volumes were low, leaving markets vulnerable to big moves.
There was plenty of good economic data. Retail Sales were up 0.2% in July. With the PPI unchanged, wholesale price inflation remained under control last month, while consumer prices held too, as the CPI was up only 0.2%. Weekly Initial Unemployment Claims dropped by 15,000, to 320,000, and Continuing Claims fell by 54,000, to 2.97 million. The New York Empire and Philadelphia Fed manufacturing indexes both dipped from the prior month, but continued to signal expansion. Even Q2 Productivity beat expectations, posting a 0.9% annual rate.
The week ended with the Dow down 2.2%, to 15081; the S&P 500 down 2.1%, to 1656; and the Nasdaq down 1.6%, to 3603.
There was enough decent economic data, plus Fed worries, to inspire heavy bond selling. The FNMA 3.5% bond we watch ended the week down 1.31, to $99.01. Freddie Mac’s Primary Mortgage Market Survey showed average fixed mortgage rateslargely unchanged for the week ending August 15. Their chief economist noted, “Rates have been bouncing around on market speculation that the Fed will taper some of its monetary stimulus.” Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up to the minute information.
DID YOU KNOW?… Economics has been defined as the study of how the forces of supply and demand allocate scarce resources.
>> This Week’s Forecast
LEADING INDICATORS AND EXISTING HOMES UP, NEW HOMES DOWN, AND THE FED SAID WHAT?… Thursday expect to see the Leading Economic Indicators (LEI) index up for July following an upbeat Existing Home Sales report on Wednesday. Unfortunately, the week will end with New Home Sales for July forecast at a slightly lower annual rate.
The FOMC Minutes from the last Fed meeting will be scrutinized as usual to see if the central bank will start tapering its bond buying program in September. This could send mortgage bond prices down and edge mortgage rates up.
>> 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.
>> Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months… With unemployment still way above 6.5% and last week’s inflation numbers within the Fed’s target range, the Funds rate should stay super low well into 2014. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same.