GDP Strong in 4th Quarter – Market Update - Quicken Loans Zing Blog

My baseball team is on a six-game losing streak, and now all we have to look forward to at this point is Wednesday’s trade deadline. Management has some decisions to make in the rebuild for the future.

Another body making a decision Wednesday will be the Federal Reserve. The market believes it’s a lock that they’ll cut interest rates, but where things go after that is anyone’s guess. It’s certainly something everyone’s going to be paying attention to.

Let’s look at the data the Fed will be looking at in its analysis.

Headline News

FHFA House Price Index

Home price growth disappointed in the latest report from the Federal Housing Finance Agency. The report, which tracks price growth for transactions involving conventional mortgages, showed that prices were only up 0.1% in May compared to an expected 0.3% increase. Prices are up 5% on the year.

It appears that all regions are coming together in terms of the pace of price appreciation. Growth in the Pacific region had been slowing, but it’s up in more recent data and saw year-over-year gains of 4.5% in May. Meanwhile, the Mountain region slowed a bit, down 1% to 6.7% yearly growth. The Mid-Atlantic region still brings up the rear, but things have picked up at 4.4% price growth.

The S&P Case-Shiller Home Price Index is out this week, so it’ll be interesting to compare these results against each other.

Existing Home Sales

Existing home sales continued to disappoint in June falling 1.7% on the month to a lower-than-expected 5.27 million. They’re now down 2.2% on the year. Analysts point out that this tends to be a very volatile metric and that the 3-month average is 5.28 million.

Sales of single-family homes were down 1.5% to 4.69 million. Condo sales, which make up a much smaller portion of this index, were down 3.3% to 580,000. Regionally, things were uneven with the Northeast and Midwest posting gains in the mid-single digits, while the South and West posted losses.

Home buying season is now in full swing, something that’s showing itself in the fact that the median price for a new home was up 2.7% to come in at $285,700. There was also a 1% rise in supply and the market to 1.93 million. However, it’s worth noting that the amount of supply on the market is still flat on the year.

MBA Mortgage Applications

Overall mortgage applications were down 1.9% on the week despite the average rate on a 30-year conventional loan falling back four basis points to 4.08%.

The purchase Index was down 2% and is only up 6% the year, something that has analysts keeping a close eye on what it means for home sales. Meanwhile, refinance applications were also down 2% on the week.

New Home Sales

New home sales were up nearly 7% in June to come in at 646,000. However, May numbers were revised down by 22,000 sales to 604,000. Additionally, analysts had expected a 660,000 number by consensus.

The 3-month average was only 636,000, which has fallen quite a bit from a peak of 673,000 in April. That’s not a good trend for the future of new home sales.

The median price rose a bit to come in at $310,400 in June, but this is flat compared to this time a year ago. Meanwhile, supply in the market firmed up a touch, with 338,000 new homes for sale. Relative to sales, 6.3 months’ worth of supply is available on the market right now.

Sales were up substantially in the West, and they rose slightly in the South, but they fell in the Northeast and more so in the Midwest.

Durable Goods Orders

New orders for durable goods very much exceeded expectations for a 0.5% increase. These were up 2% in June. Even when transportation orders were removed, these were up 1.2%, exceeding an expected 0.2% uptick. Core capital goods were up 1.9%, which again outperformed a 0.2% anticipated increase.

New orders were up 2.4% when it came to machinery, while fabrication orders were up 2.1%. Orders for primary metals were up 0.8%. There was also a 3.1% increase in orders for motor vehicles along with a 75.5% uptick in orders of civilian aircraft despite Boeing’s problems with the 737 Max. It’s worth noting that this category can be a bit up-and-down. On the defense side, aircraft orders were down 32.1%.

There were also a bunch of other good numbers as there was a 0.6% uptick in shipments of core capital goods. Analysts point out that this probably means two things for both residential and nonresidential investment in GDP.

On the downside, unfilled orders were down 0.7%. Although this sounds like a good thing, it’s not because if you don’t have a ton of unfilled orders, you don’t hire as much. Numbers were also revised down in May so the new orders for the month are now at down 2.3%.

International Trade in Goods

The international trade deficit fell a bit in the goods category, down $900 million to $74.2 billion. However, that’s only because both imports and exports fell steeply.

Starting with exports, these were down 2.7% to come in at $136.3 billion in June. Capital goods exports were down 2.6%, while exports consumer goods fell 10.9%. Car exports were also down 4%. In a small offset, exports of food were up 0.5%, but they’re still down 5.5% year-on-year.

On the imports side, these were down 2.2% to come in at $210.5 billion. Industrial supply imports fell quite a bit as a result of lower oil prices in June. Consumer goods and vehicle imports were down 1.7% and 1.9%, respectively. Finally, food imports were down 0.7% in June.

Jobless Claims

Initial claims were down 10,000 last week to come in at 206,000. Meanwhile, the 4-week average fell 5,750 at 218,750.

On the continuing claims side, these were down 13,000 to come in at 1.676 million. Meanwhile the 4-week moving average fell 4,500 to about 1.697 million.

Gross Domestic Product (GDP)

The economy grew at a rate of 2.1% in initial estimates for the second quarter. This is better than he anticipated 1.9% growth rate. No doubt playing a big part in this was a 4.3% uptick in consumer spending compared to an expected 3.9% rate of growth. On a seasonally-adjusted basis, prices both overall and in core categories were up 2.4%, easily beating expectations.

Government purchases were up 5% in the second quarter, contributing 0.5% to the overall GDP number. Consumer spending added 2.85% to the overall GDP calculation.

However, inventory growth is slower, which pulled GDP down by 0.86 points. Additionally, nonresidential fixed investment was down 0.6% and dropped GDP by 0.08 points. Residential investment was also down, falling for the sixth consecutive quarter, down 1.5% and driving GDP back to 0.06%. Net exports were a main culprit for the GDP slowdown as a seemingly ever deeper trade deficit pulled back GDP by 0.65 points.

Overall, GDP grew at a better than expected pace, but it’s still well-off that 3.1% pace of the first quarter, which is something members of the Federal Reserve Open Market Committee (FOMC) will no doubt have on their minds when they meet on Tuesday and Wednesday of this week.

Mortgage Rates

After going up slightly in the week prior, mortgage rates fell again last week ahead of this week’s FOMC meeting and assumed 0.25% decrease in short term interest rates. As we’ve talked about before, although they aren’t directly correlated, rates on longer-term items like mortgages tend to follow the general patterns of the short-term overnight borrowing rates set by the Federal Reserve.

With rates where they are, it’s a great time to lock your interest rate if you’re in the market to purchase a home or refinance your current one. Although the FOMC is expected to lower short-term rates, the market has priced that in at this point, so what traders are looking for is the forward direction the committee might provide in the statement and subsequent press conference from Fed Chairman Jerome H. Powell. Based on this information, the market will decide where interest rates go after the announcement.

A 30-year fixed mortgage with 0.5 points in fees came in at an average of 3.75%, down six basis points on the week. This has fallen from 4.54% a year ago.

Meanwhile, in shorter terms, the average rate on a 15-year fixed mortgage fell five basis points to 3.18% with 0.5 points paid and has fallen from 4.02% last year.

Finally, the average rate on a 5-year treasury-indexed, hybrid adjustable rate mortgage (ARM) fell a single basis point to 3.47% with 0.4 points paid. This is down from 3.87% at this time last year.

Stock Market

Google’s parent company, Alphabet, and Intel both had good earnings and the GDP came in stronger than expected. This helped put the S&P 500 and Nasdaq at new records.

The Dow Jones Industrial Average was up 51.47 points Friday to finish the week at 27,192.45. This was up 0.14% week-to-week. Meanwhile, the S&P 500 finished the week up 1.65% closing at 3,025.86, rising 22.19 points on the day. Finally, the Nasdaq was up 2.26% on the week closing at 8,330.21, up 91.67 points on the day.

The Week Ahead

Tuesday, July 30

Personal Income and Outlays (8:30 a.m. ET) – This is a measurement of how much consumers are taking in as well as their corresponding spending. This also gives insight into how much is being saved.

S&P Case-Shiller HPI (9:00 a.m. ET) – The S&P Case-Shiller home price index tracks monthly changes in the value of residential real estate in 20 metropolitan regions across the U.S.

Consumer Confidence (10:00 a.m. ET) – The Conference Board surveys consumers on their feelings about current and future business and employment conditions as well as their future spending plans.

Pending Home Sales Index (10:00 a.m. ET) – The National Association of REALTORS® developed the Pending Home Sales Index as a leading indicator of housing activity. Specifically, it’s a leading indicator of existing home sales – not new home sales.

Wednesday, July 31

MBA Mortgage Applications (7:00 a.m. ET) – The mortgage applications index measures applications to mortgage lenders. This is a leading indicator for single-family home sales and housing construction.

Thursday, August 1

Jobless Claims (8:30 a.m. ET) – New unemployment claims are compiled weekly to show the number of individuals filing for unemployment insurance for the first time. An increasing trend suggests a deteriorating labor market. The 4-week moving average of new claims smooths out weekly volatility.

ISM Manufacturing Index (10:00 a.m. ET) – This index measures the general direction of manufacturing within the U.S. The qualitative survey of purchasing managers looks at production, new orders, order backlogs, inventories and supplier deliveries, among other factors.

Friday, August 2

Employment Situation (8:30 a.m. ET) – The employment situation report measures unemployment in the labor force as well as the sentiments of workers about the job market.

Consumer Sentiment (10:00 a.m. ET) – The University of Michigan’s Consumer Survey Center questions 500 households each month on their financial conditions and attitudes about the economy. Consumer sentiment is directly related to the strength of consumer spending.

There’s quite a bit of economic data coming out this week in addition to the always important Federal Reserve rate decision. This might be one of the only weeks of the year where the key manufacturing report and jobs number take a backseat to anything else, but if there were ever any institution that had that kind of power, it would be the Fed. It’s my suspicion that the short-term interest rate decision will be the thing analysts pay the most attention to this week, but there’s certainly a lot on the docket.

We absolutely understand the economics and mortgage rates can be a real snoozer on Monday afternoon. The good news is, we’ve got plenty more home, money and lifestyle content to share with you if you subscribe to the Zing Blog below. Kenny Rogers once warned us all against counting our money too early, but it never hurts to have a basic idea of where you stand. Check out Lauren Nowacki’s article on net worth and how it’s calculated. Have a great week!

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