I hope everyone had a great weekend! A bunch of family I hadn’t seen in a while was in town, and the cherry on top was that my basketball team snapped a three-game losing streak heading into their matchup with their crosstown rivals this coming Saturday. I’m feeling pretty good for a Monday.

There’s also reason for optimism in the markets. The second government shutdown in less than a month was avoided. There was also hope for a resolution of trade talks with China. Let’s jump in.

Headline News

Quicken Loans Home Price Perception Index (HPPI)

Homeowners and appraisers were further apart on opinions of home value for the third consecutive month in January. Homeowners overvalued their homes by an average of 0.47% across the country.

There are signs that home prices in the West are starting to moderate. Just a year ago, appraised values in San Francisco were coming in 2.11% higher than homeowner estimates. Now, these same estimates are less than 1% higher than appraised prices.

Despite this, homeowners in the West were still nearest to appraised value in their estimates, overvaluing their properties by just 0.37%. Meanwhile, the South and Northeast were close on each other’s heels, overestimating property value by 0.46% and 0.47%, respectively. The Midwest lagged the field, overvaluing homes by 0.62%.

Looking at the city data, Boston has the hottest market in comparison to homeowner expectations. Appraisals are coming in an average of 2.76% higher than the best guess of area homeowners. The Windy City is on the other side of the scale, but at 1.87% below homeowner estimates, they’re steadily moving closer to harmony. Riverside, California, homeowners had estimates closest to the button, undervaluing properties by just 0.02%.

Quicken Loans Home Value Index (HVI)

Home values were up 0.65% on the month and have increased 5.35% since January 2018. Home values are still on the uptick, but the rate of appreciation is slower than it was in December. This might be helpful to buyers who are looking for prices to level off slightly.

On a regional basis, the South was the hottest market, having seen values rise 1.34% on the month and 6.84% annually. Next was the Northeast, up 0.59% and 4.74% since January 2018. Meanwhile, values in the Midwest were down slightly, dropping 0.08%. They’re still up 4.42% on the year. Finally, home values are down 0.38% in the West, rising just 3.27% yearly.

MBA Mortgage Applications

Despite the average rate on a 30-year fixed conforming mortgage falling four basis points to come in at 4.69%, mortgage applications were down 3.7% overall. Refinance applications were down 0.1% while applications to purchase fell 6%.

The MBA attributes the weakness in the report to concerns about the American and world economies, although continued workforce strength still has the association expecting a strong purchase season.

Consumer Price Index (CPI)

In the first of two major inflation reports released on back-to-back days this week, prices on the consumer side were flat in January. On the year, overall prices have only risen 1.6%, down from a 1.9% pace of appreciation in December.

Energy prices were down 3.1% overall and 5.5% at the gas pump. On the year, energy prices are down 4.8% with gas prices dropping 10.1%. This has had a major effect on the overall inflation rate, which is up 0.2% on the month and 2.2% on the year when food and energy were taken out.

Transportation costs were also down 1.3%, which is blamed on weak energy prices. Even those seeing gains only saw small increases. Prices for housing, medical care, food and new vehicles were each only up 0.2%, while the price for used cars rose 0.1%.

Other categories mentioned included education, up 0.3%. Prescription drugs and communication costs were both flat. The only area that saw a serious pickup was apparel, which had a 1.1% monthly rise. Still, prices in that category are only up 0.1% on the year.

Jobless Claims

The Department of Labor reported a 4,000-claim increase in weekly jobless claims last week, settling at 239,000. The four-week average of initial claims was up 6,750 to come in at 231,750. The four-week average has been higher due to the effects of the government shutdown.

However, claims from federal employees were down more than 5,500 last week and the impact on weekly numbers does appear to be waning.

On the continuing claims side, these were up 37,000 last week, checking in at 1.773 million. The four-week moving average of continuing claims went up 11,000 to 1.75 million.

Producer Price Index (PPI)

Prices were flat for consumers, and costs fell on the producer’s side of things, down 0.1% on the month of January. As with the consumer number, the price drop could be traced back to cheap energy, where prices were down 3.8% for producers.

When food and energy were taken out, prices were up 0.3%. In addition to the drop in energy prices, there was also a dip in the cost of fruits and vegetables.

In the final breaking out of subcomponents, producer inflation was up only 0.2% when excluding food, energy and trade services. The latter, which tracks activity by producers at the wholesale and retail level, was up 0.8% in January after falling 0.1% in December.

Other categories of note included automobiles, which were up 0.5% in January including a 0.3% gain for light trucks. Construction saw a 0.6% cost uptick after being on the south side of inflation for the last couple of months. Finally, prices for cigarettes and computers were each up 0.4%.

Retail Sales

In a major miss, retail sales fell 1.2% when finally released for December. This data had been delayed due to the government shutdown. The expectation had been for a 0.1% increase in sales. It would’ve been even worse if cars didn’t have a strong month, as sales were down 1.8% when automobiles were taken out. When taking out cars and gas, sales were down 1.4%. Finally, the declines were broad-based. A control group meant to help take out some of the categories that are more prone to fluctuation was down 1.7%.

Outside of cars, the only major group to exhibit a gain was building materials, up 0.3%. Sales at non-store retailers – think e-commerce sites – were down 3.9% in what was apparently a disappointing holiday shopping season. Sales for apparel fell 0.7% and department stores fell off 3.3% on the month. Sales at restaurants were down 0.7% on the month. A 5.1% downturn in gas sales definitely didn’t help things.

Total sales growth for the year was down almost 2%, coming in at 2.3%, the lowest rate since late 2016. Some would say this is a harbinger of recession, but it’s hard to say how much these numbers were affected by furloughs and layoffs from the government shutdown. Consumer confidence and spending are the lowest they’ve been in two years, so it’s something we’ll be keeping an eye on.

Industrial Production

Industrial production didn’t have a good month in January. Led by a 0.9% fall in manufacturing, overall production was down 0.6%. There was also a sizable 0.6% decrease in the space being utilized in factories, with them using just 78.2% of their total.

Vehicle production was down 8.8% in January in contrast to recent sales numbers. Factories do switch over in December for the new model and it’s probably taking time to get back up to speed. Business equipment manufacturing was also down 1.5% in January, though.

Utilities were up 0.4%, with mining up 0.1%. Despite being on the low end of improvement in January, mining is up 15.3% on the year.

Consumer Sentiment

In a bright spot, consumer sentiment did increase in preliminary numbers for February. Sentiment was up 4.3 points to come in at 95.5. The end of the government shutdown definitely helped.

Expectations were up 6.3 points to come in at 86.2, which is just slightly below where it was before the shutdown. Meanwhile, the current conditions reading increased more than a point to 110. It’s still the lowest reading this portion of the index has seen since August of last year.

Consumers are signaling that they don’t expect prices to rise very much anytime soon. Inflation expectations over the next year were down 0.2% at 2.5%. Over the next five years, inflation is expected to rise just 2.3%, which is down 0.3% from the last reading.

Mortgage Rates

Over the past couple of months, mortgage rates have consistently been trending lower. In fact, data collected by Freddie Mac shows that fixed rates were generally lower last week than they were at the same time a year ago.

It’s a great time to lock your mortgage rate right now because rates are looking really good despite a strong labor market. Usually, when the economy is this healthy, we would expect to see higher interest rates. If you’re in the market to purchase or refinance, it’s a great time to take advantage before rates pop back up.

The average interest rate on a 30-year fixed mortgage with 0.4 points paid in fees was down four basis points to 4.37%. Last year at this time, the rate was 4.38%.

Meanwhile, the average interest rate on shorter-term 15-year fixed loans fell three basis points to come in at 3.81% with 0.4 points paid. A year ago, the rate was 3.84%.

Finally, the average rate on a 5-year treasury-indexed, hybrid adjustable rate mortgage (ARM) with 0.3 points paid was down three basis points to check in at 3.88%. This is up from 3.63% last year.

Stock Market

The stock market had renewed optimism for a trade deal between the U.S. and China. As a result, stocks were up on Friday. Stocks had also been buoyed last week when a government shutdown was averted as President Trump signed the bill put forth by Congress to provide long-term government funding. He’ll attempt to provide funding for border security measures through the declaration of a national emergency. This isn’t what either side wanted, but at least the government is operating.

Finally, energy prices were up on Friday for the first time in a while as the price of a key oil benchmark, West Texas Intermediate, was up 2.2% to $55.59 per barrel in futures trading.

The Dow Jones Industrial Average was up 3.09% on the week after finishing Friday at 25,883.25, up 443.86 points to end the week. Meanwhile, the S&P 500 was up 29.87 points to finish at 2,775.60, up 2.5% for the week. Finally, the Nasdaq finished at 7,472.41, up 45.45 points on Friday and increasing 2.39% over the previous five-day span.

The Week Ahead

Monday, February 18

The stock and bond markets as well as many banks are closed today in observance of Presidents Day and George Washington’s birthday. Quicken Loans is open.

Tuesday, February 19

Housing Market Index (10:00 a.m. ET) – The National Association of Home Builders produces a housing market index based on a survey in which respondents from the organization are asked to rate the general economy and housing market conditions. The index is a weighted average of separate diffusion indexes, including present sales of new homes, sales of new homes expected in the next six months and traffic of prospective buyers in new homes.

Wednesday, February 20

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, February 21

Durable Goods Orders (8:30 a.m. ET) – These are based on new orders placed with domestic manufacturers for factory goods.

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 four-week moving average of new claims smooths out weekly volatility.

Existing Home Sales (10:00 a.m. ET) – Existing Home Sales tallies the number of previously constructed homes, condominiums and co-ops that were sold during the month. Existing homes (also known as “home resales”) account for a larger share of the market than new homes and indicate housing market trends.

There’s not much market moving data coming this week outside of durable goods orders. The biggest event this week is the release of the minutes from the Federal Reserve Open Market Committee. We don’t cover that in a great deal of depth here because it involves parsing meeting dialogue for highly technical economic details. However, if the market has any reaction to insights that come out of the meeting dialogue, we’ll have the movements covered.

Economics and mortgage data aren’t always the most exciting topics. Not to worry! We’ve got plenty of home, money and lifestyle content to share with you if you subscribe to the Zing Blog below. This week, we thought we would highlight some ways you can turn your bathroom into the spa of your dreams. Have a great week!

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