My mind is pretty much focused on grandma’s pistachio whip at this point. However, economic news is the gift that keeps on giving the whole year and last week was no exception.
The big daddy of all monetary policy related events happened Wednesday when the Federal Reserve chose to raise short-term interest rates by 0.25%. We’ll get more into what that means for the mortgage market below. To start, let’s take a look at some of the other things making news.
MBA Mortgage Applications: The average rate on a 30-year fixed-rate mortgage was up one basis point to 4.28%. This brought refinance applications down 4.0%. Winter finally kicking in in earnest hasn’t helped to the volume of purchase applications, which are down 3.0%. Overall applications are down 4.0%.
Producer Price Index (PPI): Producer prices are up 0.4% for November. It’s up 1.3% on the year. The monthly number is the same when food and energy are taken out. The yearly metric in that category is up 1.6%. If you further take out trade services, inflation is up 0.2% in November and 1.8% on the year. The price of food rose 0.6% in the month. Service prices were up 0.5% and trade services are up 1.3%. Goods prices are up 0.2%.
Retail Sales: Retail sales were up only 0.1% in the month of November, but there’s more to the story. They are up 0.2% when you take out vehicles. The same number results when you further take out gas prices. Auto sales were down 0.5% in the biggest decline since March. Restaurants were up 0.8% in a key indicator that there is more discretionary spending going on. Furniture was up 0.7%. Building materials were up 0.3%. Non-store retailers were up 0.1% as were electronics and appliance stores.
Industrial Production: Production was down 0.4% on the month and fell 0.1% on the manufacturing side. Capacity utilization fell 0.4% to 75.0%. On the other hand, October was revised up 0.1% to 0.3%. Motor vehicle production was down 2.3%. Light truck assemblies declined. There was also a 0.5% downturn in consumer goods and a fall of 0.3% in the business equipment category. In a positive, mining was up 1.1% for the second straight monthly gain. Utility production was down 4.4% as November was quite warm.
Consumer Price Index (CPI): Consumer prices were up 0.2% in November and 1.7% on the year. The monthly numbers matched when taking out food and energy. On the year, inflation is at 2.1% when these categories are removed. Food prices didn’t move in November, but energy was up 1.2% with a 2.7% uptick in the price of gasoline. Housing prices were up 0.2% and the equivalent rent a homeowner could expect to pay for their house was up 0.3%. Apparel was down 0.5%, while medical prices were unchanged.
Housing Market Index: Home builder sentiment shot up in December, coming in at 70, an increase of seven points from November. Future sales are up nine points to come in at 78. Current sales are up seven points to 76. Traffic in new homes is also on the increase. It’s up to 53, the first time the number has been above breaking even at 50 in 11 years. The West and South are also very strong.
Housing Starts: Despite home builder sentiment being high, permits were down in November. On the start side, they were down 18.7% to 1.090 million on a seasonally adjusted annual basis. Meanwhile, permits came in 28,000 below expectations at 1.201 million. Starts are down 6.9% on the year and permits have fallen 6.6% annually. The good news is there was a 15.4% gain in housing completions to 1.216 million.
The Federal Reserve chose to raise short-term interest rates 0.25% last Wednesday. That much was expected. What wasn’t expected was a change in the projections for the number of increases coming in 2017. The Federal Reserve puts out a dot plot that shows where they expect interest rates to be at the end of each calendar year.
The change in the number of increases and the post-election environment has caused interest rates to rise. With the direction things are going, you should lock now and not expose yourself to any more uncertainty.
Thirty-year fixed-rate mortgages (FRMs) averaged 4.16% with an average 0.5 point for the week ending December 15, 2016, up from last week when they averaged 4.13%. A year ago at this time, 30-year FRMs averaged 3.97%.
Fifteen-year FRMs this week averaged 3.37% with an average 0.5 point, up from last week when they averaged 3.36%. A year ago at this time, 15-year FRMs averaged 3.22%.
Five-year Treasury-indexed hybrid adjustable rate mortgages (ARMs) averaged 3.19% this week with an average 0.4 point, up from last week when they averaged 3.17%. A year ago, 5-year ARMs averaged 3.03%.
The market was down Friday following reports that China had seized a U.S. defense underwater drone. China is a major trading partner and there was some worry about increased tensions.
The Dow was down 8.83 points on the day to finish at 19,843.41. Despite this, it was up 0.44% on the week. The S&P 500 closed at 2,258.07, down 3.96 points for the day and falling 0.06% for the week. Finally, the NASDAQ ended the week at 5,437.16 down 0.13% for the week after falling 19.69 points Friday.
The Week Ahead
Wednesday, December 21
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.
Existing Home Sales (10:00 a.m. ET) – Existing Home Sales tallies the number of previously constructed homes, condominiums and co-ops in which a sale closed 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.
Thursday, December 22
Durable Goods Orders (8:30 a.m. ET) – Durable Goods Orders are based on new orders placed with domestic manufacturers for factory hard 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.
FHFA House Price Index (9:00 a.m. ET) – The Federal Housing Finance Agency (FHFA) House Price Index (HPI) covers single-family housing using data provided by Fannie Mae and Freddie Mac. The HPI is derived from transactions involving conforming conventional mortgages purchased or securitized by Fannie Mae or Freddie Mac.
Personal Income and Outlays (8:30 a.m. ET) – This measures all possible income sources as well as public expenditures.
Friday, December 23
New Home Sales (10:00 a.m. ET) – New home sales measure the number of newly constructed homes with a committed sale during the month.
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.
People are trying to squeeze everything in this week before they leave for the year. Speaking of which, Quicken Loans will be closed next Monday in observance of the Christmas holiday. Personally, I’m thankful for this because it gives us all a chance to take a deep breath from the merriment. However, this does mean that Market Update will arrive on Tuesday next week. No matter what you celebrate, we hope you enjoy a safe and happy holiday season.
If economics and mortgage doesn’t get your mind on track this Monday afternoon, we have plenty of home, money and lifestyle content to share with you. Subscribe to the Zing Blog below.
If so, subscribe now for tips on home, money, and life delivered straight to your inbox.