Monday, December 9, 2013

Weekly Market Guide

Robert Hernandez
MBA, Hablo Espanol
Private Capital Ventures, Inc.
Phone: 650-776-3280
Fax 415-573-0930
NMLS : 241292 Broker Lic.: 01935727

Weekly Market Guide

  Last Week in Review: Key housing and jobs data was released. Plus a surprising read on Gross Domestic Product, the broadest measure of economic activity.

Forecast for the Week: This week's economic calendar is light, featuring readings on retail sales, jobless claims and wholesale inflation.

View: See the important time tip that can make all the difference any time of year.


  Last Week in Review  

  "Tomorrow is often the busiest day of the week." Spanish Proverb. And it sure seemed that way with last week's busy economic calendar, as Friday's Jobs Report capped off a week filled with data. Here are the highlights.

The highly anticipated November Jobs Report revealed that employers created 203,000 jobs last month, above the 188,000 expected. The Unemployment Rate fell to a 5-year low of 7 percent while the Labor Force Participation Rate (LFPR) managed to tick up to 63.0 percent, though it is still at lows not seen since the late 1970s. The LFPR is a measure of how many people are looking for work. All in all this was a good report, but the labor market is not out of the woods yet.

Also of significance, the second reading of third quarter Gross Domestic Product (GDP) rose by 3.6 percent, above expectations and the best level in a year and a half. But a closer look shows the gains coming from a large buildup in inventories. This is important to note because a buildup in inventories could cause goods to stay on the shelf and not materialize into sales, which could set the stage for a disappointing read in the fourth quarter.

In housing news, research firm CoreLogic reported that home prices, including distressed sales, rose by 12.5 percent in October 2013 compared to October 2012. This marks the twentieth month of year-over-year home price gains. In addition, New Home Sales for September fell but October's New Home Sales surged 26 percent, coming in above expectations. Both reports were delayed due to the government shutdown.

What does this mean for home loan rates? Remember that the Fed has been purchasing $85 billion in Bonds and Treasuries each month to stimulate the economy and housing market. The Fed has said that its decision regarding when to taper these purchases will be dependent on economic data. Whether data has been strong enough for the Fed to begin tapering these purchases after its meeting of the Federal Open Market Committee on December 17-18 remains to be seen. Either way, the timing of the Fed's decision will definitely impact home loan rates heading into 2014 and it's why economic data in the coming weeks will be important to monitor.

The bottom line is that now remains a great time to consider a home purchase or refinance as home loan rates remain attractive compared to historical levels. Let me know if I can answer any questions at all for you or your clients.

  Forecast for the Week  

  Economic data is light this week and doesn't kick off until Thursday.
  • As usual, Thursday brings Weekly Initial Jobless Claims. Last week's claims dropped below 300,000, though this figure could have been skewed by the Thanksgiving holiday.
  • Also on Thursday, Retail Sales will be delivered and will show the health of consumer spending.
  • The last report this week will be the Producer Price Index on Friday, which will reveal if there are any inflation pressures at the wholesale level.
Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result. The chart below shows Mortgage Backed Securities (MBS), which are the type of Bond that home loan rates are based on.

When you see these Bond prices moving higher, it means home loan rates are improving — and when they are moving lower, home loan rates are getting worse.

To go one step further — a red "candle" means that MBS worsened during the day, while a green "candle" means MBS improved during the day. Depending on how dramatic the changes were on any given day, this can cause rate changes throughout the day, as well as on the rate sheets we start with each morning.

As you can see in the chart below, Bonds and home loan rates have worsened in recent weeks, as some positive economic reports have caused concern that the Fed will taper its Bond purchases sooner rather than later. I will continue to monitor this story for all the latest developments.

Chart: Fannie Mae 4.0% Mortgage Bond (Friday Dec 06, 2013)

Japanese Candlestick Chart

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