Discussing the latest FOMC minutes and the Fed raising their benchmark rate as well as dropping hints about reducing their holdings, how good mortgage rates really are plus much more…
Labor market conditions continued to strengthen in recent months and suggested that real gross domestic product (GDP) was expanding at a faster pace in the second quarter than in the first quarter. The 12-month change in overall consumer prices, as measured by the price index for personal consumption expenditures (PCE), slowed a bit further in April; total consumer price inflation and core inflation, which excludes consumer food and energy prices, were both running somewhat below 2 percent.
Total nonfarm payroll employment expanded further in April and May, and the average pace of job gains over the first five months of the year was solid. The unemployment rate moved down to 4.3 percent in May…
The overall labor force participation rate declined somewhat, and the share of workers employed part time for economic reasons decreased a little.
The four-week moving average of initial claims for unemployment insurance benefits remained at a very low level through early June.
Measures of labor compensation continued to rise at moderate rates.
Average hourly earnings for all employees increased 2-1/2 percent over the 12 months ending in May, about the same as over the comparable period a year earlier.
Total industrial production rose considerably in April, reflecting gains in manufacturing, mining, and utilities output.
Residential investment appeared to be slowing after increasing briskly in the first quarter.
Starts of new single-family homes edged up in April, but the issuance of building permits for these homes declined somewhat. Meanwhile, starts of multifamily units fell. Moreover, sales of both new and existing homes decreased in April.
Residential mortgage rates declined slightly, in line with yields on longer-term Treasury and mortgage-backed securities, but remained elevated relative to the third quarter of 2016. Despite the higher level of mortgage rates, growth in mortgage lending for home purchases remained near the upper end of its recent range during the first quarter. Delinquency rates on residential mortgage loans continued to edge down amid robust house price growth and still-tight lending standards for households with low credit scores and hard-to-document incomes.
Real GDP growth was forecast to step up to a solid pace in the second quarter following its weak reading in the first quarter, primarily reflecting faster real PCE growth.
Participants noted that, with the process of normalization of the level of the federal funds rate continuing, it would likely become appropriate this year for the Committee to announce and implement a specific timetable for its program of reducing reinvestment of the Federal Reserve’s securities holdings. It was observed that the ensuing reduction in securities holdings would be gradual and would follow an extended period of Committee communications on balance sheet normalization policy, including the information that would be released at the conclusion of this meeting. Consequently, the effect on financial market conditions of the eventual announcement of the beginning of the Federal Reserve’s balance sheet normalization was expected to be limited.
Participants generally saw the outlook for economic activity and the medium-term outlook for inflation as little changed and viewed a continued gradual removal of monetary policy accommodation as being appropriate. Based on this assessment, almost all participants expressed the view that it would be appropriate for the Committee to raise the target range for the federal funds rate 25 basis points at this meeting.
Very interesting that the Fed is starting to talk about reducing their holdings. It could get interesting and I think they are dropping plenty of hints so we do not see anything similar to the “taper tantrums” of the past.
However, exactly when the Fed will start normalizing its balance sheet is still unknown…
The Fed did increase the federal funds rate as expected. We will have to wait and see if there is any effect on mortgage rates from this increase. Speaking of mortgage rates…
Looking at Mortgage Rates
While too soon to know how or if the latest rate increase by the Fed will affect mortgage rates, we can still check out the latest average rates.
Freddie Mac reported:
- 30-year fixed-rate mortgages averaged 3.96% with an average 0.6 point
- This is up from last week when it averaged 3.88%
- Last year at this time, 30-year fixed-rate mortgages averaged 3.41%
- 15-year fixed-rate mortgages averaged 3.22% with an average 0.5 point
- This is up from last week when it averaged 3.17%
- Last year at this time, 30-year fixed-rate mortgages averaged 2.74%
Remember these are the average mortgage rates and this is only one week…
The MBA reported:
Mortgage applications increased 1.4 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 30, 2017.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($424,100 or less) increased to its highest level since May 2017, 4.20%, from 4.13%, with points decreasing to 0.31 from 0.32 (including the origination fee) for 80% loan-to-value ratio (LTV) loans.
The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $424,100) increased to its highest level since May 2017, 4.10%, from 4.09%, with points increasing to 0.23 from 0.20 (including the origination fee) for 80% LTV loans.
The average contract interest rate for 15-year fixed-rate mortgages increased to its highest level since May 2017, 3.43%, from 3.39%, with points decreasing to 0.32 from 0.33 (including the origination fee) for 80 percent LTV loans.
Again, we see increases in the average mortgage rates but I say do not panic. Simply talk to your lender ASAP.
I know some think that an increase in mortgage rates is really bad but if you look back in time, we are blessed with really low mortgage rates today…
Mortgage rates have been around 4% for almost all of 2017. Low mortgage rates offer home buyers relief from increasing house prices and help with affordability. Industry experts have forecast that rates will rise by the end of this year and will grow to 4.5% by the end of next year.
Like I said we are really lucky to be experiencing extremely low rates now. Look at mortgage rates over the last 45 years:
As you can see, anyone looking to buy a home today could get a much better rate than we have experienced in the past. While rates are forecast to increase, I think you can see why I am saying do not panic.
Weekly Rail Traffic Increases
U.S. railroads originated 1,065,976 carloads in June 2017, up 4.4 percent, or 45,174 carloads, from June 2016. U.S. railroads also originated 1,113,575 containers and trailers in June 2017, up 4.6 percent, or 49,425 units, from the same month last year. Combined U.S. carload and intermodal originations in June 2017 were 2,179,551, up 4.5 percent, or 94,599 carloads and intermodal units, from June 2016.
AAR Senior Vice President John T. Gray said:
Rail traffic indicators of the economy remain mixed. While some commodity groups, such as intermodal, chemicals, and crushed stone and sand (driven heavily by frac sand) set new all-time first half records and a few others like grain and coke set post-recession records, several other traffic categories continue to struggle. All of this indicates an industrial economy that may not yet have a clear direction forward and one that continues to undergo structural change.
Damn shame the industrial economy isn’t sure what to do. But very understandable based on the uncertainty and drama we see in DC…
Americans’ confidence in the economy remained at a 2017 low in June, with Gallup’s U.S. Economic Confidence Index averaging +3 for the second month in a row. Despite confidence lagging below January’s monthly record high of +11, June nonetheless marked the eighth consecutive month in which U.S. adults rated the economy positively.
Last month, Americans continued to view current economic conditions positively, with 33% describing the economy as “excellent” or “good” compared with 23% describing it as “poor.” For the third month in a row, however, a slightly larger share of Americans (49%) said the economy is “getting worse” than said it is “getting better” (45%).
The increase in the number of Americans that think the economy is getting worse is disturbing. I have seen the dreaded “R” word used lately but some people like to proclaim the sky is falling just to get more clicks…
As I always say, hope for the best and plan for the worst.
Delinquencies in both open- and closed-end loans rose in the first quarter of 2017, according to the ABA Consumer Credit Delinquency Bulletin released today. The rise in closed-end delinquencies was driven by an uptick in late payments on auto loans, the report noted. The composite ratio, which tracks delinquencies in the closed-end installment loan categories, rose 5 basis points to 1.56 percent of all accounts, but remained well below the 15-year average of 2.17 percent.
In the home-related category lines tracked, home equity line of credit delinquencies and home equity loan delinquencies rose to 1.11 percent and 2.59 percent, respectively. Property improvement loan delinquencies held steady at 0.98 percent of all accounts.
ABA chief economist James Chessen said:
Eight years into the economic recovery, it was inevitable that we’d start to see delinquencies edge up from their extremely low levels. Even in a strong economy with good job growth, there are always people living paycheck to paycheck. Any small bump in the road can be enough to cause them to miss a payment or two on their loan. The good news is that most consumers have been careful to manage their debt levels to ensure they can withstand those small setbacks and meet their obligations.
Hopefully we won’t see any more increases and consumers remember the painful lessons that the last recession taught us.
Sources said on Wednesday evening that a settlement – which analysts expect to cost RBS at least $4.5bn (£3.5bn) – was imminent, but could yet slip into next week as lawyers for both sides finalise the agreement.
The precise size and timing of the fine have been moving around in recent weeks, and the FHFA penalty could ultimately be higher than $4.5bn, they added.
The settlement with the FHFA relates to the mis-selling of mortgages to the US government-backed loan firms Fannie Mae and Freddie Mac prior to the 2008 financial crisis, when RBS was among the biggest players on Wall Street.
Surprise! Another settlement!
Well that’s all I have time for today! Be sure to hit the share buttons or subscribe!