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Market Matters, January 27, 2018 Edition

By Oscar Busch

Mortgage and Lending with Brand Lending Company NMLS# 1326698

January 27, 2018 11:41 AM

Undeterred by higher interest rates, homebuyers led the MBA’s weekly applications for the week ending 1/19 higher by 6.0%. Refis rose 1.0% to put the composite index at plus 4.5%. Good start to the new year. Speaking of home sales, Existing Home Sales fell 3.6% in December following a 5.6% gain in November. Inventories across the country dropped to 3.4 months, the main culprit behind slowing sales in December. Still, at 5.75 million units, the market remains very strong. FHFA Home Price Index rose .4% in November and plus 6.5% year-on-year. The West North Central posted the highest gains at .9% followed by the South Atlantic at plus .8%. The East South Central and New England areas were slightly negative. Overall, the lack of inventory continues to push prices higher.

New Home Sales dipped 9.3% in December but the pace of 625K units sold is still solid and points to further momentum in 2018. The extraordinary sales gains in October and November made it difficult for a gain in December which is seasonally a slow period. 2018 looks to be a fantastic year with higher builder optimism, short supply of existing homes, strong jobs market, and low interest rates all fueling the fire.

Jobless Claims for the week ending 1/20 rose 13K to 233K. The 4-week moving average dropped 3,500 to 240K which is in line with the monthly trend.

Durable Goods Orders, the stuff that is supposed to last us 3 years or more, rose 2.9% in December to finish the year very strong. November’s gain was also revised higher to 1.7%. Aircraft orders were supportive but there was also strength excluding transportation where orders were up .6%. Defense orders stole the show, up 19.5%. Core capital goods orders, which excludes both aircraft and defense, fell .3% which is surprisingly weak. Overall, the print was strong and will provide a positive contribution to GDP. Speaking of GDP, Q4 2017 was revised lower from 3.2% to 2.6%, respectably but not earth shattering.

Our tactical bias is for a neutral range trade with the 10-year note staying within the goal posts of 2.60% to 2.66%. It is currently at 2.66% which means a close at or above this level means higher rates in the near future. Be careful out there.

Oscar Busch