Market Matters, February 3, 2018 Edition

Personal Income and Spending were both up .4%. Wages and salaries also are showing solid gains of .5%. However, giving a hint of trouble ahead is that the savings rate dropped .1% to a 13-year low. We have also noticed an acceleration of credit in both credit cards and car loans over the past year, along with rising delinquencies. Not a healthy situation for consumers to follow.

Case-Shiller’s Home Price Index rose .7% in November, matching the gains seen in October. Home prices are now up 6.2% year-on-year. Atlanta and Dallas, which have traditionally been affordable markets, are now posting double digit gains. Western metro areas are seeing the highest appreciation, yet across the country gains are to be found. Strong economic conditions, new construction slow to ramp up, and decent interest rates are all fueling the fire. Given the strong data we would expect single family home starts to ramp up early this season. Consumer Confidence is a component of higher home prices which has moved back to a 17-year high of 125.4 (January 2018 release). Future expectations were solid, up five points which offset a present situation slip of .1%. Good employment opportunities and stock market bullishness are big factors here.

The FOMC decided to leave the Fed Funds rate unchanged at 1.25% - 1.50%. Within the text of the Statement, the Fed noted that the labor market has continued to strengthen and economic activity is building at a solid rate. Regarding inflation, items other than food and energy have continued to run below the 2.0% mark, however, the Fed still expects inflation to rise gradually over the next 12 months. In determining the timing and size of future Fed Funds adjustments, the Committee will assess realized and expected economic conditions. The actual path of the Fed Funds rate hikes will depend on economic outlook as informed by the incoming data.

Non-farm Payrolls increased 200k in January vs. consensus estimates of around 175k. As expected, the Unemployment Rate held steady at 4.1% and the Labor Participation Rate and Average Hourly Earnings were also consistent with last month’s levels of 62.7 and +.3%, respectively.

Treasury prices, as well as equities, both moved lower in response to the jobs data. We saw a quick sell-off with the 10yr yield immediately breaking through the 2.80 barrier, while stocks fell over 200 points. Looking at the 10yr note specifically, we are now approaching high yields that have not been seen since back in 2014. Technically, the next level we would be looking to hold comes in around ~2.90-2.92%, if this sell-off in bonds continues. With levels very vulnerable and market volatility through the roof, it’s important we all keep our pipelines in order, locking in your loans and extending your existing locks.

Oscar

	Oscar Busch  Mortgage Loan Originator
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