For the week of December 11, 2017 — Vol. 15, Issue 49

>> Market Update

QUOTATION OF THE WEEK..."You miss 100 percent of the shots you never take." --Wayne Gretsky, Canadian former professional ice hockey player and head coach

INFO THAT HITS US WHERE WE LIVE... It was announced last week that the Federal Housing Administration (FHA) is increasing loan limits for 2018 in more than 3,000 counties--almost every area of the U.S. FHA limits are tied to median home prices in each county and Metropolitan Statistical Area, so check with your mortgage professional for the local numbers. This follows the prior week's news that the Federal Housing Finance Agency will increase 2018 conforming loan limits for most mortgages acquired by Fannie Mae and Freddie Mac. Higher loan limits are driven, of course, by rising home prices.

More evidence of these came when property information firm CoreLogic reported a 7% annual surge in home prices in October. But they do expect gains to slow, forecasting only a 4.2% annual increase in home prices by October next year. The market remains active, however, as the Mortgage Bankers Association reports mortgage applications for the week ending December 1 up 4.7% overall, with purchase applications up 2%. The latest "Millennial tracker" from loan software provider Ellie Mae notes that among unmarried home purchasers, "single women are buying homes much more than single men."

BUSINESS TIP OF THE WEEK... Successful people are good listeners. They take the time to understand their clients' wants and needs, and make sure their clients know they're being heard. 

>> Review of Last Week

PATIENT FOR THE POLS... Wall Street investors patiently waited on Washington politicians, who at the weekend were still busy hammering out a tax reform bill. One version passed the House and another passed the Senate, but a bill both chambers could approve was yet to be negotiated. As they waited on Washington, traders took profits and reallocated assets. Then Friday's jobs report kicked the markets back into action. November's bigger than expected 228,000 gain in Nonfarm Payrolls sparked the Dow and S&P 500 to end the week at new records, the Nasdaq just 1% off its own record close.

The only disappointment was the 0.2% gain in average hourly earnings, less than the 0.3% expected. Yet wages have grown 2.5% the past year, a nice acceleration from October's 2.3% annual growth. Many analysts feel the economy has strong fundamentals, saying labor market conditions remain healthy, inflation has rebounded from midyear lows, and GDP growth has exceeded 3% the past two quarters. The latest University of Michigan Consumer Sentiment shows people remain upbeat about current economic conditions, with higher income expectations. All good for the housing market.

The week ended with the Dow UP 0.4%, to 24329; the S&P 500 also UP 0.4%, to 2652; while the Nasdaq fell a trifling 0.1%, to 6840.

Bond traders focused on November's smaller than expected wage growth, which drove some modest price gains. The 30YR FNMA 4.0% bond we watch finished the week UP .17, at $104.70. Freddie Mac's Primary Mortgage Market Survey for the week ending December 7 had national average 30-year fixed mortgage rates rising, but still lower than this time last year. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up-to-the-minute information.

DID YOU KNOW?... Fannie Mae reports that nearly 70% of mortgage borrowers surveyed said that when mortgage shopping, their most influential sources of information were loan officers, real estate agents and financial advisers--with only 13% citing online sources.

>> This Week's Forecast

INFLATION, FED RATERETAIL SALES, ALL RISE... Three big economic reports are expected to head up. With the Consumer Price Index (CPI) inflation read, that's good because it shows a growing economy, but not so good because it frees the Fed to raise rates. No matter what the CPI number, Fed watchers say the FOMC Rate Decision will be a quarter percent hike. More evidence of economic health should be found in November's Retail Sales gains.

>> The Week's Economic Indicator Calendar

Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.

Economic Calendar for the Week of Dec 11 - Dec 15

DateTime (ET)ReleaseForConsensusPriorImpact
Tu
Dec 12
08:30
Producer Price Index (PPI)Nov
0.4%0.4%Moderate
Tu
Dec 12
08:30
Core PPINov
0.2%0.4%Moderate
W
Dec 13
08:30
Consumer Price Index (CPI)Nov
0.4%0.1%HIGH
W
Dec 13
08:30
Core CPINov
0.2%0.2%HIGH
W
Dec 13
10:30
Crude Inventories12/09NA-5.6MModerate
W
Dec 13
14:00FOMC Rate Decision12/131.25%-1.50%1.00%-1.25%HIGH
Th 
Dec 14
08:30
Initial Unemployment Claims
12/09
239K236KModerate
Th 
Dec 14
08:30
Continuing Unemployment Claims
12/02
NA1.908MModerate
Th 
Dec 14
08:30
Retail SalesNov
0.3%0.2%HIGH
Th 
Dec 14
08:30
Retail Sales ex-autoNov
0.6%0.1%HIGH
Th 
Dec 14
10:00
Business InventoriesOct
-0.1%0.0%Moderate
F
Dec 15
08:30
NY Empire Manufacturing IndexDec
18.019.4Moderate
F
Dec 15
09:15Industrial ProductionNov
0.3%0.9%Moderate
F
Dec 15
09:15Capacity UtilizationNov
77.2%77.0%Moderate


>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months... The only surprise out of this week's FOMC meeting would be if the Fed Funds Rate DOESN'T go up. All's quiet in January, but the Fed Futures market sees another quarter percent bump in March. Note: In the lower chart, a 100% probability of change is a 100% certainty the rate will rise, while a 12% probability of change is an 88% certainty the rate will stay the same.

Current Fed Funds Rate: 1.00%-1.25%

After FOMC meeting on:Consensus
Dec 131.25%-1.50%
Jan 31
1.25%-1.50%
Mar 211.50%-1.75%

Probability of change from current policy:

After FOMC meeting on:Consensus
Dec 13
     100%
Jan 31
       12%
Mar 21       61%