|The Fannie Mae Economic and Strategic Research Group revised upward its full-year 2018 economic growth forecast to 3.0 percent – from 2.8 percent in the prior forecast – on expectations that third and fourth quarter inventory restocking will outweigh slowing consumer spending growth and a decline in net exports, according to its August 2018 Economic and Housing Outlook.
“Breakneck headline growth in the second quarter disguised a detail largely responsible for the latest upward revision to our full-year growth forecast: a need to restock declining business inventories, which we expect will support greater growth amid weakness elsewhere,” said Fannie Mae Chief Economist Doug Duncan.
Duncan went on to say, “While meaningful wage growth remains elusive, the labor market is strong and inflation appears to be gaining additional steam, making a Fed rate hike in September highly likely. Assuming consumer and business confidence can steer clear of escalating trade tensions, we expect the Fed to raise rates two more times in 2018, including next month.”
What Happened to Rates Last Week?
|Mortgage backed securities (FNMA 4.50 MBS) lost just -2 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move sideways for the week.
Overview: The bond market (specifically Mortgage Backed Securities) was once again range-bound with very solid resistance and support levels that were tested and that held. The biggest economic report of the week was Retail Sales but it took a back seat to global concern over Trade talks.
Retail Sales: The July was hotter than expected but part of the reason was due to revisions in June more so than a big surge in spending. The Headline Number increased by 0.5% vs est of 0.1%, but June was revised lower from 0.5% down to 0.2%. When you strip out the volatile Automobile market, then Retail Sales hit 0.6% vs est of 0.3%. June was revised lower from 0.4% to 0.2%.
Taking it to the House: Housing Starts and Building Permits both improved but remained at low levels as land, labor and raw material costs make it almost prohibitive to build on the lower end of the price range (where all the demand is). Housing Starts hit 1.168M vs est of 1.260M. Permits hit 1.311M vs est of 1.310M. The bright spot in permits is that SFR are up 6.4%.
Trade Snore: The Wall Street Journal reported that Chinese and U.S. negotiators are drawing a “road map” for talks to end the trade deadlock, culminating with meetings between U.S. President Trump and Chinese President Xi at multilateral summits in November, citing officials in both nations. As part of preparation for the November summit, the two nations have scheduled the previously disclosed mid-level talks in Washington next week.
What to Watch Out For This Week:
It is virtually impossible for you to keep track of what is going on with the economy and other events that can impact the housing and mortgage markets. Just leave it to me, I monitor the live trading of Mortgage Backed Securities which are the only thing government and conventional mortgage rates are based upon.