>> Market Update 

QUOTE OF THE WEEK… “The way to get started is to quit talking and begin doing.” –Walt Disney, American entrepreneur and animation pioneer

INFO THAT HITS US WHERE WE LIVE … There’s always lots to talk about in the housing market, but happily what more people have begun doing is actually buying homes. The National Association of Realtors (NAR) reported existing home sales saw their best first quarter in almost a decade. The NAR chief economist painted this picture: “In spite of deficient supply levels, stock market volatility and the paltry economic growth seen so far this year, the housing market did show resilience and had its best first quarter of existing sales since 2007.” For single-family homes and condos, that was a 5.29 million unit annual rate–4.8% higher than a year ago.

Seeing this excellent Q1 performance, an NAR economic forecast forum predicted existing home sales would post their best year in the last ten, finishing 2016 at a 5.40 million annual pace. They expect median existing home price gains to moderate from 6.8% in 2015 to 4% to 5% this year. A major real estate information firm’s report on Q1 loan originations showed purchase mortgages up 3% and home equity lines of credit up 10%, versus a year ago. Oddly in this low rate environment, refinance originations dropped, but the firm’s senior VP pointed out, “the purchase loan market continued the pattern of slow-and-steady growth that it has been following the past two years.”

BUSINESS TIP OF THE WEEK… In every endeavor, always choose to succeed. People are successful for many different reasons, but they all share this one: they chose to succeed.

>> Review of Last Week

LOSING STEAM... This morning, you have to give a nod to those who say the bull market is cooling off. We’ve now had three losing weeks in a row for the blue-chip Dow and the broadly based S&P 500, while the tech-heavy Nasdaq has given us four down weeks. Traders saw another batch of first quarter corporate earnings, and with 92% of the S&P 500 companies reporting, earnings are down 7.6% year-over-year. Investors were also worried about crude oil prices moving lower and Chinese banks pulling back on lending. But those clouds had a silver lining: Fed Governor Lael Brainard indicated the “challenging” global environment keeps her from voting for a rate hike. Yes!

What economic data we saw looked pretty good. Retail Sales in April took their biggest jump in a year, up a very strong 1.3%. Curiously, this report contrasted sharply with disappointing earnings and forecasts from a couple of flagship brick-and-mortar stores. But a big part of April’s gain came from online and mail-order retailers, so the contradictory data can be explained by shifting channels, rather than slowing sales. Wages are gradually improving, allowing consumers to spend more at retail–and on housing! They’re clearly feeling better, as the Michigan Consumer Sentiment index shot up surprisingly to 95.8 in May from its disappointing 89.7 in April.

The week ended with the Dow down 1.1%, to 17540; the S&P 500 down 0.5%, to 2047; and the Nasdaq down 0.4%, to 4719.

The week’s stock rout sent investor money to the safe haven of bonds. The 30YR FNMA 4.0% bond we watch finished the week UP .02, at $106.91. In Freddie Mac’s Primary Mortgage Market Survey for the week ending May 12, national average 30-year fixed mortgage rates fell for the third week in a row, to their low point for the year. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up-to-the-minute information.

DID YOU KNOW?…According to Freddie Mac, the 30-year fixed rate mortgage rate is more than 3% lower than the 30-year average. 

>> This Week’s Forecast

HOUSING STARTS, EXISTING HOME SALES, INFLATION UP, FED MINUTES REVEALED… This week’s economic reports are expected to show two major components of the housing market moving in the proper direction. Housing Starts and Existing Home Sales should show gains for April. But inflation is forecast to be up too, as measured by the Consumer Price Index (CPI) and Core CPI, which takes out volatile food and energy prices. Wednesday‘s release of FOMC Minutes from the Fed’s last meet will have pundits prognosticating when we’ll see the next rate hike. As if anybody knows.

>> 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 May 16 – May 20

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months… There may be more yak in the media about a June rate hike, but most economists don’t see the Fed touching rates through September. Note: In the lower chart, a 4% probability of change is a 96% certainty the rate will stay the same.

Current Fed Funds Rate: 0.25%-0.5%

Probability of change from current policy: