Author: Rodeo Realty Media Team

DOW breaks 20,000 – All three major indexes hit record highs again this week before dropping slightly on Friday after a very disappointing GDP report was released. Investors seemed to shrug off the report and analysts expressed optimism for the economy in 2017 despite the poor showing in the final quarter of 2016. The DOW Jones Industrial Average closed the week at 20,093.78, up from last week’s close of 19,827.25. The S&P 500 ended the week at 2,294.69, up from its close of 2,271.32 last week. The NASDAQ closed the week at 5,660.78, up from last week’s close of 5,555.33.

U.S. Treasury Bond yields – The 10-year U.S. Treasury Bond closed the week yielding 2.49%, unchanged from 2.48% last Friday. The 30-year Treasury Bond yield closed the week at 3.06%, also unchanged from 3.05% last week. Mortgage rates follow bond yields, so we watch treasury bonds closely.

Mortgage rates – The Freddie Mac Primary Mortgage Survey released on January 19, 2017, revealed that average mortgage rates from lenders surveyed for the most popular mortgage products were as follows: The 30-year fixed rate average was 4.19%. The 15-year fixed average rate was 3.30%. The 5/1 ARM average rate was 3.20%.

Economy slows in final quarter of 2016 – The U.S. gross domestic product, the broadest measure of the value of all goods and services, grew at a 1.9% annualized rate in the fourth quarter of 2016. This followed a 3.5% rate in the third quarter, which was the largest gain in 2 years. The first half of the year showed the expansion had stalled. It was widely felt that the economy had picked up when the third quarter results showed growth had picked up, but this preliminary report, the first of 3, surprised experts who were expecting at least a 2.5% gain. Analysts quickly came out and expressed optimism for 2017. Investors did not react much by the report and stocks fell just slightly from record levels. For the entire year GDP grew just 1.9% in 2016. The report also showed that consumer spending increased 2.5% and inflation was very tame.

Stocks up on Inauguration Day – Stocks rose Friday after dropping steadily during the week. Even with Friday’s gains, stock markets ended the week lower. The DOW Jones Industrial Average closed the week at 19,827.25, down from last week’s close of 19,885.73. The S&P 500 ended the week at 2,271.32, unchanged from its close of 2,274.64 last week. The NASDAQ closed the week at 5,555.33, down from last week’s close of 5,574.12.

U.S. Treasury Bond yields – Treasury bond yields rose this week. The 10-year U.S. Treasury Bond closed the week yielding 2.48%, up from 2.40% last Friday. The 30-year Treasury Bond yield closed the week at 3.05%, up from 2.99% last week. Mortgage rates follow bond yields, so we watch treasury bonds closely.

Mortgage rates – The Freddie Mac Primary Mortgage Survey released on January 19, 2017 revealed that average mortgage rates from lenders surveyed for the most popular mortgage products were as follows: The 30-year fixed rate average was 4.09%. The 15-year fixed average rate was 3.34%. The 5/1 ARM average rate was 3.21%. Rates rose near the end of the week. They should be about 1/8% higher in next week’s survey.

California home sales and prices up in December – The California Association of Realtors reported that December’s statewide median price was $509,960, up 3.9% from last December’s median of $489,770. For the year, the median price was $502,250, up 5.4% from 2015’s median price. For 2016, preliminary figures had 416,250 existing homes sold, up 1.7% from 2015’s 409,410 existing homes sold. Existing home sales include all attached and detached re-sale single family homes reported as closed escrow to MLS systems throughout California. Very concerning was the unsold inventory index. It showed that there is only a 2.6 month supply of homes on the market. A normal market has a 6 to 7 month supply.

California unemployment rate drops to 5.2% – The California Employment Development Department reported that California employers added 3,700 net new jobs in December. It was a solid year with the state adding 383,900 new jobs in 2016. The unemployment rate dropped to 5.2%, down from 5.9% last December. Los Angeles County had even stronger results. The county’s employers added 58,600 net new jobs in 2016. The L.A. County unemployment rate ended the year at 5%, down from 6% at the end of 2015.

Have a great weekend!

Syd

Stocks mixed this week as investors wait for 4th quarter year end earnings – It was a pretty lackluster week for stocks. It seems everyone is waiting for earnings to be released. The Dow was just off its records of last week. The S&P was about the same as its all time high last week and the NASDAQ again set a record high. The DOW Jones Industrial Average closed the week at 19,885.73, down from last week’s close of 19,963.80. The S&P 500 ended the week at 2,274.64, unchanged from its close of 2,276.98 last week. The NASDAQ closed the week at 5,574.12, up from last week’s close of 5,521.16. 

U.S. Treasury Bond yields – The 10-year U.S. Treasury Bond closed the week yielding 2.40%, almost unchanged from 2.42% last Friday. The 30-year Treasury Bond yield closed the week at 2.99%, almost unchanged from 3.00% last week. Mortgage rates follow bond yields, so we watch treasury bonds closely.  

Mortgage rates lower again this week – After surging in the weeks following the election, mortgage rates have settled in a little lower dropping slightly in the past couple weeks. The Freddie Mac Primary Mortgage Survey released on January 12, 2017, revealed that average mortgage rates from lenders surveyed for the most popular mortgage products were as follows: The 30-year fixed rate average was 4.12%. The 15-year fixed average rate was 3.37%. The 5/1 ARM average rate was 3.23%.

Moody’s settles investigation for $864 million – It’s not really big news, but I was glad to see that Moody’s, the rating company, was fined $864 million for its role in the financial crises. Moody’s was accused of over rating mortgage securities. For example, they rated some mortgage backed security products as high as U.S. Government Bonds. When those investments collapsed and lost all or nearly all their value, the Justice Department and other agencies investigated them. It appeared they were selling ratings to investment firms, rather than doing a true evaluation. The ratings, especially the AAA ratings, made these products seem risk free and investors around the world, which included mutual funds, governments, retirement funds, unions, individuals, etc. stocked up on them only to lose all or almost all of their money when these investments collapsed. The amount of money lost was so great it almost collapsed the world’s financial system. The ratings agencies’ defense has been that they didn’t understand how these products were structured because they were so complicated and that is why they were so wrong! Unfortunately, Moody’s made much more in rating fees than $864 million so who knows if this is a deterrent to keep something like this from happening again. Trillions were lost. It could not have happened without the rating companies being so wrong. Nobody was criminally charged!
Consumer confidence at peak levels – University of Michigan Surveys of Consumers chief economist, Richard Curtin wrote this week “Consumer confidence remained unchanged at the cyclical peak levels recorded in December. The Current Conditions Index rose 0.6 points to reach its highest level since 2004, and the Expectations Index fell 0.6 points which was lower than only the 2015 peak during the past dozen years. The post-election surge in optimism was accompanied by an unprecedented degree of both positive and negative concerns about the incoming administration spontaneously mentioned when asked about economic news. The importance of government policies and partisanship has sharply risen over the past half century. From 1960 to 2000, the combined average of positive and negative references to government policies was just 6%; during the past six years, this proportion averaged 20%, and rose to new peaks in early January. The Expectations Index was a strong 90.9, supporting a real consumption growth of 2.7% in 2017.”

From what we are seeing out in the marketplace it looks like prices are beginning to move up at a good pace. Activity is strong and inventory levels are low. I’d expect home prices to increase at the quickest pace in the next few months. Home prices don’t move at a consistent even pace throughout the year. It’s not unusual to see prices begin to increase from February through spring and level out for the remainder of the year. It looks like the seasonal moving up process is starting just a little early this year as the economy has improved, and buyers are more optimistic than they were last January. Interest rates which have risen are on everyone’s mind, but nobody seems to realize that they are about at the same level that they were in December of 2015 before dropping sharply last year as the economy stalled. This year growth has picked back up both in the U.S. and around the world.  

Have a great weekend!
Syd