“Yet, through all the gloom, I can see the rays of ravishing light and glory.” John Adams. The gloom of recent years seems to be gone from the labor sector, as it is a bright spot in our economy at the start of this year.

The January Jobs Report showed that 257,000 jobs were created, above the 235,000 expected, as the sector continues to produce robust gains. In addition, job creations for November and December were revised sharply higher by 147,000. The last three months have averaged 336,000 new hires, the best three-month period in the last 17 years. January marked the 11th straight month of job gains above 200,000, the longest streak since 1994.

Also of note, the Unemployment Rate ticked up slightly to 5.7 percent from 5.6 percent, while hourly earnings came in above expectations. It will be important to monitor future hourly earnings readings, as growth in this area could cause an increase in inflation. Since inflation is the kryptonite for fixed investments like Mortgage Bonds, it can also be bad news for home loan rates (which are tied to Mortgage Bonds).

Over in housing, research firm CoreLogic reported that home prices, including distressed sales, rose by 5 percent from December 2013 to December 2014. Home price gains continue to stabilize at more normal levels from the double digit gains seen in the past few years. While the 5 percent gain is the 34th month of consecutive year-over-year increases in home prices nationally, prices are still 13.4 percent below their April 2006 peak.

The bottom line is that now is a great time to consider a home purchase or refinance.

“Keep lifting me higher.” Jackie Wilson may have been singing about love, but it’s weak economic data and mixed corporate earnings that have been pushing Mortgage Bonds higher, helping home loan rates remain near historic lows.

The first reading of Gross Domestic Product (GDP) for the fourth quarter of 2014 fell to 2.6 percent from the 5 percent recorded in the third quarter. For all of 2014, GDP grew by 2.4 percent, just slightly above the 2.2 percent in 2013. GDP is considered the broadest measure of U.S. economic activity, and strong GDP is an essential sign of our economic recovery. Also of note, Durable Goods Orders (i.e., orders for items that last for an extended period of time) fell by 3.4 percent in December, while November’s numbers were revised lower. These reports show that the U.S. economy continues to muddle along after a six year recovery.

In housing news, sales of new homes in December increased 11.6 percent from November, while the S&P/Case Shiller Home Price Index showed that home prices increased 4.3 percent annually in November. Home price gains have returned to more normal levels after the double digit gains seen at the end of 2013 and the beginning of 2014.

There was good news from the labor sector as Weekly Initial Jobless Claims fell to lows not seen in nearly 15 years. While a Labor Department spokesman noted that some of the decline could be attributed to the Martin Luther King Jr. holiday, the news correlated with the Fed’s sentiment in its recent Monetary Policy Statement that, “Labor market conditions have improved further, with strong job gains and a lower unemployment rate.” And indeed, consumer confidence has been growing as January’s reading surged to 102.9, the highest level in seven years.

The bottom line is that now is a great time to consider a home purchase or refinance.

“There’s no place like home.” News from the housing sector was front and center, and with rates remaining near historic lows, great opportunities remain for those looking to purchase or refinance.

Housing Starts sizzled in December, rising 4.4 percent from November to 1.089 million annualized units, coming in above expectations. The rise in Housing Starts was the strongest annual pace in seven years and it was led by a jump in starts for single-family homes, which reached their highest level since early 2008.

Building Permits, a sign of future construction, did decrease by nearly 2 percent in December but still came in at a strong 1.03 million. Both Building Permits and Housing Starts figures were also revised higher in November.

Also of note, the January National Association of Home Builders Housing Market Index was 57. Readings above 50 are considered positive sentiments about market conditions. Meanwhile, December Existing Home Sales rose from November. However, sales in 2014 were lower compared to 2013 due to a sluggish start in the beginning of the year. Overall, the housing sector continues to improve.

In news overseas, the European Central Bank has announced that it will enact a massive Quantitative Easing, or QE, style of Bond purchases to fight off deflation and promote economic growth in the region. The news has caused extreme volatility in U.S. markets. However, Mortgage Bonds and home loan rates (which are tied to Mortgage Bonds) remain near historic best levels.

The bottom line is that now is a great time to consider a home purchase or refinance.

Shop or drop. Fewer people than expected opened their wallets in December, as the latest Retail Sales numbers declined. But with home loan rates hovering near historic lows, not all of last week’s headlines were disappointing.

Retail Sales plunged by 0.9 percent in December, the biggest decline in nearly a year as lower gas prices didn’t have the desired impact on consumer spending during the busy shopping season. November’s numbers were also revised lower. This news was a bit of a surprise, and not the best sign for our overall economic recovery. But one number doesn’t make a trend, so this will be an important report to watch in the coming months.

On the inflation front, inflation at the wholesale level remained tamed in December while the Consumer Price Index showed its smallest gain in five years, mainly due to plunging oil prices. We are beginning to see disinflationary pressures, which is a slower rate of inflation over a shorter time period. While low inflation is Bond-friendly news (and also good for home loan rates, since they are tied to Mortgage Bonds), outright deflation is a sustained fall in prices. That is something we do not want to see because deflation also brings increased unemployment. Inflation is another key item to monitor as we move ahead into 2015.

Also of note, the World Bank cut its forecast for global growth, warning that the world economy remains overly reliant on the “single engine” of the U.S. recovery. If negative news from overseas continues, we could see safe haven trading into our Bond market, helping Mortgage Bonds and home loan rates in the process.

The bottom line is that home loan rates remain near historic lows, and now is a great time to consider a home purchase or refinance.

“It’s a new dawn, it’s a new day…and I’m feeling good.” Nina Simone. The new year is here, and with home loan rates still near historic lows, 2015 rang in with plenty for consumers to feel good about. Here are some other highlights from the end of 2014.

The final reading for Gross Domestic Product (GDP) for the third quarter of 2014 came in at a blistering 5.0 percent, the fastest pace of economic growth since the third quarter of 2003. The big gains were led by a surge in both consumer and business spending. GDP is considered the broadest measure of economic activity, so this is a strong sign for our economy heading into the new year.

In housing news, the October S&P/Case-Shiller Home Price Index came in at an annual rate of 4.5 percent, down from the 4.8 percent recorded in September. The October reading was the eleventh straight month of decelerating price gains. It was also the smallest annual gain since October 2012, as price gains return to more normal levels. Also of note, sales of new and existing homes fell in November as well. The housing market continues to remain in a somewhat choppy trend, despite an improving economy and job market.

As we look ahead into 2015, the uncertainty in Europe will continue to rear its head over time. The European Union (EU) is fighting deflation, recessionary pressures, a Greece exit from the EU, and limited political capital required for the necessary fixes. This could lead to safe haven trading in our bond market, helping Mortgage Bonds and home loan rates (which are tied to Mortgage Bonds) in the process.

The bottom line is that home loan rates remain near historic lows, and now is a great time to consider a home purchase or refinance.

Jim Krantz
Vice President
NMLS # 761955
Jim.Krantz@TraditionLLC.com

Direct 952.252.4488  /  Cell 612.716.9999  /  Fax 952.252.4489

Tradition Mortgage LLC
NMLS # 286998
4350 Baker Rd Suite 190  /  Minnetonka, MN 55343  /  www.TraditionWest.com

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