Smart Homes Starting to Gain Ground:

Full home automation is not high on the average house hunter’s priority list. That may be about to change. The trouble so far has been the technology itself: Consumers aren’t sure how to integrate it into existing home systems. Plain and simple, they don’t know how to use it.

In 2016, 80 million smart home devices were delivered worldwide, a 64 percent increase from 2015, according to IHS Markit. That includes Nest thermostats and smoke detectors, August smart locks, Ring video doorbells. A big chunk of it was personal home assistants like Google Home, Bosch’s Mykie and Amazon’s Alexa. Analysts say despite the growth last year, 2017 will be the year of the smart home because the companies behind the technology will be smarter about educating their consumers.

CNET, a consumer technology news and review website, is launching its Smart Home Matrix at the Consumer Electronics Show (CES) last week. It is a new feature on the site designed to walk consumers through the latest smart home technology.

“We’ve seen smart home technology increasingly take prominence at CES with more products announced each year,” said Mark Larkin, SVP and GM at CNET. “From our own testing in the CNET Smart Home, we understand one of the largest hurdles in adopting smart home technology is getting multiple devices to work together. Our Smart Home Matrix helps consumers do just that by letting them know what devices are compatible with each other.”

The year ahead will likely bring more innovations, but the focus, according to analysts at IHS Markit, will be lowering prices, educating consumers and enhancing security, so that no one can hack your fridge. Voice assist will become much more commonplace, and the smart home will integrate with the smart car — so as you drive away, your home will know to turn the heat down. They predict at least 130 million smart home devices will be shipped worldwide this year.

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 3.50 MBS) gained +12 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move sideways from the prior week.

We had another holiday-shortened week (Monday was closed for New Years) and a choppy session that saw bid/ask levels that were unrealistic and not based upon any market fundamentals.  Actually, under a “normal” market, MBS would have been under more pressure (higher rates) as we had very strong ISM data, a more “hawkish” tone from the Fed minutes, and Wage data that jumped up to 2.9% gains.

Domestic Flavor:
Jobs, Jobs, Jobs: 
Big Jobs Friday: The much anticipated last employment report from 2016 is here.  Here is the Tale of the Tape:

Non-Farm Payrolls: The December number (which will be revised two more times) came in lighter than market expectations (156K vs est of 178K).  Before we jump on the band wagon and say this is a weak report, the fed (and bond market) looks at the average/trend since since theses number often see very large revisions.  November was revised upward significantly from 178K up to 204K (+26K).  While October was revised lower by a smidge from 142K to 135K (-7K).
The most closely watched NFP data point is not the headline 156K.  It is actually the 3 month rolling average which (after December’s release and revisions to prior months) is now 165K.  In November, the rolling 3 month average was 176K which is only an 11K change.
Wages: The most important piece of data.  The Average Hourly Wages for the Month increased by 0.4% which was higher than estimates of 0.3% and a large turnaround from November’s -0.1%.  But, more importantly, Average Hourly Wages increased by 2.9% on a yearly basis which is the hottest level that we have seen in 8 years.
Unemployment Rate: Matched market expectations of 4.7% and was a slight uptick from November’s 4.6% due to the Participation Rate increasing from 62.6% to 62.7%.

ISM Non-Manufacturing (Services): The services sector accounts for over 2/3 of our economic output.  And it came in higher than expectations (57.2 vs 56.6).  Any reading above 50 is expansionary and any reading above 55 is very hot indeed.

The Talking Fed:  We got the minutes from the December Fed Meeting where they raised rates and increased expectations of 3 to 4 rate hikes in 2017.  You can read their official release here:
The Minutes showed a more “hawkish” Fed concerned about future inflation that what was perceived by the markets after their original policy statement.

  • Almost all also indicated that the upside risks to their forecasts for economic growth had increased.
  • About half of the participants incorporated an assumption of more expansionary fiscal policy in their forecasts.
  • Many participants judged that the risk of a sizable undershooting of the longer-run normal unemployment rate had increased somewhat and that the Committee might need to raise the federal funds rate more quickly.
  • Almost all Federal Reserve policymakers thought the economy could grow more quickly because of fiscal stimulus under the Trump administration and many were eyeing faster interest rate increase.

What to Watch Out For This Week:

The above are the major economic reports that will hit the market this week. They each have the ability to affect the pricing of Mortgage Backed Securities and therefore, interest rates for Government and Conventional mortgages. I will be watching these reports closely for you and let you know if there are any big surprises.

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.