Pending Home Sales at Highest Level in 18 Months
U.S. home buyers signed more contracts to buy existing homes in January than they have since August of 2013, according to the National Association of Realtors.
Its monthly index of pending sales, an indicator of future closed sales, rose 1.7 percent month-to-month, and is now 8.4 percent higher than it was a year ago. This is the fifth straight month of year-over-year gains, and the gains are increasing.
“Contract activity is convincingly up compared to a year ago despite comparable inventory levels,” said the association’s chief economist Lawrence Yun in a release. “The difference this year is the positive factors supporting stronger sales, such as slightly improving credit conditions, more jobs and slower price growth.”
The lack of supply is pushing price gains again. They had been shrinking throughout much of last year, but recent reports show the gains accelerating again. Realtors expect sales to gain strength over the next few months, with one big caveat.
“The pace will greatly depend on how much upward pressure the impact of low inventory will have on home prices. Appreciation anywhere near double digits isn’t healthy or sustainable in the current economic environment,” admitted Yun.
Pending home sales in the Northeast inched up 0.1 percent in January, and are now 6.9 percent above a year ago. In the Midwest, sales fell 0.7 percent, but are 4.2 percent above January 2014. Sales were strongest in the South, up 3.2 percent to the highest level since April 2010 and 9.7 percent above last January. Sales in the West rose 2.2 percent and are 11.4 percent above a year ago.
What Happened to Rates Last Week:
Mortgage backed securities (MBS) gained +69 basis points (BPS) from last Friday’s close which caused 30 year fixed mortgage rates to move lower from the prior week as we got a desent bounce off of our 100 day moving average which has been a rock solid support level.
Report card for February? Overall is was not a good month for fixed interest rates as mortgage back securities lost an incredible -160 basis points from January’s close which drove up interest rates.
The U.S. Economic data continues to show growth, but not at a fast enough pace to hurt rates. The 4th QTR GDP data was revised to 2.2% which was a tad better than the market expectations of 2.1%.
But the biggest event of the week was Fed Chair Janet Yellen’s testimony in front of the Senate Banking Committee. It was not enough to move MBS trades out of our very well defined trading channel but it was the primary factor in MBS trades moving higher for the week.
Yellen was Yelling: You can read her official statement here: http://www.federalreserve.gov/
Really there was something for everyone with her statements…here is a brief break down of some key points: Hawkish (Rates will Rise Sooner):
– “The Fed could raise rates at ANY meeting”
– The employment situation in the United States has been improving along many dimensions – Domestic spending and production have been increasing at a solid rate. Real gross domestic product (GDP) is now estimated to have increased at a 3-3/4 percent annual rate during the second half of last year. While GDP growth is not anticipated to be sustained at that pace, it is expected to be strong enough to result in a further gradual decline in the unemployment rate.
– The Fed does not need to see inflation hit 2% before they act, they just have to show that it is on its way to normalization and headed towards 2%, and therefore they can act at any time and the 2% rate is no longer a trigger point.
Dovish (Rates will Never Rise)
– “The Fed will not raise rates for at least the next couple of meetings”
– The labor force participation rate is lower than most estimates of its trend, and wage growth remains sluggish, suggesting that some cyclical weakness persists.
– Foreign economic developments, however, could pose risks to the outlook for U.S. economic growth. Although the pace of growth abroad appears to have stepped up slightly in the second half of last year, foreign economies are confronting a number of challenges that could restrain economic activity.
– The Committee expects inflation to decline further in the near term before rising gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of lower energy prices and other factors dissipate, but we will continue to monitor inflation developments closely.
What to Watch Out For This Week:
|Date||Time (ET)||Economic Release||Actual||Market Expects||Prior|
|2-Mar||8:30 AM||Personal Income||–||0.40%||0.30%|
|2-Mar||8:30 AM||Personal Spending||–||-0.10%||-0.30%|
|2-Mar||8:30 AM||PCE Prices – Core||–||0.20%||0.00%|
|2-Mar||10:00 AM||ISM Index||–||53||53.5|
|2-Mar||10:00 AM||Construction Spending||–||0.20%||0.40%|
|3-Mar||2:00 PM||Auto Sales||–||NA||5.5M|
|3-Mar||2:00 PM||Truck Sales||–||NA||8.1M|
|4-Mar||7:00 AM||MBA Mortgage Index||–||NA||NA|
|4-Mar||8:15 AM||ADP Employment Change||–||220K||213K|
|4-Mar||10:00 AM||ISM Services||–||56.5||56.7|
|4-Mar||10:30 AM||Crude Inventories||–||NA||8.427M|
|4-Mar||2:00 PM||Fed’s Beige Book||–||NA||NA|
|5-Mar||7:30 AM||Challenger Job Cuts||–||NA||NA|
|5-Mar||8:30 AM||Initial Claims||–||295K||313K|
|5-Mar||8:30 AM||Continuing Claims||–||2403K||2401K|
|5-Mar||8:30 AM||Unit Labor Costs -Rev||–||2.90%||2.70%|
|5-Mar||10:00 AM||Factory Orders||–||0.70%||-3.40%|
|5-Mar||10:30 AM||Natural Gas Inventories||–||NA||-219K|
|6-Mar||8:30 AM||Nonfarm Payrolls||–||240K||257K|
|6-Mar||8:30 AM||Nonfarm Private Payrolls||–||230K||267K|
|6-Mar||8:30 AM||Unemployment Rate||–||5.60%||5.70%|
|6-Mar||8:30 AM||Hourly Earnings||–||0.20%||0.50%|
|6-Mar||8:30 AM||Average Workweek||–||34.6||34.6|
|6-Mar||8:30 AM||Trade Balance||–||-$42.0B||-$46.6B|
|6-Mar||3:00 PM||Consumer Credit||–||$13.0B|
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.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.
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