New Home Sales Rise 8%
The government report released Wednesday showed an 8% rise from July to an annual pace of 421,000 new home sales in the month. That’s also up nearly 13% from a year earlier.
Mortgage rates have been rising steadily since early May, when they hit a record low. But they are still low by historical standards. Higher rates raise the costs for home buyers, but they can actually help to spur sales by motivating buyers to get into the market before they climb even higher.
The government report reflects new home sales at the time a contract is signed, so it’s more of a real-time indicator of the impact that mortgage rates have on the market than sales of existing homes, which are recorded at the time a purchase it closes, which is often months after contracts are signed.
Housing has been one bright spot for the economy this year. Home prices are up more than 12% in the last year, the biggest annual gain since the height of the housing bubble. Prices have been helped not only by improved sales but also a drop in foreclosures.
The rebound in home prices means that fewer homeowners are underwater. Since they no longer owe more on their mortgages than their homes are worth, it’s easier for them to sell their existing homes and buy new ones, which in itself helps the market.
What Happened to Rates Last Week:
Mortgage backed securities (MBS) gained +100 basis points from last Friday’s close which caused 30 year fixed rates to move to their lowest levels since June 20th.
We had a big plate of economic data that was served up last week. But the majority of the economic reports came in very close to market expectations. It typically takes a significant deviation from what the market has already “baked in” for a report to move the needle with bond trades. As a result, the economic releases had little to no impact on bond trades last week.
We had a large supply of 2, 5 and 7 year Treasuries hit the market. They did see a small pull back in demand at auction but still at some good levels. This also had no impact on pricing last week.
But last week was all about market concern over a looming government shut down as our fiscal year ends on Midnight 09/30/13. On the longer term, a government shut down will impact rates negatively as investors will demand higher rates from the U.S. to borrow money, but on the shorter term, a government shut down will put a damper on our economic growth and that’s why bonds improved last week.
|Date||ET||Economic Release||Actual||Market Expects||Prior|
|30-Sep||9:45 AM||Chicago PMI||–||53.7||53|
|1-Oct||10:00 AM||ISM Index||–||55.1||55.7|
|1-Oct||10:00 AM||Construction Spending||–||0.40%||0.60%|
|1-Oct||2:00 PM||Auto Sales||–||NA||5.6M|
|1-Oct||2:00 PM||Truck Sales||–||NA||7.0M|
|2-Oct||7:00 AM||MBA Mortgage Index||–||NA||5.50%|
|2-Oct||8:15 AM||ADP Employment Change||–||170K||176K|
|2-Oct||10:30 AM||Crude Inventories||–||NA||2.635M|
|3-Oct||7:30 AM||Challenger Job Cuts||–||NA||56.50%|
|3-Oct||8:30 AM||Initial Claims||–||315K||305K|
|3-Oct||8:30 AM||Continuing Claims||–||2825K||2823K|
|3-Oct||10:00 AM||Factory Orders||–||0.30%||-2.40%|
|3-Oct||10:00 AM||ISM Services||–||57.4||58.6|
|3-Oct||10:30 AM||Natural Gas Inventories||–||NA||87 bcf|
|4-Oct||8:30 AM||Nonfarm Payrolls||–||183K||169K|
|4-Oct||8:30 AM||Nonfarm Private Payrolls||–||180K||152K|
|4-Oct||8:30 AM||Unemployment Rate||–||7.30%||7.30%|
|4-Oct||8:30 AM||Hourly Earnings||–||0.20%||0.20%|
|4-Oct||8:30 AM||Average Workweek||–||34.5||34.5|
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.