Home Builder Sentiment Surges 4 Points in June
After hovering in a tight range since early February, sentiment among the nation’s home builders surged ahead in June and is now one point shy of crossing into positive territory on the National Association of Home Builders/Wells Fargo Housing Market Index. Confidence jumped four points to a reading of 49; 50 is the line between positive and negative territory.
“After several months of little fluctuation, a four-point uptick in builder sentiment is a welcome sign and shows some renewed confidence in the industry,” said NAHB Chairman Kevin Kelly, a home builder and developer from Wilmington, Del. “However, builders are facing strong headwinds, including the limited availability of labor.”
Potential home buyers face higher home prices and tighter underwriting standards on home loans. There is also a significant dearth of homes for sale, both new and existing. Home builders have not ramped up production to meet demand and are still operating at about half the monthly starts of historical averages.
Of the three NAHB index components, all posted gains, but the largest was in current sales, which rose 6 points to 54, crossing back into the positive range. The component gauging sales expectations in the next six months rose three points to 59 and buyer traffic increased 3 points to 36, still the weakest component of the index.
Mortgage backed securities (MBS) lost -40 basis points (BPS) from last Friday’s close which caused 30 year fixed mortgage rates to move to higher. We saw our best rates on Monday morning and our worst rates on Thursday.
We had a lot of economic data and Treasury auctions to absorb but the bottom line is that MBS were under pressure (and therefore higher mortgage rates) due to two factors: 1) Speculation that the Federal Reserve would begin to raise their Fed Fund rate sooner in 2015 than originally estimated and 2) Oil prices rising.
Oil prices spiked as traders were concerned about a possible disruption in supply out of Iraq due to the growing civil unrest and possible military strikes in the region. Rising oil prices create inflation through higher input costs in the short term and bonds simply do not like inflation.
We had a mixed bag for economic news as Retail Sales were weaker than expected but did show growth. PPI was lower than expected and so was the Consumer Sentiment Index. But both Wholesale and Business Inventories were better than the consensus estimates.
We saw very strong demand across the board for the 3, 10 and 30 year Treasury auctions. The 30 year was the most successful of the three but this was largely offset by higher oil prices.
What to Watch Out For This Week:
Date Time (ET) Economic Release Actual Market Expects Prior 16-Jun 8:30 AM Empire Manufacturing – 12.8 19 16-Jun 9:00 AM Net Long-Term TIC Flows – NA $4.0B 16-Jun 9:15 AM Industrial Production – 0.50% -0.60% 16-Jun 9:15 AM Capacity Utilization – 78.90% 78.60% 16-Jun 10:00 AM NAHB Housing Market Index – 46 45 17-Jun 8:30 AM Housing Starts – 1028K 1072K 17-Jun 8:30 AM Building Permits – 1050K 1080K 17-Jun 8:30 AM CPI – 0.20% 0.30% 17-Jun 8:30 AM Core CPI – 0.20% 0.20% 18-Jun 7:00 AM MBA Mortgage Index – NA 10.30% 18-Jun 8:30 AM Current Account Balance – -$97.8B -$81.1B 18-Jun 10:30 AM Crude Inventories – NA -2.596M 18-Jun 2:00 PM FOMC Rate Decision – NA 0.25% 19-Jun 8:30 AM Initial Claims – 313K 317K 19-Jun 8:30 AM Continuing Claims – 2638K 2614K 19-Jun 10:00 AM Philadelphia Fed – 13.4 15.4 19-Jun 10:00 AM Leading Indicators – 0.50% 0.40% 19-Jun 10:30 AM Natural Gas Inventories – NA 107 bcf
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.