Pending Home Sales Much Stronger than Expected
The National Association of Realtors (NAR) reported that July Pending Home Sales increased by 3.3%, the consensus estimates were projecting a much smaller gain of only 0.6%. Pending Home Sales are homes that have a sales contract in place and are in the process of closing but have not yet closed.
They have now risen four out of the last five months.
Lawrence Yun, NAR chief economist, says favorable housing conditions are behind July’s higher contract activity. “Interest rates are lower than they were a year ago, price growth continues to moderate and total housing inventory is at its highest level since August 2012,” he said. “The increase in the number of new and existing homes for sale is creating less competition and is giving prospective buyers more time to review their options before submitting an offer.”
Yun adds, “More importantly, steady job additions to the economy are helping family finances and giving them added confidence to enter the market.”
The two biggest head winds for the housing market have been job growth and inventories. Inventories were at historic lows for much of last year, so an increase of available homes on the market have helped sales to improve.
What Happened to Rates Last Week:
Mortgage backed securities (MBS) gained +37 basis points (BPS) from last Friday’s close which caused 30 year fixed mortgage rates to decrease and wiped out the prior week’s -37 BPS sell off. We saw our best rates on Friday and our worst rates on Monday.
We had several economic reports that showed more positive momentum for our economy. Both the Consumer Confidence(92.4 vs est of 89.0) and Consumer Sentiment Index (82.5 vs est of 80.2) were better than expected and show that consumers have a positive outlook on our economy which may lead to more spending down the road. Our 2nd quarter GDP was revised upward from 4.0% to 4.2% which shows that the initial reading of 4.0% was not a fluke.
Durable Goods Orders were very high with a reading of 22.6 but it was discounted by traders as the majority of the spike in orders were large Boeing and other transport sector orders. Pending Home Sales were better than expected (+3.3% vs est of +0.6%) which may be reflective of the strong consumer readings mentioned above. Inflation was very low with the PCE year-over-year reading at 1.6% which is well below the Fed’s target of 2.0% and to round out the week we had a very robust Chicago PMI reading (64.3 vs est of 56.0) which shows strong demand for manufactured goods.
So, overall the economic data was strong and that would “normally” cause MBS to sell off and cause mortgage rates to rise. But they didn’t. Instead they improved which caused mortgage rates to get better. This was directly due to heightened concern over Ukraine and Russia as Russian troops were in territory claimed by Ukraine but controlled and occupied by Pro-Russian separatists. And financial markets across the world were concerned that this would escalate into a full blown war. That is why we saw the best pricing of the week on Friday as traders “parked” their money in the low-yield and high-safety world of long bonds ahead of the three day weekend.
What to Watch Out For This Week:
|Date||Time (ET)||Economic Release||Actual||Market Expects||Prior|
|2-Sep||10:00 AM||ISM Index||–||57||57.1|
|2-Sep||10:00 AM||Construction Spending||–||1.00%||-1.80%|
|3-Sep||7:00 AM||MBA Mortgage Index||–||NA||2.80%|
|3-Sep||10:00 AM||Factory Orders||–||11.00%||1.10%|
|3-Sep||2:00 PM||Fed’s Beige Book||–||–||–|
|3-Sep||2:00 PM||Auto Sales||–||NA||5.8M|
|3-Sep||2:00 PM||Truck Sales||–||NA||7.4M|
|4-Sep||7:30 AM||Challenger Job Cuts||–||NA||24.40%|
|4-Sep||8:15 AM||ADP Employment Change||–||220K||218K|
|4-Sep||8:30 AM||Initial Claims||–||300K||298K|
|4-Sep||8:30 AM||Continuing Claims||–||2525K||2527K|
|4-Sep||8:30 AM||Trade Balance||–||-$42.0B||-$41.5B|
|4-Sep||8:30 AM||Unit Labor Costs||–||0.50%||0.60%|
|4-Sep||10:00 AM||ISM Services||–||57.9||58.7|
|4-Sep||10:30 AM||Natural Gas Inventories||–||NA||75 bcf|
|4-Sep||11:00 AM||Crude Inventories||–||NA||-2.070M|
|5-Sep||8:30 AM||Nonfarm Payrolls||–||220K||209K|
|5-Sep||8:30 AM||Nonfarm Private Payrolls||–||200K||198K|
|5-Sep||8:30 AM||Unemployment Rate||–||6.10%||6.20%|
|5-Sep||8:30 AM||Hourly Earnings||–||0.20%||0.00%|
|5-Sep||8:30 AM||Average Workweek||–||34.5||34.5|
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.