Economic Momentum is Strengthening Home Buyer Demand
The housing market has been steadily growing and now has the potential to grow even more as mortgage rates remain low and have just ticked upward off of their one-year lows and credit is starting to loosen.
But what is ultimately driving demand is the strength in the labor market and related improvements in consumer attitudes.
Jobless claims in October remained beneath 300,000: The last month that averaged under 300,000 weekly claims was June 2000 (almost a 40 year low). Continuing claims were last this low at the height of the housing boom.
Consumer confidence and consumer sentiment are both now at seven-year highs.
The first estimate of the third quarter GDP indicated the economy expanded 3.5% as all sectors including government spending contributed to growth. The condition of the U.S. economy is clearly improving.
In every year of this recovery we’ve seen growth fade as we reached the fourth quarter. But this time it may be different as almost all the fundamentals are much healthier. Jonathan Smoke, Realtor. com’s chief economist, expects to see solid employment numbers for October this week and more positive momentum to carry the housing market through the winter.
What Happened to Rates Last Week:
Mortgage backed securities (MBS) lost -18 basis points (BPS) from last Friday’s close which caused 30 year fixed mortgage rates to move slightly higher from the prior week. This was the second straight week of MBS pricing declines (and therefore higher mortgage rates) after five straight weeks of improvement.
From a technical perspective, we pulled back into a new (and lower) trading channel that was capped by our 10 day moving average and supported by our 25 day moving average.
We had a very interesting week for economic news and data:
On the housing front, Pending Home Sales picked up 0.3% and the Case-Shiller Home Price Index increased by 5.6% which showed some nice and mild momentum in the housing market.
On the manufacturing front, Durable Goods Orders were much weaker than expected (-1.3% vs est of 0.5%). But the Chicago PMI had a block-buster reading of 66.2 which shows very strong expansion in our economy.
Consumers are certainly more optimistic as two separate reports showed better than expected results. Consumer Confidence moved upward to a very high reading of 94.5 when the market only expected 87.0 and The Consumer Sentiment Index was revised upward to 86.9 vs estimates of 86.4.
But the two biggest events were GDP and the Fed. The preliminary 3rd QTR GDP data was very strong at 3.5%( this number will be revised 2 times) which has long-bond traders thinking that there is very strong momentum going into the 4th QTR.
The Federal Reserve Open Market Committee (FOMC) didn’t really provide any surprises to the long-bond market during Wednesday’s release of their interest rate decision and policy statement. As expected, they formally announced the end of their massive QE program of purchasing U.S. Treasury and agency MBS each month (side note…they are still purchasing right now but their last check will be written in November). They also reiterated once again that they will not begin to raise rates until the data supports it. This has traders focusing on this week’s manufacturing and jobs data very intently.
What to Watch Out For This Week:
|Date||Time (ET)||Economic Release||Actual||Market Expects||Prior|
|3-Nov||10:00 AM||ISM Index||–||56.2||56.6|
|3-Nov||10:00 AM||Construction Spending||–||0.70%||-0.80%|
|3-Nov||2:00 PM||Auto Sales||–||NA||5.6M|
|3-Nov||2:00 PM||Truck Sales||–||NA||7.5M|
|4-Nov||8:30 AM||Trade Balance||–||-$40.1B||-$40.1B|
|4-Nov||10:00 AM||Factory Orders||–||-0.50%||-10.10%|
|5-Nov||7:00 AM||MBA Mortgage Index||–||NA||-6.60%|
|5-Nov||8:15 AM||ADP Employment Change||–||220K||213K|
|5-Nov||10:00 AM||ISM Services||–||58||58.6|
|5-Nov||10:30 AM||Crude Inventories||–||NA||2.061M|
|6-Nov||7:30 AM||Challenger Job Cuts||–||NA||-24.40%|
|6-Nov||8:30 AM||Initial Claims||–||285K||287K|
|6-Nov||8:30 AM||Continuing Claims||–||2380K||2384K|
|6-Nov||8:30 AM||Unit Labor Costs||–||0.90%||-0.10%|
|6-Nov||10:30 AM||Natural Gas Inventories||–||NA||87 bcf|
|7-Nov||8:30 AM||Nonfarm Payrolls||–||235K||248K|
|7-Nov||8:30 AM||Nonfarm Private Payrolls||–||228K||236K|
|7-Nov||8:30 AM||Unemployment Rate||–||5.90%||5.90%|
|7-Nov||8:30 AM||Hourly Earnings||–||0.20%||0.00%|
|7-Nov||8:30 AM||Average Workweek||–||34.6||34.6|
|7-Nov||3:00 PM||Consumer Credit||–||$16.0B||$13.5B
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.