Pending Home Sales Spike to Best Level Since June 2013
Last week we reported that Existing-home sales jumped in March to their highest annual rate in 18 months but that is a backward looking report.
Pending Home Sales are for contracts that are signed but not yet closed and is more of a leading indicator of where housing is headed. And Pending Home Sales delivered more good news as it rose for the third straight month and hit their best levels since June of 2013.
Lawrence Yun, NAR chief economist, says contract signings picked up in March as more buyers than usual entered this year’s competitive spring market. “Demand appears to be stronger in several parts of the country, especially in metro areas that have seen solid job gains and firmer economic growth over the past year,” he said. “While contract activity being up convincingly compared to a year ago is certainly good news, the increased number of traditional buyers who appear to be replacing investors paying in cash is even better news. It indicates this year’s activity is being driven by more long-term homeowners.”
“Demand in many markets is far exceeding supply, and properties in March sold at a faster rate than any month since last summer,” he said. “This in turn has pushed home prices to unhealthy levels — nearly four or more times above the pace of wage growth in some parts of the country. Simply put, housing inventory for new and existing homes needs to improve measurably to improve affordability.”
What Happened to Rates Last Week:
Mortgage backed securities (MBS) lost -100 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move higher from the prior the week and hit their highest levels since March.
Our benchmark FNMA 3.0 May coupon sold off and had a very clear trend line downward towards higher rates as long bond traders’ sentiment showed the following:
– That they feel the economy is growing (despite the 1st QTR GDP miss) at just enough of a pace that will lead to lower levels of inflation (which bond traders hate).
– That the Federal Reserve is likely to begin their first round of interest rate hikes by September or even sooner.
– The risk premium over Greece defaulting and the domino effect it would have in Europe is dissipating as the European economy is stronger than it was a year ago and that capital controls are in place to mitigate the damage.
Our 1st QTR GDP was much lower than expected (0.2% vs est of 1.0%). However, this data point did not have a major impact on rates as traders view this as old data and from a period that was hammered by weather and strikes at an important port that prevented billions of dollars in trade.
The Federal Reserve had their say and they didn’t really say anything new. The market focused actually on what they didn’t say. They removed calendar references to policy timings but they already told the world that the would be doing that. They reminded the markets, once again, that they are “data dependent” and if they see continued improvement in labor conditions and/or inflation, then they will be begin to raise rates.
Even though the first quarter GDP was dismal, there was actually plenty of more current data points last week and they were positive for the economy and therefore negative for rates. Consumer Sentiment hit its 2nd highest level since 2007. Manufacturing showed strength with expansionary readings in both the Chicago PMI and ISM Manufacturing readings. We also saw some very solid readings in the housing market with gains in home prices with the Case-Shiller home price index and very strong Pending Home Sales.
What to Watch Out For This Week:
|Date||Time (ET)||Economic Release||Actual||Market Expects||Prior|
|4-May||10:00 AM||Factory Orders||–||2.10%||0.20%|
|5-May||8:30 AM||Trade Balance||–||-$40.0B||-$35.4B|
|5-May||10:00 AM||ISM Services||–||56.4||56.5|
|6-May||7:00 AM||MBA Mortgage Index||–||NA||-2.30%|
|6-May||8:15 AM||ADP Employment Change||–||189K||189K|
|6-May||8:30 AM||Unit Labor Costs – Prel||–||4.20%||4.10%|
|6-May||10:30 AM||Crude Inventories||–||NA||1.910M|
|7-May||7:30 AM||Challenger Job Cuts||–||NA||6.40%|
|7-May||8:30 AM||Initial Claims||–||280K||262K|
|7-May||8:30 AM||Continuing Claims||–||2300K||2253K|
|7-May||10:30 AM||Natural Gas Inventories||–||NA||81 bcf|
|7-May||3:00 PM||Consumer Credit||–||$16.0B||$15.5B|
|8-May||8:30 AM||Nonfarm Payrolls||–||213K||126K|
|8-May||8:30 AM||Nonfarm Private Payrolls||–||205K||129K|
|8-May||8:30 AM||Unemployment Rate||–||5.40%||5.50%|
|8-May||8:30 AM||Hourly Earnings||–||0.20%||0.30%|
|8-May||8:30 AM||Average Workweek||–||34.6||34.5|
|8-May||10:00 AM||Wholesale Inventories||–||0.30%||0.30%|
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.