Prices Rise Strongly in April
New U.S. single-family home sales rose more than expected in April and the median price surged, suggesting the housing market recovery was continuing to gain traction.
With housing supply still tight, the median price for a new home rose 8.3 percent from a year ago to $297,300. While higher home prices could reduce affordability, they boost household equity, which could boost consumer spending.
The Commerce Department said on Tuesday sales increased 6.8 percent to a seasonally adjusted annual rate of 517,000 units. March’s sales pace was revised up to 484,000 units from the previously reported 481,000 units.
The upbeat report added to housing starts data in indicating that housing was gaining momentum after treading water for much of last year. Economists believe housing will take the baton from a lethargic manufacturing sector and help to drive economic growth this year.
Housing is being buoyed by a strengthening jobs market, which is encouraging young adults to set up their own households.
New homes sales jumped 36.8 percent in the Midwest to a seven-year high and increased 5.8 percent in the South. Sales fell 5.6 percent in the Northeast and slipped 2.3 percent in the West.
The stock of new houses available on the market rose 0.5 percent last month to 205,000. Supply still remains less than half of what it was at the height of the housing boom, good news for home builders who will need to ramp up construction.
At April sales pace it would take 4.8 months to clear the supply of houses on the market, down from 5.1 months in March.
Mortgage backed securities (MBS) lost -47 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to higher. We had another very volatile week with moderate swings in pricing with a net difference of -83 BPS from our intraday high to our intraday low.
For the second straight week, we kicked it off with a sell off on Monday and then spent the rest of the week trying to recover.
On the Housing Front, we got some positive news with continued expansion in the Home Builder’s Sentiment Index (54) and better than expected readings in both New Housing Starts and Building Permits. Plus, both readings were above 1 million units. Existing Home Sales stayed above 5 million units on an annualized basis and would have been much more if it weren’t for the lack of available inventory.
On the jobs front, Initial Weekly Claims hit its lowest level in 15 years and the Average Wages component of the CPI report on Friday showed a gain of 2.3% which was up from 2.1% in March. This is certainly an area that the “data dependent” Federal Reserve is focusing as they have stated multiple times that a reduction in labor slack would be a big part of their decision on when to start to tighten their Fed Funds Rate.
The biggest event of the week was Wednesday’s release of the minutes from the last Fed meeting. They didn’t really give us anything new to sink our teeth into. While there might be a few things that they included in the minutes…none of it was new because the bond market already knew it and we have had a plethora of “talking feds” over the past month and they have all spelled out their own opinions.
Here are some broad strokes:
Only a few of the voting members expected a rate hike at the June meeting – dovish
BUT that doesn’t mean that a rate hike is completely ruled out and what about a rate hike at September since they only talked about June? – hawkish
They used the word “patience” 5 times in their last meeting but zero times in the April meeting – hawkish
They are glossing over the 1st QTR weakness due to weather and an important port being shutdown by the union strike…this is nothing new but it does provide them with a reason to discount the weak 1st QTR as a “one off” and not a trend.
Highlighted concern over rising interest rates after the Fed tightens due to the massive amount of bond holdings that would start to sell off – hawkish year Treasury note auction and our 30 year Treasury bond auction. However it came at a price as we had to pay a higher interest rate to attract purchasers of our long term debt.
What to Watch Out For This Week:
Date Time (ET) Economic Release Actual Market Expects Prior 26-May 8:30 AM Durable Orders – -0.60% 4.40% 26-May 8:30 AM Durable Goods -ex transportation – 0.30% 0.40% 26-May 9:00 AM Case-Shiller 20-city Index – 4.60% 5.00% 26-May 9:00 AM FHFA Housing Price Index – NA 0.70% 26-May 10:00 AM New Home Sales – 510K 481K 26-May 10:00 AM Consumer Confidence – 94 95.2 27-May 7:00 AM MBA Mortgage Index – NA -1.50% 28-May 8:30 AM Initial Claims – 274K 274K 28-May 8:30 AM Continuing Claims – 2250K 2211K 28-May 10:00 AM Pending Home Sales – 1.00% 1.10% 28-May 10:30 AM Natural Gas Inventories – NA 92 bcf 28-May 11:00 AM Crude Inventories – NA -2.674M 29-May 8:30 AM GDP – Second Estimate – -0.70% 0.20% 29-May 8:30 AM GDP Deflator – Second Estimate – -0.10% -0.10% 29-May 9:45 AM Chicago PMI – 53 52.3 29-May 10:00 AM Michigan Sentiment – Final – 89 88.6
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.