Its a very strong Seller’s market
New home sales surged in April, pending sales of existing properties are up, and so are home prices.
In other words, the real estate market is “really hot” right now, according to the CEO of online real estate search and brokerage firm Redfin. “It’s a very strong seller’s market. We’ve got homes selling in 45 minutes in places like Omaha and Atlanta,” Glenn Kelman said.
The whole country “has been on fire in the past few months. It’s just a really hot market.” A slew of positive economic data was released last week, suggesting the housing market recovery was continuing to gain traction.
Pending Home Sales for April rose 3.4 percent from March, to the highest level in nine years, according to figures released Thursday by the National Association of Realtors. Pending sales are now up 14 percent from a year ago.
Meanwhile, the closely-watched S&P/Case-Shiller Index showed housing prices in 20 cities climbed 5 percent year-over-year in March.
Supply is still tight, and buyers are flooding into the market trying to beat mortgage rate increases, Kelman noted. Many market watchers expect the Federal Reserve to begin raising interest rates in September, which will push up mortgage rates.
“Most of the buyers we talk to are really frustrated because they’re getting into bidding wars, not just with two or three other buyers but with 5, 10 ,15 buyers,” he said.
“Some of our markets are saying this is crazier than we ever saw in 2007, 2006 so really we’re going to see stronger price increases over the next two or three months than we saw previously,” Kelman added.
What Happened to Rates Last Week?
Mortgage backed securities (MBS) gained +54 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to improve very slightly on a week-over-week basis.
But, for the second straight month, MBS prices ended again on a down note as mortgage rates have very slowly and steadily increased in April and May.
As usual, we had another mixed bag of economic data last week.
On the housing front, it looked very good as every economic releases showed better than expected results. Case Shiller showed that home prices improved more than expected (5.0% vs est of 4.6%), New Home Sales were better (517K vs est of 510K) and Pending Home Sales were more than three times higher than market expectations (3.4% vs est of 1.0%). This clearly shows that the very small uptick in mortgage rates is more than offset by an improving labor market.
We had a couple of consumer readings that showed improvement. Consumer Confidence was brighter than expected (95.4 vs est of 94.0) and the Consumer Sentiment Index reversed the slide from the previous month for a nice gain (90.7 vs est of 89.0).
But it was a mixed bag on the manufacturing side. We did see some improvement in Durable Goods Orders (ex Transportation) with a better than expected gain of 0.5%. However, the Chicago PMI showed contraction (46.2) and was a very disappointing reading.
The spotlight was on Friday’s GDP report. The first revision to the 1st QTR GDP brought the number down from +0.2% to -0.7%. The market was expecting a downward revision in the -0.7% to 1.0% range with the majority expecting a reading of -.08%. This reading will be revised one more time. Historically you would expected MBS to rally on a negative GDP reading. And while MBS did improve a smidge…it wasn’t a rally. Why? First, this downward revision was actually on the lighter side of expectations. Secondly, this is OLD data, we are only one month away from the 3rd QTR. And Finally, St. Louis Fed Pres James Bullard said it best that morning……that the first QTR of 2014 was actually much worse and the Fed ended up seeing a very strong economy in the second half of that year. The Fed expects to “power through” the weak first quarter of 2015 as well and sees strong growth for the second half of the year again.
What to Watch Out For This Week:
Date Time (ET) Economic Release Actual Market Expects Prior 1-Jun 8:30 AM Personal Income – 0.30% 0.00% 1-Jun 8:30 AM Personal Spending – 0.20% 0.40% 1-Jun 8:30 AM PCE Prices – Core – 0.20% 0.10% 1-Jun 10:00 AM ISM Index – 51.9 51.5 1-Jun 10:00 AM Construction Spending – 0.80% -0.60% 2-Jun 10:00 AM Factory Orders – 0.00% 2.10% 2-Jun 5:00 PM Auto Sales – NA 5.3M 2-Jun 5:00 PM Truck Sales – NA 7.9M 3-Jun 7:00 AM MBA Mortgage Index – NA -1.60% 3-Jun 8:15 AM ADP Employment Change – 200K 169K 3-Jun 8:30 AM Trade Balance – -$44.0B -$51.4B 3-Jun 10:00 AM ISM Services – 57.1 57.8 3-Jun 10:30 AM Crude Inventories – NA -2.802M 3-Jun 2:00 PM Fed’s Beige Book – NA NA 4-Jun 7:30 AM Challenger Job Cuts – NA 52.80% 4-Jun 8:30 AM Initial Claims – 280K 282K 4-Jun 8:30 AM Continuing Claims – 2215K 2222K 4-Jun 8:30 AM Productivity-Rev. – -2.90% -1.90% 4-Jun 8:30 AM Unit Labor Costs – Rev – 5.90% 5.00% 4-Jun 10:30 AM Natural Gas Inventories – NA 112 bcf 5-Jun 8:30 AM Nonfarm Payrolls – 225K 223K 5-Jun 8:30 AM Nonfarm Private Payrolls – 225K 213K 5-Jun 8:30 AM Unemployment Rate – 5.40% 5.40% 5-Jun 8:30 AM Hourly Earnings – 0.20% 0.10% 5-Jun 8:30 AM Average Workweek – 34.5 34.5 5-Jun 2:00 PM Consumer Credit – $17.0B $20.5B
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.