Home Builders Confidence Hits Highest Level in 2015
Sentiment among U.S. home builders took a sharp jump in June to the highest level of the year, despite rising costs for consumers. Builder confidence rose five points to 59 from May’s reading on the National Association of Home Builders’ Housing Market Index (HMI).
This is the highest reading since September, 2014. Anything over 50 is considered positive sentiment. Last June, builder sentiment stood at 49, just before moving into positive territory, where it has remained ever since.
“Builders are reporting more serious and committed buyers at their job sites and this is reflected in recent government data showing that new-home sales and single-family construction are gaining momentum,” said NAHB Chairman Tom Woods, a home builder from Blue Springs, Missouri.
Sales of newly built homes in April (the latest reading available) were 26 percent higher than a year ago, according to the U.S. Census, and housing starts were 9 percent higher. Builders are seeing strong demand, due to very limited supply of existing homes for sale, but the price premium on new construction has been holding some buyers back.
The median sale price of a newly built home in April was $297,300, an increase of 8.3 percent from April of 2014. Of the HMI’s three builder confidence components, current sales conditions rose seven points to 65, sales expectations over the next six months rose 6 points to 69, and buyer traffic rose five points to 44. That last component the only one still mired in negative territory.
What Happened to Rates Last Week?
Mortgage backed securities (FNMA 3.50 MBS) lost -8 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to rise to their highest levels of 2015 (so far).
So far for the month of June, MBS have sold off -169 basis points which have caused mortgage rates to increase from May’s levels significantly.
Many long-bond traders feel that last week’s positive economic data and inflationary readings have given the Federal Reserve the ammunition it needs to begin raising rates. The only question in their mind is if the Fed will raise rates in June or September.
Across the board, every economic report last week was positive. Both Wholesale Inventories andBusiness Inventories were double the market forecasts. Retail Sales were better than expectations and showed a very nice month-over-month gain and Consumer Sentiment shot up from 90.7 to 94.6 and handily beat market expectations.
But the “data dependent” Fed is watching two things very closely. And that is Jobs and Inflation. On the Jobs front, the JOLTS report showed a big improvement from 4.994M to 5.376M jobs ready to hire qualified personnel and the Labor Market Conditions Index rose from -1.9 in April to +1.3 in May. Both reports basically mirrored the very strong Non-Farm Payroll data we got a week ago.
On the Inflation front, things have finally turned around as oil prices have moved well off their bottoms and that is starting to show back up in our Producer Price Index report. PPI moved from -0.4% in April all the way up to +0.5% in May. And Import Prices also moved from negative (costing your less) to positive (costing you more) -0.3% in April to +1.3% in May.
We had two very strong Treasury auctions with outstanding demand (as reflected in the bid-to-cover ratios) for out 10 year note and 30 year bonds. However, we had to pay a much higher interest rate for each auction compared to a month ago….so we had to effectively “buy” the demand and it is reflective of the larger trend towards gradually higher rates.
What to Watch Out For This Week:
Date Time (ET) Economic Release Actual Market Expects Prior 15-Jun 8:30 AM Empire Manufacturing – 6 3.1 15-Jun 9:15 AM Industrial Production – 0.30% -0.30% 15-Jun 9:15 AM Capacity Utilization – 78.30% 78.20% 15-Jun 10:00 AM NAHB Housing Market Index – 56 54 15-Jun 4:00 PM Net Long-Term TIC Flows – NA $17.6B 16-Jun 8:30 AM Housing Starts – 1100K 1135K 16-Jun 8:30 AM Building Permits – 1100K 1143K 17-Jun 7:00 AM MBA Mortgage Index – NA NA 17-Jun 10:30 AM Crude Inventories – NA -6.812M 17-Jun 2:00 PM FOMC Rate Decision – 0.25% 0.25% 18-Jun 8:30 AM Initial Claims – 276K 279K 18-Jun 8:30 AM Continuing Claims – 2270K 2265K 18-Jun 8:30 AM CPI – 0.50% 0.10% 18-Jun 8:30 AM Core CPI – 0.20% 0.30% 18-Jun 8:30 AM Current Account Balance – -$116.4B -$113.5B 18-Jun 10:00 AM Philadelphia Fed – 8 6.7 18-Jun 10:00 AM Leading Indicators – 0.40% 0.70% 18-Jun 10:30 AM Natural Gas Inventories – NA 111 bcf
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.