Existing Home Sales Spike
Sales of homes that have been previously occupied (the largest segment of the housing market) jumped up to 5.35 million units in May, easily topping the consensus estimates of 5.25 million. This was a 5.1% gain over April’s data.
The median home price jumped up 7.9% from the same period last year. The median price was $228,700 and marks the 39th consecutive month of gains.
Lawrence Yun, NAR chief economist, says May home sales are now at their highest pace since November 2009 (5.44 million). “Solid sales gains were seen throughout the country in May as more homeowners listed their home for sale and therefore provided greater choices for buyers,” he said. “However, overall supply still remains tight, homes are selling fast and price growth in many markets continues to teeter at or near double-digit appreciation. Without solid gains in new home construction, prices will likely stay elevated — even with higher mortgage rates above 4 percent.”
Looks like the seller’s market will continue for this summer.
What Happened to Rates Last Week?
Mortgage backed securities (FNMA 3.50 MBS) gained +68 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to decrease from the prior week but are still much higher than last May.
So far for the month of June, MBS have sold off -101 basis points which have caused mortgage rates to increase from May’s levels significantly.
Last week was about two key themes. Concern over Greece and the Federal Reserve.
Since the Federal Reserve gave long bond traders what they expected, Greece actually had more influence on our rates improving last week.
Greece is the word: Mortgage Backed Securities received some new demand which pushed our benchmark MBS upward and caused mortgage rates to decrease due to renewed concern that a deal would not get done between Greece and their creditors (IMF, ECB, etc). Neither parties “blinked” last week and it will take Greece, not the ECB/IMF to alter their position in order for a deal to be achieved. And Greece simply wasn’t making any concessions.
The Fed: The Federal Reserve gave long bond traders exactly what they expected. And that was no change in interest rates this meeting but leaving the door open for a rate hike at the September meeting. Here are some highlights:
– 15 out of 17 FOMC members see a Fed Fund Rate Hike this year. With the majority seeing an average of 0.625% Fed Fund Rate. In order to get to that rate, you would need two rate hikes assuming a minimum hike of 0.25%. Based upon the number of Fed meetings left in the year…that means that the majority of the voting members (ie decision makers) in the Fed are saying that there will be a rate hike in September. Now….that is what they are saying in their math. Their policy statement is a lot less direct.
– Economic activity has been expanding “moderately”
– “The pace of job gains picked up,” it said, and “underutilization of labor resources diminished somewhat” since their last meeting in April. (this is a decent upgrade in language from their last statement)
– “The committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of earlier declines in energy and import prices dissipate.”
What to Watch Out For This Week:
Date Time (ET) Economic Release Actual Market Expects Prior 22-Jun 10:00 AM Existing Home Sales – 5.26M 5.04M 23-Jun 8:30 AM Durable Orders – -0.50% -1.00% 23-Jun 8:30 AM Durable Goods -ex transportation – 0.60% -0.20% 23-Jun 9:00 AM FHFA Housing Price Index – NA 0.30% 23-Jun 10:00 AM New Home Sales – 525K 517K 24-Jun 7:00 AM MBA Mortgage Index – NA NA 24-Jun 8:30 AM GDP – Third Estimate – -0.20% -0.70% 24-Jun 8:30 AM GDP Deflator – Third Estimate – -0.10% -0.10% 24-Jun 10:30 AM Crude Inventories – NA NA 25-Jun 8:30 AM Initial Claims – 271K 267K 25-Jun 8:30 AM Continuing Claims – 2210K 2222K 25-Jun 8:30 AM Personal Income – 0.50% 0.40% 25-Jun 8:30 AM Personal Spending – 0.70% 0.00% 25-Jun 8:30 AM PCE Prices – Core – 0.10% 0.10% 25-Jun 10:30 AM Natural Gas Inventories – NA 89 bcf 26-Jun 10:00 AM Michigan Sentiment – Final – 94.8 94.6
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.