Pending Home Sales Continue Upward Trend
A sharp jump in interest rates have not deterred some home buyers in May. Signed contracts to buy existing homes, so-called pending home sales, rose 0.9 percent in May from April, according to the National Association of Realtors. This the highest level on the association’s index since April of 2006. Pending sales are now 10.4 percent higher than one year ago.
“The steady pace of solid job creation seen now for over a year has given the housing market a boost this spring,” said Lawrence Yun, chief economist for the Realtors. “It’s very encouraging to now see a broad based recovery with all four major regions showing solid gains from a year ago and new home sales also coming alive.”
“Housing affordability remains a pressing issue with home-price growth increasing around four times the pace of wages,” added Yun. “Without meaningful gains in new and existing supply, there’s no question the goalpost will move further away for many renters wanting to become homeowners.”
Pending home sales rose 6.3 percent in the Northeast, and are 10.6 percent above a year ago. In the Midwest, sales declined 0.6 percent for the month, but are 7.8 percent above May 2014. In the South they fell 0.8 percent and are 10.6 percent above last May, and in the West sales rose 2.2 percent and are 13.0 percent above a year ago
What Happened to Rates Last Week?
Mortgage backed securities (FNMA 3.50 MBS) lost -121 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to increase from the prior week and reached our highest rates of 2015 for the second time this month.
So far for the month of June, MBS have sold off -222 basis points which have caused mortgage rates to increase from May’s levels significantly.
Across the board, every economic release last week was negative for mortgage backed security pricing as they showed economic growth and bonds don’t fare well in an environment of growth. That is why during periods of strong economic growth, interest rates are always high and during recessions, interest rates always fall.
The University of Michigan’s Consumer Sentiment Index spiked from 90.7 to 96.1 (well above the 94.6 preliminary print) just shy of 2015 highs (which are also the highest since 2004). The spike was driven by a surge in “Current Conditions” as hope for the future rose.
We continue to see very low readings in the Initial Weekly Jobless Claims data with a reading of 271K which matched expectations and the more closely watched 4 week moving average declined 3,250 to 273,750. So, the trend line is below 280K which is very “rosy” for the labor market.
Personal Income increased again, this time 0.5% which beat the market expectations of 0.4%, plus the prior month was revised upward. So..we are seeing fewer jobs lost and a pick up in income/wages…this is the very definition of a reduction in “labor slack” that Janet Yellen has been watching very closely.
Personal Spending: This has been the “missing piece” as we have seen a steady increase in the savings rate as wages have been rising but spending has not. The magical and massive spending that was supposed to happen as a result of the savings at the gas pump has never really materialized. But we might be seeing it now as Personal Spending spiked by the most in almost 6 years coming in at 0.9% and beating forecasts of 0.7%. The prior month was revised upward slightly as well.
GDP: The final revision to the first quarter moved the needle up from -0.7% to -0.2%, which is exactly what the market expected given the stronger construction and spending data from that period. MBS have had no reaction to this reading as this is old, old data that has been released three times now and the Fed has made it very clear that this data does not figure into their decision on when to hike rates as they are focusing on their forward looking projections.
Durable Goods Orders: The headline May data missed the average consensus of -0.5% with a reading of -1.8%. But actually the market had a very wide range of expectations that was from -.05% all the way up to -2.0%…so this fell near the bottom end of expectations. When you strip out the extremely volatile air craft and transportation sector it grew at +0.5% vs est of +0.6%.
Existing Home Sales: Were stronger than expected despite rising rates, coming it a 5.35M vs est of 5.25M and represent a 5.1% surge over April’s data. The median price increased to $228.700 and was the 39th straight month of pricing gains (appreciation to you and I). Inventory shortages of good homes (you know non-foreclosed junkers) remain a concern particularly in the lower priced homes and have actually restricted home sales.
New Home Sales: Followed the strong reading of the Existing Home Sales data and beat forecasts (546K vs est of 525K), plus April and March were all revised upward. So, this was great news for the housing market.
What to Watch Out For This Week:
Date Time (ET) Economic Release Actual Market Expects Prior 29-Jun 10:00 AM Pending Home Sales – 1.40% 3.40% 30-Jun 9:00 AM Case-Shiller 20-city Index – 5.60% 5.00% 30-Jun 9:45 AM Chicago PMI – 50 46.2 30-Jun 10:00 AM Consumer Confidence – 97.5 95.4 1-Jul 7:00 AM MBA Mortgage Index – NA 1.60% 1-Jul 7:30 AM Challenger Job Cuts – NA -22.50% 1-Jul 8:15 AM ADP Employment Change – 220K 201K 1-Jul 10:00 AM ISM Index – 53.2 52.8 1-Jul 10:00 AM Construction Spending – 0.20% 2.20% 1-Jul 10:30 AM Crude Inventories – NA -4.934M 1-Jul 5:00 PM Auto Sales – NA 5.9M 1-Jul 5:00 PM Truck Sales – NA 8.4M 2-Jul 8:30 AM Initial Claims – 270K 271K 2-Jul 8:30 AM Continuing Claims – 2231K 2247K 2-Jul 8:30 AM Nonfarm Payrolls – 230K 280K 2-Jul 8:30 AM Nonfarm Private Payrolls – 225K 262K 2-Jul 8:30 AM Unemployment Rate – 5.40% 5.50% 2-Jul 8:30 AM Hourly Earnings – 0.20% 0.30% 2-Jul 8:30 AM Average Workweek – 34.5 34.5 2-Jul 10:00 AM Factory Orders – 0.20% -0.40% 2-Jul 10:30 AM Natural Gas Inventories – NA 75 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.