Builder Confidence Highest Since 2005
A monthly sentiment index from the National Association of Home Builders rose 1 point to 61, the highest level since November 2005. Any reading above 50 is considered positive. The index stood at 55 one year ago.
“Today’s report is consistent with our forecast for a gradual strengthening of the single-family housing sector in 2015,” said NAHB Chief Economist David Crowe. “Job and economic gains should keep the market moving forward at a modest pace throughout the rest of the year.”
Of the index’s three components, buyer traffic increased 2 points to 45—the only component still in negative territory. Current sales conditions rose 1 point to 66, while sales expectations in the next six months held steady at 70.
Regionally, based on a three-month moving average, homebuilder confidence in the West and Midwest each rose 3 points to 63 and 58, respectively. The South gained 2 points to 63 and the Northeast held steady at 46. The Northeast has the smallest share of home construction nationally.
What Happened to Rates Last Week?
Mortgage backed securities (FNMA 3.50 MBS) lost -44 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move higher. We saw our lowest rates on Tuesday and our highest rates on Friday.
The dominate story for long bonds (and therefore mortgage rates) was clearly the concern over a potential currency war with China. Tuesday, The People’s Bank of China (PBOC) devalued their currency (Yuan) by the most on record. The PBOC was trying to jump start their economy by making their exports more attractive to foreign buyers because of the lower currency (you can buy more for less). This caused wide spread disruption across all markets. However long bonds settled down and started to give up their low yields as China spent the next three trading sessions supporting their currency and making several moves to keep their currency from devaluing.
Domestically ,we got some news on the big three areas of our economy: Jobs, Inflation, and Sales.
On the Jobs front, the four week moving average for the Weekly Jobless Claims data fell to its lowest level in 42 years which continues to show decent improvement in the labor market.
Retail Sales is where it all starts…and then trickles down to manufacturing, hiring, etc. July’s reading was “nice” but not a block buster. The headline reading beat expectations by a tick (+0.6% vs est of 0.5%). When you strip out the big ticket Autos, Retail Sales rose +0.4% vs est of +0.5%. The real story is the fact that June was revised upward significantly. Headline June sales was revised from -0.3% to 0.0% and ex Autos from -0.1% all the way up to +0.4%. That is a huge swing. And it is yet another report that the 2nd quarter is much stronger than originally thought.
One of many measures of inflation, Producer Price Index (PPI) was released. The headline reading for July showed a month-over-month (MOM) increase of 0.2% which was 100% higher than market expectations. The Core PPI was 0.3% which was three times higher than market expectations. Guest room rental jumped 9.9%. This did provide some slight pressure on pricing but the market knows that there is not any real threat of inflation in the short term. This report really has no impact on the timing of the Fed Rate hike as they have made it clear that they expect inflation to remain low for a very long time and they are focusing on labor slack instead.
What to Watch Out For This Week:
|Date||Time (ET)||Economic Release||Actual||Market Expects||Prior|
|17-Aug||8:30 AM||Empire Manufacturing||–||5||3.9|
|17-Aug||10:00 AM||NAHB Housing Market Index||–||61||60|
|17-Aug||4:00 PM||Net Long-Term TIC Flows||–||NA||$93.0B|
|18-Aug||8:30 AM||Housing Starts||–||1200K||1174K|
|18-Aug||8:30 AM||Building Permits||–||1257K||1343K|
|19-Aug||7:00 AM||MBA Mortgage Index||–||NA||0.10%|
|19-Aug||8:30 AM||Core CPI||–||0.20%||0.20%|
|19-Aug||10:30 AM||Crude Inventories||–||NA||-1.682M|
|19-Aug||2:00 PM||FOMC Minutes||–||–||–|
|20-Aug||8:30 AM||Initial Claims||–||272K||274K|
|20-Aug||8:30 AM||Continuing Claims||–||2265K||2273K|
|20-Aug||10:00 AM||Existing Home Sales||–||5.42M||5.49M|
|20-Aug||10:00 AM||Philadelphia Fed||–||7||5.7|
|20-Aug||10:00 AM||Leading Indicators||–||0.20%||0.60%|
|20-Aug||10:30 AM||Natural Gas Inventories||–||NA||65 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.