More Solid Growth in Existing Home Sales
With low interest rates and a labor market that is steadily growing its only a lack of inventory that keeping home sales from rising even more.
Existing-home sales steadily increased for the third consecutive month in July, while stubbornly low inventory levels and rising prices are likely to blame for sales to first-time buyers falling to their lowest share since January, according to the National Association of Realtors®.
Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased 2.0 percent to a seasonally adjusted annual rate of 5.59 million in July from 5.48 million in June. Sales in July remained at the highest pace since February 2007 (5.79 million), have now increased year-over-year for ten consecutive months and are 10.3 percent above a year ago (5.07 million).
The median existing-home price for all housing types in July was $234,000, which is 5.6 percent above July 2014. July’s price increase marks the 41st consecutive month of year-over-year gains.
Total housing inventory at the end of July declined 0.4 percent to 2.24 million existing homes available for sale, and is now 4.7 percent lower than a year ago (2.35 million). Unsold inventory is at a 4.8-month supply at the current sales pace, down from 4.9 months in June.
Lawrence Yun, NAR chief economist, says the increase in sales in July solidifies what has been an impressive growth in activity during this year’s peak buying season. “The creation of jobs added at a steady clip and the prospect of higher mortgage rates and home prices down the road is encouraging more households to buy now,” he said. “As a result, current homeowners are using their increasing housing equity towards the downpayment on their next purchase.”
What Happened to Rates Last Week?
Mortgage backed securities (FNMA 3.50 MBS) gained +73 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move lower. It was a nice reversal after two straight weeks of MBS pricing falling (higher rates).
Our domestic economic data didn’t materially change the landscape as it trended in the same direction that we have been seeing. And that is strength in some areas such as housing (Existing Home Sales) and labor (Philly Fed employment component) and slow growth in other areas such as manufacturing. Overall, the economy is growing at a slow to moderate pace which is very bond-friendly as it puts the prospect of inflation further down the road.
The real action started on Wednesday with the release of the minutes from the last FOMC meeting. There were just as many dovish (keep rates lower longer) as there were hawkish (raise rates now or soon). The overall tone was that the Fed stands ready to raise rates and that they just need to see a little more growth in the labor sector. But the financial markets zeroed in on a comment that the Fed was concerned about China…and that it was off to the races for MBS pricing as story after story out of China showed economic weakness and financial instability which caused foreign investors to dump their stocks and park their cash in the nice and safe warm waters of U.S. Treasuries and Mortgage Backed Securities.
This flight to quality went global with our own stock market (DJIA) tanking over 200 points on Thursday and a whopping 500 points on Friday.
What to Watch Out For This Week:
|Date||Time (ET)||Economic Release||Actual||Market Expects||Prior|
|25-Aug||9:00 AM||Case-Shiller 20-city Index||–||5.00%||4.90%|
|25-Aug||9:00 AM||FHFA Housing Price Index||–||NA||0.40%|
|25-Aug||10:00 AM||New Home Sales||–||507K||482K|
|25-Aug||10:00 AM||Consumer Confidence||–||92.6||90.9|
|26-Aug||7:00 AM||MBA Mortgage Index||–||NA||3.60%|
|26-Aug||8:30 AM||Durable Orders||–||-0.80%||3.40%|
|26-Aug||8:30 AM||Durable Goods -ex transportation||–||0.50%||0.80%|
|26-Aug||10:30 AM||Crude Inventories||–||NA||+2.620M|
|27-Aug||8:30 AM||Initial Claims||–||272K||NA|
|27-Aug||8:30 AM||Continuing Claims||–||2239K||NA|
|27-Aug||8:30 AM||GDP – Second Estimate||–||3.10%||2.30%|
|27-Aug||8:30 AM||GDP Deflator – Second Estimate||–||2.00%||2.00%|
|27-Aug||10:00 AM||Pending Home Sales||–||1.00%||-1.80%|
|27-Aug||10:30 AM||Natural Gas Inventories||–||NA||53 bcf|
|28-Aug||8:30 AM||Personal Income||–||0.30%||0.40%|
|28-Aug||8:30 AM||Personal Spending||–||0.40%||0.20%|
|28-Aug||8:30 AM||PCE Prices – Core||–||0.10%||0.10%|
|28-Aug||10:00 AM||Michigan Sentiment – Final||–||93||92.9|
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.