Pending Home Sales Rise
In a housing market equipped with very low mortgage rates, Unemployment at 5% and steady appreciation…..there is just one thing missing: Inventory.
The Pending Home Sales Index, a forward-looking indicator based on contract signings, inched 0.2 percent to 107.7 in October from an upwardly revised 107.5 in September and is now 3.9 percent above October 2014 (103.7). The index has increased year-over-year for 14 consecutive months.e largest segment of the housing market continues to hold on. Year-over-year, existing home sales rose 3.8% and is on track to record their best annual sales in eight years.
Although further expansion in existing-sales is expected next year, ongoing inventory shortages and affordability pressures from rising prices and mortgage rates will likely temper sales growth to around 3 percent (5.45 million) in 2016. Home prices are expected to slightly moderate from a 6 percent increase in 2015 to 5 percent next year.
“Unless sizeable supply gains occur for new and existing homes, prices and rents will continue to exceed wages into next year and hamstring a large pool of potential buyers trying to buy a home,” says NAR Chief Economist, Lawrence Yun.
What Happened to Rates Last Week?
Mortgage backed securities (FNMA 3.50 MBS) gained just +13 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move sideways from the prior week.
We had a holiday-shortened week with a glut of economic data crammed into just a few trading sessions. But when the smoke cleared, the totality of the economic data did nothing to change the bias of long bond traders towards a December rate hike. That is why rates moved sideways.
GDP: As expected the 3rd QTR GDP was revised upward but it was a mixed bag. Third-quarter GDP was revised to 2.1 percent (vs est of 2.0%), up 6 tenths from the initial estimate but showing less strength by the consumer with final sales now at plus 2.7 from plus 3.0 percent. Higher inventories were a big factor in the upward revision.
Housing: The Case-Shiller Home Price Index was a tad stronger than expected with a reading of 5.5% vs est of 5.0%. Not really a factor in rates the Existing Home Sales report confirmed 44 straight months of YOY median price gains. The FHFA Home Price Index showed a very nice spike of 0.8% which was higher than the market expectations of 0.5%. On a YOY basis, it was up a nice and respectable 6.1%. New Home Sales had a healthy increase from September (+10.7%) but its too small of a niche to impact the bond market.
Durable Goods Orders: No matter how you slice it, this was a strong report. The headline data was twice as strong as expected (3.0% vs est of 1.5%), plus September was revised upward significantly (-1.2% to -0.8%). The Ex-Transportation reading was also better than expected (0.5% vs est of 0.3%) and also saw a positive revision to September (-0.4% to -0.1%). New orders for machinery jumped 1.6 percent with computer orders up 5.5 percent and communications equipment up 1.8 percent. These gains speak to a rebound in expectations among businesses which perhaps are now looking for strength in the new year. Commercial aircraft orders surged more than 200 percent, which is an anomaly. In a sign of weakness out transportation, orders for motor vehicles fell 2.9 percent in the month. But this decline is probably not the beginning of a trend given still very strong vehicle sales. Overall this report was negative for rates.
State of the Consumer: The University of Michigan’s Consumer Sentiment Index for November was revised lower from the preliminary release of 93.0 down to 91.3 which was weaker than expected.Consumer Confidence was another mixed bag. October was revised upward (from 97.6 to 99.1) which is pretty strong. But the November Headline reading was much lower than market expectations (90.4 vs est of 99.5). This type of miss is normally positive for pricing. However, it appears most of the miss was due to a big pull back in confidence over jobs. Yes…this is counter to what you might think but consumers are saying there are fewer jobs available and it worries them. However, the flip side is that it jives with our very low unemployment rate and is actually strength in the labor market.
What to Watch Out For This Week:
|Date||Time (ET)||Economic Release||Actual||Market Expects||Prior|
|30-Nov||9:45 AM||Chicago PMI||–||55||56.2|
|30-Nov||10:00 AM||Pending Home Sales||–||0.70%||-2.30%|
|1-Dec||10:00 AM||Construction Spending||–||0.70%||0.60%|
|1-Dec||10:00 AM||ISM Index||–||50.4||50.1|
|1-Dec||5:00 PM||Auto Sales||–||NA||5.9M|
|1-Dec||5:00 PM||Truck Sales||–||NA||8.6M|
|2-Dec||7:00 AM||MBA Mortgage Index||–||NA||-3.20%|
|2-Dec||8:15 AM||ADP Employment Change||–||185K||182K|
|2-Dec||8:30 AM||Unit Labor Costs-Rev||–||1.20%||1.40%|
|2-Dec||10:30 AM||Crude Inventories||–||NA||0.961M|
|2-Dec||2:00 PM||Fed’s Beige Book||–||NA||NA|
|3-Dec||7:30 AM||Challenger Job Cuts||–||NA||-14.00%|
|3-Dec||8:30 AM||Continuing Claims||–||2177K||2207K|
|3-Dec||8:30 AM||Initial Claims||–||267K||260K|
|3-Dec||10:00 AM||Factory Orders||–||1.10%||-1.00%|
|3-Dec||10:00 AM||ISM Services||–||58.3||59.1|
|3-Dec||10:30 AM||Natural Gas Inventories||–||NA||9 bcf|
|4-Dec||8:30 AM||Average Workweek||–||NA||34.5|
|4-Dec||8:30 AM||Hourly Earnings||–||NA||0.40%|
|4-Dec||8:30 AM||Nonfarm Payrolls||–||196K||271K|
|4-Dec||8:30 AM||Nonfarm Private Payrolls||–||NA||268K|
|4-Dec||8:30 AM||Trade Balance||–||NA||-$40.8B|
|4-Dec||8:30 AM||Unemployment Rate||–||NA||5.00%|
|4-Dec||8:30 AM||Nonfarm Private Payrolls||–||185K||268K|
|4-Dec||8:30 AM||Unemployment Rate||–||5.00%||5.00%|
|4-Dec||8:30 AM||Hourly Earnings||–||0.20%||0.40%|
|4-Dec||8:30 AM||Average Workweek||–||34.5||34.5|
|4-Dec||8:30 AM||Trade Balance||–||-$43.0B||-$40.8B|