Pending Home Sales Rise Again:
U.S. home buyer demand remained steady in July, an index of pending home sales from the National Association of Realtors, which represents signed contracts, not closings, rose 0.5 percent from an upwardly revised June reading.
The index is now up 7.4 percent from one year ago. The index has increased year-over-year for 11 consecutive months and is the third highest reading of 2015.
Just about every metric showed a very vibrant housing market that is constrained only by the lack of good quality available inventory. If there were more of it…it would be snapped up.
“Contract activity in most of the country held steady last month, which bodes well for existing-sales to maintain their recent elevated pace to close out the summer,” said Lawrence Yun, chief economist for the NAR in a release. “While demand and sales continue to be stronger than earlier this year, Realtors have reported since the spring that available listings in affordable price ranges remain elusive for some buyers trying to reach the market and are likely holding back sales from being more robust.”
Looking ahead, with inventory shortages likely to persist into the fall, Yun expects the national median existing-home price to increase 6.3 percent in 2015 to $221,400. Yun forecasts total existing-home sales this year to increase 7.1 percent to around 5.29 million, about 25 percent below the prior peak set in 2005 (7.08 million).
What Happened to Rates Last Week?
Mortgage backed securities (FNMA 3.50 MBS) lost -26 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move slightly higher.
We had a wild ride in our stock market (as measured by the Dow) with huge daily swings, yet our MBS pricing were largely insulated from the swing in stocks as long bond traders and short term stock traders had very different outlooks on economic and geopolitical events and their potential impact on future growth and Fed action.
Here is a very telling table that really spells this out:
As you can see by the table above we had very large swings in the stock market and in 2 of the 5 trading sessions both stock and bonds moved in the same direction (historically they have an inverse relationship). What is really interesting are days like Monday where we had a giant -588 point sell off in the stock market yet our benchmark MBS only moved 12 basis points (which is statistically insignificant) on a daily basis. August 26 makes more sense with a +609 rally in the stock market and a -33BPS sell off in the bond market. However, under “normal” circumstances that would be a -200 BPS sell off instead of only -33BPS in MBS. And then on Thursday we saw a giant +369 rally in the stock market and MBS also improved. Again, “normally” you would expect a big -100 or -200 BPS sell off in MBS.
As far as domestic economic data is concerned, overall it was much stronger than anticipated by economists, analysts and traders. Consumer Confidence was very robust coming it at a blistering 101.5 which is almost unheard of and handily beat forecasts of only 92.6. Next up was Durable Good Orders which was +2.0% and much, much stronger than forecasts only -0.8%. We then got our first revision to our 2nd QTR GDP data and it trumped all estimates – hitting 3.7% which was much higher than market estimates of 3.7%.
But much of the spotlight was on the Jacksonhole, WY Symposium that is put on every year by the Federal Reserve Bank of Kansas City and attended by all the major Central Bankers in the world. We had comments and speeches by several Federal Reserve Bank Presidents on Friday and their comments ranged from “lets raise rates already” to “we need to wait until 2016” and as a result, the bond market is still trying to hedge the probability of a Fed rate hike in September, October or December.
What to Watch Out For This Week:
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.
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.