The National Association of Realtors reported that their Pending Home Sales Index rose 1.4% from this point last year. And the Existing Home Sales Report showed an annual increase of 7.5% with an increase of home values over the past 12 months at 8.2%.
With super-low fixed mortgage rates and an Unemployment Rate below 5%, why aren’t sales even higher? Answer: .
Sellers are certainly in the driver’s seat as a lack of desirable homes in the popular price ranges are very tight as first-time buyers in high demand areas continue to encounter instances where their offer is trumped by cash buyers and investors. Without a much-needed boost in new and existing-homes for sale in their price range, their path to homeownership will remain an uphill climb.
The hope is that appreciating home values will start to entice more homeowners to sell. NAR Chief Economist, Lawrence Yun says supply and affordability conditions won’t meaningfully improve until homebuilders start ramping up production – especially of homes at lower price points, which is something that we are not seeing right now.
The bottom line is that there is strong demand for housing and even less than perfect homes are seeing a lot of interest. Buyers need to be ready to move quickly on any listing.
What Happened to Rates Last Week?
Mortgage backed securities (FNMA 3.00 MBS) lost -13 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move sideways from the prior week.
We had a 71 basis point spread between our lowest MBS pricing (highest rates) on Tuesday and our highest MBS pricing (lowest rates) on Wednesday….that is just a one day swing and that volatility was mostly due to fluctuations in Oil prices.
Texas Tea, Black Gold: WTI Oil prices continues to be a major factor in our pricing and rates. Lower Oil prices are really a proxy now for bond traders to bet/hedge on the timing of the next rate hike by the Federal Reserve. As Oil stays close to $30 or below, it prolongs our time at these uber low mortgage rates as traders are pricing in zero chance of a rate hike this year due to no inflation. But as Oil moves towards $35 per barrel, MBS start to sell off as it opens the window (at least in trader’s minds) of a rate hike or two this year.
Durable Goods: We much stronger than expected in January. This report has seen some wild swings in the past 12 months though. The headline reading was almost double the market expectations (4.9% vs est of 2.5%) and core number (Ex Transports) was a very strong 1.8% vs est of only 0.2%.
We have had a string of weak manufacturing reports but we wondered out loud if last week’s much stronger than expected Industrial Production report was an anomaly or a real sign of some progress. This reports puts manufacturing in that second category. While it is still too early to say that the manufacturing sector has come back to life, it is very clear that not all the data is negative either.
GDP: We got our first revision to the previously released 4th QTR GDP and it was much stronger than expected. It was originally released last month at 0.7%. The market was expecting it to be cut in half down to 0.4% with some estimates as low as 0.2%. But it surprised to the upside, hitting a solid 1.0%.
Personal Outlays: Across the board this is hotter than expected and negative for rates. Personal Income continues to increase, this time at 0.5% vs est of 0.4%. As we have discussed, wage inflation is real and it has been the only thing the Fed has been able to hang their hat on. Personal Spending finally saw some improvement and was stronger than expected as well (0.5% vs est of 0.3%). When the Fed talks about their 2% inflation rate, they are really talking about the YOY (year over year) Core PCE rate. This shot up from 1.4% in Dec to 1.7% in Jan and was much higher than forecasts of 1.2%. Its still below the 2% threshold though.
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.
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