The Existing Home Sales report (homes that have been previously occupied) is hot off the press. The National Association of Realtors released the data this morning for the largest segment of our housing market.
Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, came in at an annual rate of 5.08 million in February which is 2.2 percent higher than a year ago.
Job growth and low rates continue to fuel the housing market but a severe lack of inventory is making it difficult to move at a faster pace and was the primary reason that the month-over-month reading fell.
The median existing-home price for all housing types in February was $210,800, up 4.4 percent from February 2015 ($201,900). February’s price increase marks the 48th consecutive month of year-over-year gains.
Total housing inventory at the end of February increased 3.3 percent to 1.88 million existing homes available for sale, but is still 1.1 percent lower than a year ago (1.90 million). Unsold inventory is at a 4.4-month supply at the current sales pace, up from 4.0 months in January.
All-cash sales were 25 percent of transactions in February, down from 26 percent both in January and a year ago. Individual investors, who account for many cash sales, purchased 18 percent of homes in February (17 percent in January), matching the highest share since April 2014. Sixty-four percent of investors paid cash in February.
What Happened to Rates Last Week?
Mortgage backed securities (FNMA 3.00 MBS) gained +59 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move lower and basically reversed the -60BPS loss from the prior week.
Net of the see-saw of the last two weeks (-60, +59), MBS are down -52BPS for the month of March. MBS had a volatile week with a 103 BPS swing between our intra-week lows and our intra-week highs.
MBS were trending lower (higher rates) until Wednesday’s FOMC meeting.
It was Central Bank Palooza last week and their collectively timid responses to global economic forces helped our long bonds to improve for the week as international investors bought our debt as the least-worst place to put their money.
Japan: The Bank of Japan’s Governor Haruhiko Kuroda and his board left their key interest rate alone which is at -0.1%. This was widely expected. They did say that they were prepared to drive that rate even more negative if the economy warrants it.
England: The Bank of England left their key interest rate unchanged and express concern over the falling value of their currency (Sterling). They also expressed concern over global growth and the looming “Brexit” vote. As a result of potentially not being in the EU (they never have been a part of the European Monetary Union but are part of the trade union), they are going to hold back on spending (for obvious reasons) until they know the outcome of the vote.
The Talking Fed: We got the latest and greatest from our Federal Reserve. As expected, they left their key interest rate unchanged.
The vote was 9-1 with the lone vote wanting to raise rates. The following is their official policy statement: https://www.federalreserve.gov/newsevents/press/monetary/20160316a.htm
They also released their summary of the Economic Projections. You can read the official release here: https://www.federalreserve.gov/monetarypolicy/fomcprojtabl20160316.htm
The Not So Data Dependent Fed: In the policy statement and in Yellen’s comments, they made it clear that that they are less concerned with domestic data and more concerned with China, Oil and global financial stability. Reading between the lines…it once again appears that other foreign Central Banks (China, Japan) and even OPEC can dictate our own policies in the near term.
They did note that Inflation has picked up but remains well below their target rate and might not break above 2% for 2 or 3 years (unless oil spikes). They reaffirmed that they will raise rate at a very gradual pace. They do acknowledge strong job gains. They did upgrade their concerns over global developments and that they continue to pose risk to our economy. The Fed is not considering nor going to implement any negative interest rate policies.
Projected Rate Path: In their published projections, the interest rate that has the greatest number of FOMC members (9) in it is 0.875% which would mean 2 rate hikes this year. There were a total of (7) that are projecting a rate of 1.00% or higher by the end of this year which would mean 3 rate hikes. So, while the headlines may say 2 rate hikes, in reality the members of the FOMC are actually solidly projecting 2 to 3 rate hikes this year which is a reduction from their last release (December) where their projections were for a solid 4 rate hikes.
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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