After sitting tight for four straight months, confidence among U.S. homebuilders improved in June. A monthly survey of builder sentiment from the National Association of Home Builders (NAHB) rose two points to 60. Anything above 50 is considered “positive” sentiment.
“Builders in many markets across the nation are reporting higher traffic and more committed buyers at their job sites,” said NAHB Chairman Ed Brady, a homebuilder and developer from Bloomington, Illinois. “However, our members are also relating ongoing concerns regarding the shortage of buildable lots and labor and noting pockets of softness in scattered markets.”
June’s reading is the highest since January of this year but the same as June of 2015. Of the index’s three components, all posted gains. Current sales conditions rose one point to 64, sales expectations in the next six months increased five points to 70. Buyer traffic rose three points to 47, but it is still the only component in negative territory.
“Rising home sales, an improving economy and the fact that the HMI gauge measuring future sales expectations is running at an eight-month high are all positive factors indicating that the housing market should continue to move forward in the second half of 2016,” said NAHB chief economist Robert Dietz.
Homebuilders have benefited from very short supply of existing homes for sale nationwide, but their costs continue to rise, and they are passing those on to buyers in the form of higher prices. Sales of newly built homes jumped dramatically in April, as did prices. The median price of a newly built home hit $321,100, up 9.7 percent year-over-year to the highest level on record.
What Happened to Rates Last Week?
Mortgage backed securities (FNMA 3.00 MBS) gained +17 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to improve slightly from the prior week.
We had several positive economic reports however, they were overshadowed by global Central Bank inaction. And there inaction was due to polling data that showed a significant shift towards the “leave” vote among the British.
Central Bank Palozza: The bull dog is wagging its tail. The bull dog is the Brexit (get it? a British bull dog…Im very clever) and the tail is the Central Banks. After our Fed bowed out Wednesday, we had two more that did nothing as the world is on pause until this week’s vote.
Bank of England: The BofE left their key interest rate unchanged at 0.5% and their asset purchase program at the same levels, the vote was 9 to 0 as obviously, they do not want to do anything until the vote.
Bank of Japan: The BofJ was actually widely believed to ease some more at this meeting but they took their marching orders and held off citing their Upper House elections and the Brexit. But traders expect an easing at the next meeting.
The Talking Fed: You can read their official policy statement here: http://www.federalreserve.gov/newsevents/press/monetary/20160615a.htm
You can read their economic projections here: http://www.federalreserve.gov/monetarypolicy/fomcprojtabl20160615.htm
Key points of the Fed’s policy statement:
– Last meeting, Esther George voted against leaving rates alone, instead favoring a rate hike. This time around she changed her vote so that it was unanimous.
– Only one Fed member in March expected just one rate hike in 2016 (Meaning everyone else expected two or more rate hikes in 2016). This time around there are now 6 Fed members that expect only 1 rate hike in 2016.
– Says Growth in economic activity has picked up.
– Says Labor Market Indicators to strengthen gradually but that the pace of labor growth is slowing.
– Mentioned a strong 2.5% increase in wages on a YOY basis.
– Cut its expectation for full-year gross domestic product growth, from 2.2 percent at the March meeting to 2.0 percent this week. The committee also lowered its 2017 projection a notch, from 2.1 percent to 2.0 percent.
During Janet Yellen’s Live Press Conference she was directly asked about the Brexit and said that it was discussed and was a big concern of the Fed.
She also reiterated that they are not on any kind of fixed path for rate increase, cuts, or leaving them alone.
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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