Pending home sales, based on signed contracts but not yet closed, rose 0.2 percent in June compared to May and is 1 percent higher than June 2015, according to the National Association of Realtors (NAR).
The improvement puts sales at the second-highest level of the last 12 months.
“Until inventory conditions markedly improve, far too many prospective buyers are likely to run into situations of either being priced out of the market or outbid on the very few properties available for sale,” said Lawrence Yun, the NAR’s chief economist, in a release.
Housing inventory was almost 6 percent lower at the end of June compared to a year ago, and home prices, while easing up slightly, are still rising at a faster pace than wage and income growth.
Realtors say the one positive development in the first half of this year was a decline in investor sales activity, from a high of 18 percent in February to a low of 11 percent in June. That is the smallest share since July 2009 and likely due to the drop in the number of distressed homes for sale.
“Limited selection of homes at bargain prices is reducing the number of individual investors willing or able to buy,” wrote Yun. “This will hopefully open the door for first-time buyers, who made some progress last month but are still buying homes at a subpar level even as rents increase at rates not seen since before the downturn.”
What Happened to Rates Last Week?
Mortgage backed securities (FNMA 3.00 MBS) lost -21 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move higher for the week.
We had a very choppy session with MBS selling off Monday through Wednesday on very strong domestic economic data (ISM Manufacturing and Non-Manufacturing) and then sharp gains on Thursday due to the Bank of England action only to be reversed with a sharp selloff on Friday due to strong jobs data.
ISM Manufacturing: Just like Friday’s robust Chicago PMI data, the July national ISM Manufacturing reading was very strong, coming in at 52.6 vs est of 53.0. It was the second highest reading since August of 2015.
Services: The July ISM Non Manufacturing index was very strong with a 55.5 reading which was very close to estimates of 55.8. Anything above 50 shows a month-over-month expansion in the services sector which accounts for 80% of our economy.
Jobs, Jobs, Jobs: It’s was BIG Jobs Friday and let’s look at the Tale of the Tape:
Non-Farm Payrolls for July 255K vs est of 180K
Non-Farm Payrolls for June revised upward from 287K to 292K
Non-Farm Payrolls for May revised upward from 11K to 22K
Non-Farm Payrolls 3 month rolling average is now 190K.
Average Hourly Wages showed strong pressure on labor costs, moving up 0.3% vs June’s level of 0.1%. YOY Average Hourly Wages are at 2.6%.
The Unemployment Rate remained at June’s level of 4.9%, the market was anticipating a small improvement to 4.8%.
The Participation rate improved from 62.7% in June to 62.8% in July which is why the Unemployment Rate did not decrease.
The Average Hourly Work Week increased to 34.5 hours and overtime increased. Both are signals that the labor market is tight.
More highlights: Professional and business services added 70,000 jobs in July and has added 550,000 jobs over the past 12 months. Within the industry, employment rose by 37,000 in professional and technical services in July, led by computer systems design and related services (+8,000) and architectural and engineering services (+7,000). Employment in management and technical consulting services continued to trend up (+6,000). In July, health care employment increased by 43,000, with gains in ambulatory health care services (+19,000), hospitals (+17,000), and nursing and residential care facilities (+7,000). Over the past 12 months, health care has added 477,000 jobs. Employment in financial activities rose by 18,000 in July and has risen by 162,000 over the year.
Across the Pond:
Great Brittan: As expected, the Bank of England took action and lowered their key interest rate for the first time since March 2009. They cut 25 BPS to lower the rate to 0.25%. The rate move was a unanimous vote. They also:
– Expanded their QE by 60 billion to bring the total to 435 billion pounds. The vote was 6-3 on this item and it was a bit of a surprise to the markets.
– Up to 10 billion of the new QE may now be used to purchase corporate bonds which is also a new move. The vote was 8-1 on that item.
– They lowered their outlook (due to the Brexit) from 2.3% GDP in 2017 down to 0.8% but does not see a recession.
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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