Home Builder’s Sentiment Jumps Two Points


Builder confidence in the market for newly constructed single-family homes  in August rose two points to 60 from a reading of 58 in July on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI). Any reading above 50 is positive, a reading below 50 is negative.

“New construction and new home sales are on the rise in most areas of the country, and this is helping to boost builder sentiment,” said NAHB Chairman Ed Brady, a home builder and developer from Bloomington, Ill.

“Builder confidence remains solid in the aftermath of weak GDP reports that were offset by positive job growth in July,” said NAHB Chief Economist Robert Dietz.  “Historically low mortgage rates, increased household formations and a firming labor market will help keep housing on an upward path during the rest of the year.”

Two of the three HMI components posted gains in August. The component gauging current sales conditions rose two points to 65, while the index charting sales expectations in the next six months increased one point to 67.  The component measuring buyer traffic fell one point to 44.

Looking at the three-month moving averages for regional HMI scores, the South registered a two-point uptick to 63, the Northeast rose two points to 41 while the West was unchanged at 69. The Midwest dropped two points to 55.

What Happened to Rates Last Week?


Mortgage backed securities (FNMA 3.00 MBS) gained just 6 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move sideways for the week.

Our benchmark Fannie Mae 3.00 coupon traded in a fairly tight range that saw terrific support (kept rates from rising) but also very solid resistance (kept rates from falling).

Texas Tea, Black Gold:  Oil has had a larger impact on MBS trades as low oil prices signal no inflation (and no rate hike) while rising prices can pressure inflation and give the Fed an opening to raise rates.  Last week, WTI Oil rose from $41.99 on Monday and closed at $44.69 on Friday. This rise in prices provided some significant headwinds for our MBS trades.

Retail Sales: The biggest report of the week was a mixed bag at best.  Certainly the July readings were weaker than expected with the Headline MOM reading flat vs expectations for a nice 0.4% gain.  But June was revised from 0.6% to 0.8%..so if it were not for the upward revisions to the baseline, Retail Sales would have been in the +0.2% range…still half of expectations.  When you strip out Autos, then you really see where the weakness is.  Ex-Autos, the July reading was -0.3% vs expectations of +0.2%.  But its another case where the prior month (June) was revised upward 0.7% to 0.9%.  So, if June wasn’t revised upward, this might have come in around -0.1%…still falling shy of expectations but not as bad as the printed reading would suggest.

Jobs, Jobs, Jobs: The June Job Openings and Labor Turnover Survey (JOLTS) was a little better than expected (5.6M vs est of 5.52M), with that many unfilled jobs, there is plenty of room for more NFP gains of close to 200K without any problem.

Small Business Optimism: The NFIB Index for July improved to 94.6 which was higher than forecasts calling for 93.2 and was the fourth straight monthly increase.  Plans to add more employees rose 1 point to 12 and expectations that the economy will improve increased by 4 points.

The IBD/TIPP Economic Optimism reading for August was stronger than expected, hitting 48.4 vs est of 46.2 and a big improvement over June’s 45.5 reading.

Across the Pond:
China:  While the U.S. is posting 0.0% gain in Retail Sales, China’s reading hit 10.2%, but this was a little lighter than forecasts calling for 10.5%
Germany: Their 2nd QTR GDP was double market expectations (0.4% vs of 0.2%) and on  YOY basis, their GDP was 3.1% vs est of 1.5%.  Very strong data.
Eurozone: Their 2nd QTR GDP matched expectations of 0.3% and on a YOY basis it was -0.7% but that is twice as good as the market expectations of -1.5%

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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Taff Weinstein


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