The Commerce Department said today that new home sales for August came in at a seasonally adjusted annual rate of 609,000 units last month. Sales were up 20.6 percent from a year ago.
Economists had forecast single-family home sales, which account for roughly 10 percent of all home sales, falling to a rate of 600,000 units last month.
July’s sales pace was revised up 5,000 units to 659,000 units. That level of annualized sales is the highest since October 2007.
New home sales have also benefited from a dearth of previously owned houses available for sale.
Last month, the inventory of new homes on the market rose 1.7 percent to 235,000 units.
At August’s sales pace it would take only 4.6 months to clear the supply of houses on the market, up from 4.2 months in July.
The median price for a new home is now at $284,000.
What Happened to Rates Last Week?
Mortgage backed securities (FNMA 3.00 MBS) lost gained +40 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move lower for the week.
While the Federal Reserve sucked all of the oxygen out of the room, quietly it was the shrinking German 10Y bund yield that had the most impact on MBS trades as it fell back below zero and the benchmark negative rates overseas made our relatively higher yield MBS very attractive.
The Talking Fed:
Here is what happened and how the bond market reacted.
2:00EST Fed releases their official policy statement: https://www.federalreserve.gov/newsevents/press/monetary/20160921a.htm
They also released their economic projections: https://www.federalreserve.gov/monetarypolicy/fomcprojtabl20160921.htm
These projections include data that many put into the infamous “dot plot” chart which is listed below (you can see that 14 out of 17 have a rate hike listed for 2016 with two meetings to go:
Midpoint of target range or target level (Percent)
Key Take-aways from their release:
For the first time since their Sept 2014 meeting, we had 3 votes against. Voting against the action were: Esther L. George, Loretta J. Mester, and Eric Rosengren, each of whom preferred at this meeting to raise the target range for the federal funds rate to 1/2 to 3/4 percent.
– Left their key interest rate at 0.2% to 0.5%.
– Kept their MBS purchase program in place will continue to reinvest all principal received on existing MBS holdings to purchase new MBS every week. (has been averaging $7B per week).
– Lowered their 2016 GDP estimate from 2.0% down to 1.8%.
– Now projecting 2% inflation rate not until 2017
– Said that economic activity picked up from the modest pace seen in the first half of this year.
– Key quote: “The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives.”
Then at 2:30EST, Fed Chair Janet Yellen held a live press conference.
– Had a “hawkish” tone with the statement “the case for an increase in fed funds rates has strengthened but [we] decided, for the the time being, to wait for further evidence of continued progress.”
– Said “Our decision does not reflect a lack of confidence in the economy,”
– Said “Conditions in the labor market have strengthened and we expect that to continue, and while inflation remains low we expect it to rise to our 2 percent objective over time.”
– Said “We are generally agreed that gradual increases in the federal funds rate to remove what is a modest degree of accommodation will be appropriate, but we don’t see the economy as overheating now,”
– Said “risks to the outlook have become roughly balanced.”
– Said “I would expect to see (a rate increase this year) if we continue on the current course of labor market improvement, and there are no major risks that develop and we stay on the current course,”
Boston Fed President Eric Rosengren (the third dissenting vote) said he expects Unemployment to drop to 4.5% by 2019 (which means steady and maximum employment over the next 2.5 years). And said the sustainability of the economic expansion makes the case for raising interest rates compelling.
Former Fed Chair Alan Greenspan said that he sees a very scary bond bubble on the horizon.
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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