The March Existing Home Sales data was much stronger than expected, rising 4.4% vs est of 2.5% and came in at 5.71M units vs est of 5.60M.
The median existing-home price for all housing types in March was $236,400, up 6.8 percent from March 2016 ($221,400). March’s price increase marks the 61st consecutive month of year-over-year gains.
Total housing inventory at the end of March increased 5.8 percent to 1.83 million existing homes available for sale, but is still 6.6 percent lower than a year ago (1.96 million) and has fallen year-over-year for 22 straight months. Unsold inventory is at a 3.8-month supply at the current sales pace (unchanged from February).
What Happened to Rates Last Week?
Mortgage backed securities (FNMA 3.50 MBS) lost -25 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move slightly higher from the prior week.
We had a very light week for domestic economic data and the data that was released had no impact on mortgage rates as the bond market continued to focus on geo-political events overseas, most notably the French elections and trouble with North Korea. Both events caused MBS pricing to remain at elevated levels but we simply plateaued on Tuesday (lowest rates of the week) and then began to “normalize” from those lofty levels.
The Talking Fed:
Last week, the Federal Reserve continued to remind the market place that there is another two rate hikes this year on tap and that they would begin to purchase less MBS and Treasuries by the end of the year. Both are very negative for rates. However, the bond market quite simply isn’t buying into their sentiment yet with less than a 50% chance of even one more rate hike this year currently priced in.
We got their Beige Book on Wednesday. This is prepared so that all the committee members can get a good understanding on how the 12 districts are doing and is to be used in their discussions for their May 2-3 policy meeting.
The Beige Book showed that economic activity increased in ALL 12 districts and was fairly positive as the economy expanded at a modest-to-moderate pace between mid-February and the end of March, but inflation pressures remained in check.
Boston Fed President Eric Rosengren said the Fed should begin shedding its bond holdings soon but do so in a very gradual way that has little effect on its planned interest rate hikes. He also said that using the balance sheet will become a more used tool by the Fed during the next recession.
Kansas City Fed President Esther George (non voting member now but in 2016 voted twice to raise rates) said that she supports the prompt and gradual process of paring some of the central bank’s $4.5 trillion in assets. She added that it should be done “on autopilot,” and not adjusted in reaction to short-term economic data, and that there may be “some tradeoff” with the Fed’s parallel plan to raise rates about three times per year.
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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