The March Pending Home Sales (homes with contracts on them but have not closed) were much better than market forecasts but have hit a road block.
Homes are selling at close to the fastest rate in recorded history, and 42 percent of homes sold at or above list price in March (the second highest amount since NAR began tracking in December 2012).
Lawrence Yun, NAR chief economist, says sparse inventory levels caused a pullback in pending sales in March, but activity was still strong enough to be the third best in the past year. “Home shoppers are coming out in droves this spring and competing with each other for the meager amount of listings in the affordable price range,” he said. “In most areas, the lower the price of a home for sale, the more competition there is for it. That’s the reason why first-time buyers have yet to make up a larger share of the market this year, despite there being more sales overall.”
Pointing to revealing data from the March Realtors® Confidence Index, Yun worries that the painfully low supply levels this spring could heighten price growth — at 6.8 percent last month — even more in the months ahead. Homes in March came off the market at a near-record pace, and indicating an increase in the likelihood of listings receiving multiple offers, 42 percent of homes sold at or above list price (the second highest amount since NAR began tracking in December 2012).
“Sellers are in the driver’s seat this spring as the intense competition for the few homes for sale is forcing many buyers to be aggressive in their offers,” said Yun. “Buyers are showing resiliency given the challenging conditions. However, at some point — and the sooner the better — price growth must ease to a healthier rate. Otherwise sales could slow if affordability conditions worsen.”
Yun forecasts for existing-home sales to be around 5.64 million this year, an increase of 3.5 percent from 2016 (5.45 million). The national median existing-home price this year is expected to increase around 5 percent. In 2016, existing sales increased 3.8 percent and prices rose 5.1 percent.
What Happened to Rates Last Week?
Mortgage backed securities (FNMA 3.50 MBS) lost just -2 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move sideways from the prior week. The market saw its lowest rates on Monday and its highest rates on Tuesday.
With just a two basis point change for an entire week, MBS were trapped in a fairly narrow range. We had a mixed bag of economic data with a weaker than expected 1st QTR GDP report but had very strong manufacturing and consumer sentiment readings. The Trump administration avoided a government shut down and released some “core principals” in the form of a tax plan outline but the markets are awaiting more granular details that we wont see until June.
GDP: We got the first glimpse at the the first quarter Gross Domestic Product and it was a very mixed bag. If you look at the headline GDP reading it fell short of expectations (0.7% vs est of 1.1%). But the Prices Paid PPI jumped to 2.2% vs est of 2.0%, the Employment Cost Index was also higher than expected (0.8% vs est of 0.6%) and PCE (QoQ) was 2.4% vs est of 2.3%). So, by every metric other than the headline reading, this was stronger than expected as far as inflation/wages. Historically, the final reading is always higher than the preliminary reading so its very probable that when the smoke clears that this reading is back closer to 1.0%. Still fairly tame though.
Chicago PMI: The April reading was much higher than expected (58.3 vs est of 56.4) and was the highest reading since January 2015.
Consumer Sentiment: The final reading for April (mid month reading was 98) came in at 97 vs est of 97.9. This is the second best reading of the year and very solid.
Pending Sales: Were a little better than expected for March, falling -0.8% vs a larger pull backed expected of -1.0%.
Durable Goods: This report has been all over the place and we get another mixed reading. The March headline reading missed expectations (0.7% vs est of 1.2%), but more than offsetting that is the upward revision to Feb from 1.7% to 2.3%. Same story when you strip out Transportation. It missed with a reading of -0.2% vs est of 0.4%, but Feb was revised upward from 0.4% to 0.7%.
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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