Pending Home Sales Increase Despite Inventory Shortages:
After declining for three straight months, pending home sales reversed course in June as all major regions, except for the Midwest, saw an increase in contract activity, according to the National Association of Realtors®.
The Pending Home Sales Index*, www.nar.realtor/topics/pending-home-sales, a forward-looking indicator based on contract signings, climbed 1.5 percent to 110.2 in June from an upwardly revised 108.6 in May. At 0.5 percent, the index last month increased annually for the first time since March.
Lawrence Yun, NAR chief economist, says the bounce back in pending sales in most of the country in June is a welcoming sign. “The first half of 2017 ended with a nearly identical number of contract signings as one year ago, even as the economy added 2.2 million net new jobs,” he said. “Market conditions in many areas continue to be fast paced, with few properties to choose from, which is forcing buyers to act almost immediately on an available home that fits their criteria.”
Added Yun, “Low supply is an ongoing issue holding back activity. Housing inventory declined last month and is a staggering 7.1 percent lower than a year ago.”
Yun does note that there could potentially be a sliver of increased hope in the months ahead for prospective first-time buyers, who continue to struggle reaching the market1. Sales to investors last month were the lowest of the year (13 percent), which helped push all cash transactions to 18 percent – the smallest share since June 2009 (13 percent).
“It appears the ongoing run-up in price growth in many areas and less homes for sale at bargain prices are forcing some investors to step away from the market,” said Yun. “Fewer investors paying in cash is good news as it could mean a little less competition for the homes first-time buyers can afford. However, the home search will still likely be a strenuous undertaking in coming months because supply shortages in most areas are most severe at the lower end of the market.”
Heading into the second half of the year, Yun expects existing-home sales to finish around 5.56 million, which is an increase of 2.6 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.
The PHSI in the Northeast inched forward 0.7 percent to 98.0 in June, and is now 2.9 percent above a year ago. In the Midwest the index decreased 0.5 percent to 104.0 in June, and is now 3.4 percent lower than June 2016.
Pending home sales in the South rose 2.1 percent to an index of 126.0 in June and are now 2.6 percent above last June. The index in the West grew 2.9 percent in June to 101.5, but is still 1.1 percent below a year ago.
What Happened to Rates Last Week?
Mortgage backed securities (FNMA 3.50 MBS) lost -10 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move slightly higher from the prior week. The market saw its lowest rates on Monday and its highest rates on Tuesday.
The bond market focused on the Federal Reserve as they hoped to learn more about the timing of their taper for MBS and Treasury purchases as well as any potential rate hike. But really, the Fed gave very little (if any) guidance that the markets could trust. While the lack of direction from the Fed was good for mortgage rates, the combination of rising Oil prices and strong domestic economic data (Durable Goods and GDP) were negative for mortgage rates.
The Talking Fed: We got a mixed bag from the FOMC, it was actually fairly balanced and gave some dovish and hawkish commentary. You can read their official policy statement here
Here are the key highlights:
– They left their key inflation rate unchanged
– Unlike the last meeting, this was a unanimous vote
On the Balance Sheet (taper):
– reinvesting to continue “for the time being” but the normalization plan (taper) will being “relatively soon”. The bond market interprets that to mean an announcement in September and the beginning of the taper in December.
– Tweaked their language from their last statement to show that inflation is no longer “somewhat below” their target rate as they also dropped “recently” when describing headline and core inflation dropping. This is telling the markets that the Fed has shifted from pushing the “transitory” theme when in addressing inflation running below 2% and that it will remain below 2% for longer, but still sees inflation hitting 2%.
– risks to economic outlook appear roughly balanced
– Labor Market strengthened and activity rose moderately. Job gains have been “solid”.
– Household spending and fixed investment have continued to expand
Durable Goods: The Headline reading which contains the very volatile transportation and defense sectors jumped 6.5% vs. est of 3.00%. This was a big beat considering that the prior month (May) was revised upward significantly from -1.1% to -0.1%. Ex Transportation Durable Goods Missed with a 0.2% gain vs of 0.4%. However, the main culprit was a large upward revision to May from 0.1% to 0.6%.
Gross Domestic Product: We got our first glimpse at the 2nd QTR GDP (it will be revised several time). The market was expecting a strong growth rate of 2.6% and that is exactly what we got. But the final revision to the 1st QTR dropped from 1.4% to 1.2%. Some bright spots include Consumer Spending growing at a very strong 2.8% rate and Business Investment up 5.2%. But inflation was very low with Core PCE dropping to 0.9%.
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.