Pending Home Sales Stronger than Expected

By Taff Weinstein at

Pending Home Sales Stronger than Expected

Pending home sales increased in August, a welcome rebound after a prior month of declines, according to the National Association of Realtors®. Each of the four major regions reported both month-over-month growth and year-over-year gains in contract activity.

The Pending Home Sales Index (PHSI), a forward-looking indicator based on contract signings, climbed 1.6% to 107.3 in August, reversing the prior month’s decrease. Year-over-year contract signings jumped 2.5%. An index of 100 is equal to the average level of contract activity.

“It is very encouraging that buyers are responding to exceptionally low interest rates,” said Lawrence Yun, NAR chief economist. “The notable sales slump in the West region over recent years appears to be over. Rising demand will reaccelerate home price appreciation in the absence of more supply.”

All regional indices are up from July, with the highest gain in the West region. The PHSI in the Northeast rose 1.4% to 94.3 in August and is now 0.7% higher than a year ago. In the Midwest, the index increased 0.6% to 101.7 in August, 0.2% higher than August 2018.

Pending home sales in the South increased 1.4% to an index of 124.4 in August, a 1.8% bump from last August. The index in the West grew 3.1% in August 2019 to 96.4, an increase of 8.0% from a year ago.

Yun noted that historically low interest rates will affect economic growth, especially home buying, going forward.

“With interest rates expected to remain low, home sales are forecasted to rise in the coming months and into 2020,” said Yun. “Unfortunately, so far in 2019, new home construction is down 2.0%. The hope is that housing starts quickly move into higher gear to meet the higher demand. Moreover, broader economic growth will strengthen from increased housing activity.”

Source: The National Association of Realtors

Mortgage backed securities (FNMA 3.500 MBS) lost just -1 basis point (BPS) from last Friday's close which caused fixed mortgage rates to remain unchanged from than the prior week.

Overview:  Mortgage rates moved sideways as speculation and sentiment towards a trade deal with China pressured rates higher while offsetting that was the geo-political uncertainty of a potential impeachment that pressured rates lower.  These two opposing forces squeezed rates to move sideways.

Inflation Nation:  The Fed's key measure of inflation, Core PCE YOY matched market expectations with a 1.8% reading in August. The pace was 1.7% in July.  The headline PCE was 1.4% vs est of 1.3%.

Income and Spending:  Personal Income continues to grow, this time by 0.4% in August.  Personal Spending grew by 0.1% which was below estimates of 0.3%.

Durable Goods:  The August Headline Durable Goods Orders was better than expected (0.2 vs est of -1.2).  Ex Transportation it grew at 0.5% vs est of 0.2%. 

Consumer Sentiment:  The final reading for the September UofM Consumer Sentiment Index was revised higher from 92.0 to 93.2

Taking it to the House:  August Pending Home Sales MOM were much better than expected with a 1.6% vs est of 0.9%. YOY they came in at +2.5% vs est of -1.9% which is a huge beat. Weekly Mortgage Applications decreased by -10.1%  led by a big drop of -15.0% in Refinance Applications.  Purchase Applications were more level at -3.0%.  New Home Sales in August shot up and beat out estimates (713K vs est of only 660K).

Gross Domestic Product: The third and final release of the 2nd QTR GDP remained at 2.0% which was widely expected.  The Price Index was revised higher from 2.5% to 2.6%, the markets were expecting it to be revised lower to 2.4%.

What to Watch Out For This Week:

Mortgage backed securities (FNMA 3.500 MBS) lost just -1 basis point (BPS) from last Friday's close which caused fixed mortgage rates to remain unchanged from than the prior week.

Overview:  Mortgage rates moved sideways as speculation and sentiment towards a trade deal with China pressured rates higher while offsetting that was the geo-political uncertainty of a potential impeachment that pressured rates lower.  These two opposing forces squeezed rates to move sideways.

Inflation Nation:  The Fed's key measure of inflation, Core PCE YOY matched market expectations with a 1.8% reading in August. The pace was 1.7% in July.  The headline PCE was 1.4% vs est of 1.3%.

Income and Spending:  Personal Income continues to grow, this time by 0.4% in August.  Personal Spending grew by 0.1% which was below estimates of 0.3%.

Durable Goods:  The August Headline Durable Goods Orders was better than expected (0.2 vs est of -1.2).  Ex Transportation it grew at 0.5% vs est of 0.2%. 

Consumer Sentiment:  The final reading for the September UofM Consumer Sentiment Index was revised higher from 92.0 to 93.2

Taking it to the House:  August Pending Home Sales MOM were much better than expected with a 1.6% vs est of 0.9%. YOY they came in at +2.5% vs est of -1.9% which is a huge beat. Weekly Mortgage Applications decreased by -10.1%  led by a big drop of -15.0% in Refinance Applications.  Purchase Applications were more level at -3.0%.  New Home Sales in August shot up and beat out estimates (713K vs est of only 660K).

Gross Domestic Product: The third and final release of the 2nd QTR GDP remained at 2.0% which was widely expected.  The Price Index was revised higher from 2.5% to 2.6%, the markets were expecting it to be revised lower to 2.4%.

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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