Market Commentary

 

For the week of June 26, 2017

Last Week in Review

"We always wanted a big two story house." George Jones and Tammy Wynette. Families are finding homebuying success even with limited inventory.  

May Existing Home Sales edged higher 1.1 percent from April to an annual rate of 5.62 million units, above the 5.52 million expected. Sales were up 2.7 percent from May 2016. Despite the increase, low inventories continue to be a problem with supply at a 4.2-month level.

May New Home Sales surged. The Commerce Department reported that New Home Sales in May jumped nearly 3 percent from April to an annual rate of 610,000, above the 599,000 expected. From May 2016 to May 2017, sales were up almost 9 percent with May being the second highest tally of 2017. Tight inventories of just a 4.6-month supply pushed the median price to a record $345,800. For both new and existing homes sales, a healthier inventory level is a six-month supply. 

Whether looking to purchase a first home, downsize or move into a dream home at this time, home loan rates remain near historic lows.

Forecast for the Week

In a wild week of data releases, the Federal Reserve and investors will be watching to see if inflation remains tame.

  • Manufacturing data serves as the bookends for the week, kicking off on Monday with Durable Goods Orders followed by the Chicago PMI on Friday.
  • Consumer Confidence will be released on Tuesday while the Consumer Sentiment Index comes out on Friday.
  • Pending Home Sales will be delivered on Wednesday.
  • Thursday brings the final read on first quarter Gross Domestic Product along with weekly Initial Jobless Claims.
  • The Fed's favorite inflation gauge, Core Personal Consumption Expenditures, will be released on Friday along with Personal Income and Personal Spending.

Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve. In contrast, strong economic news normally has the opposite result. The chart below shows Mortgage Backed Securities (MBS), which are the type of Bond on which home loan rates are based.

When you see these Bond prices moving higher, it means home loan rates are improving. When Bond prices are moving lower, home loan rates are getting worse.

To go one step further, a red "candle" means that MBS worsened during the day, while a green "candle" means MBS improved during the day. Depending on how dramatic the changes are on any given day, this can cause rate changes throughout the day, as well as on the rate sheets we start with each morning.  

As you can see in the chart below, Mortgage Bonds have been trading in a sideways holding pattern.

Chart: Fannie Mae 3.0% Mortgage Bond (Friday June 23, 2017)


 

For the week of June 19, 2017

Last Week in Review

"Don't bring me down." Electric Light Orchestra. Despite gains in April, consumers slowed down their purchases in May. 

Retail Sales in May saw the biggest decline since January 2016, the Commerce Department reported. Retail Sales were down 0.3 percent from April, in contrast to the 0.1 percent increase expected. Sales for motor vehicles and discretionary spending both fell. But, on a positive note, Retail Sales are up nearly 4 percent from a year ago.

Housing Starts fell 5.5 percent in May from April to an annual rate of 1.092 million units, below expectations per the Commerce Department. It was the lowest rate since September 2016 and the third straight month of declines. Single-family starts, which account for the biggest share of the residential housing market, fell to the lowest level in eight months. Builders cited a lack of skilled workers and a rise in building materials for the decline. Housing Starts are also down 2.4 percent from May 2016. Building Permits, a sign of future construction, fell 5 percent from April to May.

Consumer inflation remained tame in May. Year over year, the Consumer Price Index (CPI) fell to 1.9 percent after hitting 2.7 percent four months ago. Wholesale inflation as measured by the Producer Price Index was unchanged in May due to lower energy costs.

The Federal Reserve raised its benchmark Fed Funds Rate by a quarter percent after its June meeting, as forecasted, bringing the new target range to between 1.0 and 1.25 percent. This is the rate at which banks lend money to each other overnight and it does not directly impact long-term rates like home loan rates.

Despite recent volatility in the Bond market, home loan rates remain near historic lows. 

Forecast for the Week

April Existing and New Home Sales data disappointed. We'll find out if May's data heated up.

  • Existing Home Sales will be shared on Wednesday followed by New Home Sales on Friday.
  • As usual, weekly Initial Jobless Claims will be released on Thursday.

Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve. In contrast, strong economic news normally has the opposite result. The chart below shows Mortgage Backed Securities (MBS), which are the type of Bond on which home loan rates are based. 

When you see these Bond prices moving higher, it means home loan rates are improving. When Bond prices are moving lower, home loan rates are getting worse.  

To go one step further, a red "candle" means that MBS worsened during the day, while a green "candle" means MBS improved during the day. Depending on how dramatic the changes are on any given day, this can cause rate changes throughout the day, as well as on the rate sheets we start with each morning. 

As you can see in the chart below, the Mortgage Bond market saw volatility this past week. Home loan rates remain near historic lows. 

Chart: Fannie Mae 3.5% Mortgage Bond (Friday Jun 16, 2017)