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Pending Home Sales Rise in May

Pending Home Sales Rise in May
Pending home sales increased in May, according to the National Association of Realtors® (NAR). Three of the four major regions saw growth in contract activity, with the West experiencing a slight sales decline.

Pending home sales are when there is a contract on a home but it has not closed yet and this index is a forward looking indicator for housing sales. The Pending Home Sales Index, climbed 1.1% to 105.4 in May, up from 104.3 in April.

Lawrence Yun, NAR chief economist, said lower-than-usual mortgage rates have led to the increase in pending sales for May. “Rates of 4% and, in some cases even lower, create extremely attractive conditions for consumers. Buyers, for good reason, are anxious to purchase and lock in at these rates.”

Yun said consumer confidence about home buying has risen, and he expects more activity in the coming months. “The Federal Reserve may cut interest rates one more time this year, but there is no guarantee mortgage rates will fall from these already historically low points,” he said. “Job creation and a rise in inventory will nonetheless drive more buyers to enter the market.”

Source: National Association of Realtors

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.00 MBS) gained just +2 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move sideways and remained at their lowest levels of the year.

Overview:  We got a mixed-bag of economic data with low inflation and weak manufacturing but strong GDP, Personal Income and Spending and Consumer Sentiment.  But the bond market was “on pause” as it awaited any progress in the U.S./China Trade negotiations.  These were expected to get back on track during the G20 meeting.  They did actually get back on track but that announcement was not made until after the markets were closed for the weekend.

Inflation Nation:  The May Personal Consumption Expenditures (PCE), the Fed’s key measure of inflation remained well below their target rate of 2% and matched market expectations.  The Headline PCE YOY hit 1.5% vs est of 1.5% and the Core (ex food and energy) YOY reading came in at 1.6% vs est of 1.6%.

Income and Spending: 
 We saw a nice spike in Personal Income in May, up 0.5% vs est of 0.3% on a MOM basis.  Personal Spending increased by 0.4% on a MOM basis which matched market expectations but the prior month saw a very nice revision upward from 0.3% to 0.6%.

Manufacturing:  The bell-weather Chicago PMI showed its first contraction in 2.5 years.  Any reading below 50 is contractionary, the market was expecting a reading of 53.1, so this was a surprise to the downside.  This report is a mixed bag though as prices, employment and inventories rose at very expansionary rates.  The culprit was new orders which tanked and dragged down the overall reading.

Consumer Sentiment:  The final June University of Michigan’s Consumer Sentiment Index was revised from the preliminary reading of 97.9 to 98.2, the market was expecting 98.0

GDP:  We got the FINAL revision to the 1st QTR GDP, it came in at 3.1% which is what is was after the first revision and it is what the market expected.  This was originally released at 3.2% but has been stuck at 3.1% after revisions.

Durable Goods Orders:  At first glance. the headline May data (subject to revision) was much weaker than expected (-1.3% vs est of -0.1%).  However, the Headline data is overweighted with big ticket items.  For example, just a couple of plane orders can swing  that number in a big way. So, when you strip out the very volatile Transportation Sector, the Core reading was stronger than expected (0.3% vs est of 0.1%).  Non-Defense Capital Goods Orders ex-Aircraft great at 0.4% vs est of 0.1%.


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.


Ralph Rossi

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