August 27th, 2019 7:45 AM by Richard Sardella MLO.100007700/NMLS 233568
Existing Home Sales Continue to Impress
What is normally considered the “selling season” has gotten a retroactive boost in recent days. The National Association of Realtors’ chief economist Lawrence Yun reports that the sales of previously owned U.S. homes picked up in July, suggesting that lower mortgage rates are beginning to drive sales after a weak spring selling season.
It’s always news when sales are better than expected. And existing-home sales rose 2.5% in July from the previous month to a seasonally adjusted annual rate of 5.42 million, according to the NAR. They were expected to rise just 2.3%.
Compared with a year earlier, sales in July rose 0.6%, the first increase after a streak of 16 consecutive months of year-over-year declines. Yun says July’s uptick was a combination of incredibly low mortgage rates and strong job conditions.
June’s sales were revised higher, to a 5.29 million annual rate from an earlier estimate of 5.27 million, capping off a less than optimum spring selling season. March through June is when roughly 40% of the year’s sales take place. So even a slight pickup is good news.
Steadily falling mortgage rates are definitely in the mix, while a shortage of homes for sale has raised its head as a larger issue, keeping home prices high. The median sale price for an existing home in July was $280,800, up 4.3% from a year earlier. There was a 4.2-supply of homes on the market at the end of July, based on the current sales pace.
According to Yun, low inventory remains a challenge for the market during the second half of the year. “The job market still remains strong but there is increasing economic uncertainty,” he said, adding “people may be hesitant to buy a home if they think we may be facing an economic recession.”
While purchases of previously owned homes account for the bulk of U.S. home buying, the Commerce Department last week reported that home building fell in July for the third straight month. Housing starts, a measure of new-home construction, fell 4% in July from the prior month to a seasonally adjusted annual rate of 1.191 million.
Source: Realtor, TBWS
How Rates Move:
Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage Backed Securities (MBS) which are traded in real time, all day in the bond market. This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, mortgage rates or pricing generally goes down. When they fall, mortgage pricing goes up. Tracking these securities real-time is critical. For more information about the rate market, contact me directly. I’m among few mortgage professionals who have access to live trading screens during market hours.
Rates Currently Trending: Neutral
Mortgage rates are trending sideways so far today. Last week the MBS market worsened by -15bps. This caused rates to mostly move sideways. Rate markets showed a good deal of volatility last week.
This Week's Rate Forecast: Neutral
Three Things: These are the three areas that have the greatest ability to move rates this week: 1) Trade Wars, 2) Domestic and 3) The Fed.
1) Trade Wars: The next round of tariffs is set to go into place on Monday, September 1. Leading up to this date, we have had a lot of recent developments. Last Friday (August 23), China's Ministry of Finance said that it would levy retaliatory tariffs on another $75BN in US goods with rates anywhere between 5 and 10%, with the tariffs set to be implemented in two batches, one at midnight on September 1 and another at midnight on December 15. Additionally, China said it would resume 25% tariffs on US autos. In response, the US has said that starting on October 1, the existing 25% tariffs on $250BN in Chinese goods would rise to 30%, and the 10% tariffs on $300 billion in Chinese goods set to begin on September 1 will be 15%.
2) Domestic: We have a very big week for economic data that matters and has the gravitas to move the needle on rates. The Core YOY PCE (the Fed's key inflation gauge) will hit on Friday and is expected to rise from 1.6% to 1.7%. We also have our first revision to the previously released GDP from the second QTR, Durable Goods Orders, Consumer Confidence, Consumer Sentiment, and Chicago PMI.
3) The Fed: When you combine all the speeches from Jackson hole WY last week (including Powells) and you take those speeches at face-value, then the Fed is clearly saying that the markets are wrong in pricing in at least a 100 basis point reduction in their Fed Funds rate by the end of the year. As we fast approach their September meeting, any Fed commentary will get a lot of attention.
Treasury Auctions this Week:
This Week's Potential Volatility: High
Market and rate volatility continues to be very high. While we don't expect a great deal of volatility today, we do expect volatility to remain relatively high for the week due to the three things denoted above. Markets will be paying particularly close attention to the trade war.
If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.
Richard Sardella has been actively managing and providing services in the mortgage industry for over 27 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.
All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.
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