June 24th, 2019 9:30 PM by Richard Sardella MLO.100007700/NMLS 233568
May was good month for housing
The National Association of Realtors (NAR) reported sales of previously owned homes rose in May, citing falling mortgage rates as a reason the housing market may be heading in the right direction after a sluggish start.
According to the Friday report which appeared in the Wall Street Journal, sales rose 2.5% in May from the prior month to a seasonally adjusted annual rate of 5.34 million.
Spring is a bellwether time for the housing market because roughly 40% of the year’s sales take place in March through June. The NAR reports that May was the first month this spring when sales rose from the prior month. Compared with a year earlier sales in May, however, it still showed a 1.1% decline.
Speculation on the part of analysts is saying the housing market may be benefiting from growing economic uncertainty. With mortgage rates the lowest they have been in recent memory, homebuyers jumping into the market now or those refinancing are taking advantage of savings on their monthly payments. To top that off, the Federal Reserve indicated Wednesday that it might cut interest rates in the months ahead if an economic outlook is clouded by uncertainty over trade policy.
Most metropolitan areas to continue to see modest price and sales growth but some, such as San Jose, Calif., are more vulnerable to a downturn because prices have risen steeply. With all this, the construction sector has struggled. Housing starts fell in May from the prior month to a seasonally adjusted annual rate of 1.269 million, according to the Commerce Department, and U.S. home-builder confidence also dropped due to rising concerns over rising construction costs and trade issues.
According the report prices are continuing to rise faster than incomes, offsetting some of the additional buying power that consumers are getting from lower rates. The national median sale price for a previously owned home last month was $277,700, up 4.8% from a year earlier and the strongest monthly pace of growth since August 2018, the National Association of Realtors said Friday.
Inventory of homes for sale is continuing to increase with 1.92 million existing homes available for sale at the end of May, up 2.7% from a year earlier and a 4.3-month supply at the current sales pace.
How Rates Move:
Conventional overnment (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 this morning. Last week the MBS market improved by +27bps. This was enough to move rates lower last week. We saw a good deal of rate volatility throughout the week.
This Week's Rate Forecast: Neutral
Three Things: These are the three areas that have the biggest ability to impact mortgage rates this week. 1) Trade War, 2) Geopolitical and 3) The Fed
1) Trade War: The G-20 Summit in Osaka, Japan, will start on Friday and continue through the weekend. Leading up to that event, confirmation of scheduled meetings (number and length) between Trump and Xi as well as information about precisely what will and will not be discussed will have a significant impact on markets.
2) The Fed: We have a big week for speeches, including one from Fed Chair Jerome Powell. This is the Fed's chance to steer the markets if they feel that market sentiment about the Fed's path after last week's FOMC inaction is misguided. Here is the schedule:
3) Geopolitical: There is a lot for markets to focus on this week. Iran-U.S. is heating up as President Trump says that even more sanctions are set to go into effect today. The Eurozone is still a basket of instability as the EU and Italy fighting over a budget and Brexit continues to be the soap opera that keeps on giving with wild news/tabloid stories on PM front-runner Borris.
Treasury Auctions this Week:
This Week's Potential Volatility: High
We have several economic reports due out this week, but much of the focus will be on the trade war updates, Fed speeches, and Iran-US tensions. Rates will likely remain at elevated levels this week short of a resolution to any of the current issues, which is unlikely.
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.
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