Home builders appear to be working hard and the results are indeed inspiring. The Mortgage Bankers Association (MBA) reports purchase applications for new homes surged to a record high in March. Their Builder Application Survey pegged those purchase applications up 23% over February and 6.7% ahead of March a year ago. The MBA tabbed new home sales in March at a seasonally adjusted 670,000 unit annual rate.
Their vice president of research and economics commented, "developers are finding ways to bring new product on line to help supplement otherwise low inventories of existing homes for sale."
She also noted, "In contrast to the increasing average loan size trend in our Weekly Survey, which reports applications for both new and existing homes, the average loan size for new homes was unchanged from a year ago." In spite of that larger loan size, the survey for the week ending April 7th reported purchase applications up 3% overall. Though last year showed the strongest home sales pace in a decade, the National Association of Realtors reported a drop in vacation home buying but they note investment sales "reached their highest level since 2012 as investors recognized the sizable demand for renting."
Review of Last Week
It was a holiday shortened week and the four days of trading were continually disturbed by an equal number of geopolitical concerns. Syria, North Korea, Russia and the bombing of ISIS tunnels in Afghanistan caused enough investor gyrations to keep stock prices in check. The result? The three major market indexes ended down for the second week in a row. And this was in spite of the fact that the Q1 corporate earnings season got started with better than expected numbers from three large U.S. banks. Plus, we received some pretty good if not yet spectacular economic data.
Kicking off with the good data, overall Retail Sales fell a tick in March but the drop was largely due to dips in gasoline prices and auto and truck sales. Vehicle sales are very volatile month-to-month and lower gas prices leave consumers with more to spend on other goods and services to boost the economy. Taking out auto and gas numbers, retail sales actually rose 0.1% in March. Inflation came in super tame, both with the Producer Price Index of wholesale prices and the Consumer Price Index. Best of all, University of Michigan Consumer Sentiment showed consumers are more optimistic about their present situation than at any point since 2000.
The week ended with the Dow down 1.0%, to 20453; the S&P 500 down 1.1%, to 2329; and the Nasdaq down 1.2%, to 5805.
The geared-up geopolitics and innocuous inflation sent money into bonds, advancing prices nicely. The 30YR FNMA 4.0% bond we watch finished the week UP .33, at $105.39. For the week ending April 13, Freddie Mac's Primary Mortgage Market Survey showed national average 30-year fixed mortgage rates falling for the fourth week in a row, landing at a new low for the year. Note that this follows the Fed's latest rate hike.
Where are interest rates headed?
This Week’s Forecast
According to the forecasts, Existing Home Sales went up while Housing Starts slipped. Home builders remain optimistic as Building Permits are expected up. We also get mixed reads on the factory front. The Philadelphia Fed Index of manufacturing activity in that key region should be down while the national Industrial Production and Capacity Utilization measures are predicted up.
The Week’s Economic Indicator Calendar
Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.
Economic Calendar for the Week of April 17th – April 21st
Apr 17 08:30 NY Empire Manufacturing Index
Apr 18 08:30 Housing Start
Apr 18 08:30 Building Permits
Apr 18 09:15 Industrial Production
Apr 18 09:15 Capacity Utilization
Apr 19 10:30 Crude Inventories
Apr 19 14:00 Fed's Beige Book
Apr 20 08:30 Initial Unemployment Claims
Apr 20 08:30 Continuing Unemployment Claims
Apr 20 08:30 Philadelphia Fed Index
Apr 20 10:00 Leading Economic Indicators
Apr 21 10:00 Existing Home Sales
Federal Reserve Watch
Speculative Forecasting Federal Reserve policy changes in coming months:
Economists expect no rate hike at the Fed's next meeting and now a smaller majority sees an increase in June.
Note: In the lower chart, a 5% probability of change is a 95% certainty the rate will stay the same.
Current Fed Funds Rate: 0.75%-1.0%
After FOMC meeting on:
May 3 0.75%-1.0%
Jun 14 1.0%-1.25%
Jul 26 1.0%-1.25%
Probability of change from current policy:
After FOMC meeting on:
May 3 5%
Jun 14 58%
Jul 26 62%
Where are interest rates headed?
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