Both new and existing home sales dipped last month. New homes delivered the headline number, down 11.4% but that was because revisions to March pushed new home sales up to their fastest pace yet in the recovery, and, at a 569,000 unit annual rate. April new home sales are still high compared to 2016. Also, the median sales price dropped, indicating builders are more sensitive to affordability.
Existing home sales saw less of a drop in April, slipping just 2.3% and still hit a 5.57 million unit annual rate, up from a year ago. This monthly dip was also set up by fabulous numbers the prior month, when March existing home sales came in at their fastest pace in more than a decade. Nationally, supply remains tight but inventories have increased. Demand stayed strong, with properties typically on the market just 29 days, the shortest time period in the last six years. Freddie Mac's chief economist opined, "With home sales, housing starts and home values up, 2017 is shaping up to be the best year for housing in over a decade."
Review of Last Week
The mood on Wall Street went super positive once again, and, at the end of the week, the broadly-based S&P 500 and the tech-heavy Nasdaq both reached fresh all-time highs, while the blue-chip Dow finished just 0.2% below its all-time record close. FOMC Minutes from the last Fed meeting revealed "it would soon be appropriate" to tighten monetary policy again, meaning hike rates in June. This shows that the central bank has confidence in the economic outlook, attributing slower Q1 growth to transitory factors. Friday's revised Q1 GDP had the economy growing at a better than expected 1.2% annual rate.
The largest contributions to that GDP growth came from upticks in home building and business fixed investment, which rose at an 11.4% annual rate, its fastest pace in five years. Corporations are doing better, with earnings among the S&P 500 up 13.6% versus a year ago, and revenues up 7.8% for the quarter, the biggest increase since Q4 of 2011. There was a dip in April Durable Goods Orders but this followed a big upward revision to March. Michigan Consumer Sentiment for May came in a tick higher than April and the four-week moving average for initial unemployment claims hit a four-decade low, good for us all.
The week ended with the Dow UP 1.3%, to 21080; the S&P 500 UP 1.4%, to 2416; and the Nasdaq UP 2.1%, to 6210.
Bonds largely ended the week with modest gains in spite of the upwardly revised Q1 GDP number. The 30YR FNMA 4.0% bond finished the week UP .01, at $105.45. In Freddie Mac's Primary Mortgage Market Survey for the week ending May 25, national average 30-year fixed mortgage rates sank to a new low for the year.
Where Are Rates Headed?
This Week’s Forecast
It's nice to see Pending Home Sales forecast back in positive territory in April. Likewise Personal Spending and the Core PCE Prices inflation measure are also expected to rebound. Manufacturing is predicted to stay in growth territory, according to the Midwest Chicago PMI and the national ISM Index. May Nonfarm Payrolls are forecast to come in just under 200,000, with Hourly Earnings continuing to rise, a good thing for housing.
U.S. financial markets were closed yesterday, May 29, in observance of Memorial Day.
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 May 29, 2017 – June 2, 2017
May 30 08:30 Personal Income
May 30 08:30 Personal Spending
May 30 08:30 Core PCE Prices
May 30 10:00 Consumer Confidence
May 31 09:45 Chicago PMI
May 31 10:00 Pending Home Sales
May 31 14:00 Fed's Beige Book
Jun 1 08:30 Initial Unemployment Claims
Jun 1 08:30 Continuing Unemployment Claims
Jun 1 08:30 Productivity-Rev. Q1
Jun 1 08:30 Unit Labor Costs-Rev. Q1
Jun 1 10:00 ISM Index
Jun 1 11:00 Crude Inventories
Jun 2 08:30 Average Workweek
Jun 2 08:30 Hourly Earnings
Jun 2 08:30 Nonfarm Payrolls
Jun 2 08:30 Unemployment Rate
Jun 2 08:30 Trade Balance
Federal Reserve Watch
Speculative Forecasting Federal Reserve policy changes in coming months:
The probability for a rate hike in June is now well above 80% but rates are expected to stay untouched through the summer.
Note: In the lower chart, an 84% probability of change is only a 16% likelihood the rate will stay the same.
Current Fed Funds Rate: 0.75%-1.0%
After FOMC meeting on:
Jun 14 1.0%-1.25%
Jul 26 1.0%-1.25%
Sep 20 1.0%-1.25%
Probability of change from current policy:
After FOMC meeting on:
Jun 14 84%
Jul 26 85%
Sep 20 91%
Where are interest rates headed?
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