ILast week you didn't need to consult even one economist to be able to evaluate the state of the housing market. You just had to read the reports.
New Home Sales shot up 16.6% in April reaching a 619,000 unit annual rate, well above what the experts expected. This is the fastest pace we've seen in eight years.
The U.S. Census Bureau's new home sales data is extremely volatile month to month, so it's important to look at the trend, which has stayed positive. In fact, sales are 23.8% ahead of where they were a year ago, clearly showing a strong climb back to normal for the new homes market.
On the existing homes front, we were treated to the latest National Association of Realtors (NAR) reading on contracts signed for the purchase of those homes. The NAR Pending Home Sales index zoomed up 5.1% for the month to hit a ten-year high, landing 4.6% above April a year ago. Pending home sales have now registered year-over-year gains for 20 months in a row. The NAR's chief economist opined, "the prospect of facing higher rents and mortgage rates down the road appears to be bringing more interested buyers into the market." Lending support to this view, the Mortgage Bankers Association reported purchase mortgage applications up 5% over the week before.
Review of Last Week
There were more hints from the Fed about a rate hike this summer, but investors brushed them aside, sending all three stock indexes ahead for the week. The S&P 500 even nailed its biggest weekly gain in two months. Thursday, Fed governor Jerome Powell said rates could rise "fairly soon." Friday, Fed Chair Janet Yellen told a Harvard audience the central bank is ready to raise rates "gradually and cautiously...over time" unless economic data takes a turn for the worse. Well, monthly economic data keeps turning in both directions. Yellen herself alluded to this, noting that wage growth is not accelerating, showing there's still slack in the labor market.
Most economists figure the Fed will skip a June hike, then act in July. Meanwhile, everyone could feel encouraged by the excellent housing data covered above, as well as by the unexpectedly strong numbers for Durable Goods Orders in April. As usual, this good stuff got balanced by some not so good items. The second estimate of first quarter GDP pegged economic growth at a very weak 0.8% annual rate, while the University of Michigan Consumer Sentiment survey for May missed estimates. Sniffing around for more good stuff, last week's Initial Unemployment Claims dropped by 10,000, to 268,000, chalking up 64 weeks in a row that number's been below 300,000.
The week ended with the Dow UP 2.1%, to 17873; the S&P 500 UP 2.3%, to 2099; and the Nasdaq UP 3.4%, to 4934.
Upward moving stocks and the Fed Chair's hints of an impending rate hike hurt bond prices, especially Treasuries. Nonetheless, the 30YR FNMA 4.0% bond we watch finished the week unchanged, at $106.67. National average 30-year fixed mortgage rates were up only slightly in Freddie Mac's Primary Mortgage Market Survey for the week ending May 26. Their chief economist added that May posted "the lowest monthly average in three years." Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up to the minute information.
Last week, stocks surged on the heels of the terrific New Home Sales data, pushing the Dow and the S&P 500 into positive territory for the month. Clearly, housing market strength is important to investors.
This Week’s Forecast
The Fed's favorite measure of inflation is Core PCE Prices and Fed hawks will be watching it like said bird this week. Unfortunately, it's forecast up, which could encourage the central bankers to hike rates in June. Meanwhile, manufacturing slogs along, barely showing growth (above 50) in both the nationwide ISM Index and the Midwest region's Chicago PMI. Friday sees the May jobs report, and the experts expect more hanging on with a tepid 160,000 new Non farm Payrolls forecast, though Hourly Earnings should show a gain, so those working get a bit more to spend.
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 30 – Jun 3
May 31 08:30 Personal Income
May 31 08:30 Personal Spending
May 31 08:30 Core PCE Prices
May 31 09:45 Chicago PMI
May 31 10:00 Consumer Confidence
Jun 1 10:00 ISM Index
Jun 1 14:00 Fed's Beige Book
Jun 2 08:30 Initial Unemployment Claims
Jun 2 08:30 Continuing Unemployment Claims
Jun 2 11:00 Crude Inventories
Jun 3 08:30 Average Workweek
Jun 3 08:30 Hourly Earnings
Jun 3 08:30 Non farm Payrolls
Jun 3 08:30 Unemployment Rate
Jun 3 08:30 Trade Deficit
Jun 3 10:00 ISM Services
Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months... Despite Janet Yellen's comments last week, most economists do not think there will be rate gain in June, though small hikes in July and September are expected. Note: In the lower chart, a 28% probability of change is a 72% certainty the rate will stay the same.
Current Fed Funds Rate: 0.25%-0.5%
After FOMC meeting on:
Jun 15 0.25%-0.50%
Jul 27 0.50%-0.75%
Sep 21 0.75%-1.00%
Probability of change from current policy:
After FOMC meeting on:
Jun 15 28%
Jul 27 61%
Sep 21 68%
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