Last week we found May Pending Home Sales falling 3.7% below April's reading for this index of contracts signed on existing homes.
Nonetheless, the National Association of Realtors (NAR) said May still logged the third highest level for the index in the past year. Their chief economist explained, "With demand holding firm this spring and homes selling even faster than a year ago, the notable increase in closings in recent months took a dent out of what was available for sales in May and ultimately dragged down contract activity."
Meanwhile, with strains on supply in many markets, home prices continue to gain overall, according to the S&P/Case-Shiller Home Price Index. The national reading was up 0.1% in April, and is up 5.0% the past year. But balancing higher prices, mortgage rates are expected to remain down, as global investors seek the relative safety of U.S. mortgage bonds in the wake of financial market volatility after Brexit (the UK vote to leave the European Union). Analysts at Fitch Ratings say that in the short term, rates could fall to new lows, though "longer-term economic implications remain difficult to predict." One thing is certain: no one knows what will actually happen.
Review of Last Week
After the Brexit vote roughed up equity markets a week ago Friday and last Monday, a curious thing occurred. Stocks bolted higher four days in a row, with the Dow and the S&P 500 logging their best weekly gains since last November and the Nasdaq up a healthy 3.3%. Markets began to realize that Brexit isn't the catastrophic event feared by incumbent politicians and the mainstream media. Instead, the Brexit will probably speed up a nice US trade agreement with the UK that the EU had been delaying. And since the UK buys more from EU countries than it sells to them, it's doubtful that tariff walls will suddenly go up.
Of course, uncertainties remain, but last week they simply led to hopes for more stimulus from the Bank of England and European Central Bank. Investors love to see monetary authorities get us through a rough patch by throwing money at it. There were also sound economic reasons for folks to feel better. The ISM Index showed manufacturing activity in June grew at its fastest pace in 15 months following an extended period of weakness. It was equally encouraging to see Personal Income and Spending up in May and Core PCE Price inflation mild. What's so bad about uncertainty anyway? Steve Jobs thought the iPhone would be a big success--but do you think he was certain of it?
The week ended with the Dow UP 3.2%, to 17949; the S&P 500 UP 3.2%, to 2103; and the Nasdaq UP 3.3%, to 4863.
Bonds remain the hot item for investors seeking shelter from equity market volatility. The 30YR FNMA 4.0% bond we watch finished the week UP .08, at $107.19. In Freddie Mac's Primary Mortgage Market Survey for the week ending June 30, national average 30-year fixed mortgage rates dropped to new 2016 lows "in the wake of the Brexit vote," according to the chief economist. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up-to-the-minute information.
Did you know?
In May, first-time buyers accounted for 59.1% of primary owner-occupied home purchase mortgages with a government guarantee, according to the International Center on Housing Risk. This share was up measurably from a year ago.
This Week’s Forecast
Not a lot of economic reports this week, but two will get major attention. FOMC Minutes from the Fed's last meet will be scrutinized to see what led to Chair Yellen's comments at the presser that followed. That's where she was timid about rate hikes and worried about 'uncertainties,' including what would occur if Brexit happened, which it did. Nonfarm Payrolls in Friday's June jobs report should show May's dismal read was just an aberration.
U.S. financial markets are closed today in observance of Independence 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 Jul 4 – Jul 8
Jul 6 09:45 Trade Deficit
Jul 6 10:00 ISM Services
Jul 6 10:00 FOMC Minutes
Jul 7 08:30 Initial Unemployment Claims
Jul 7 08:30 Continuing Unemployment Claims
Jul 7 08:30 Crude Inventories
Jul 8 08:30 Average Workweek
Jul 8 08:30 Hourly Earnings
Jul 8 08:30 Nonfarm Payrolls
Jul 8 08:30 Unemployment Rate
Federal Reserve Watch
Following the Brexit vote, economists see little chance the Fed will hike rates at the next three meetings, with a 2% probability they'll take them back down. Note: In the lower chart, a 2% probability of change is a 98% certainty the rate will stay the same.
Current Fed Funds Rate: 0.25%-0.5%
After FOMC meeting on:
Jul 27 0.25%-0.5%
Sep 21 0.25%-0.5%
Nov 2 0.25%-0.5%
Probability of change from current policy:
After FOMC meeting on:
Jul 27 2%
Sep 21 8%
Nov 2 8%
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