May Existing Home Sales went up 1.1% to a 5.62 million unit annual rate, up 2.7% over a year ago. Sales of condominiums and coops were up however most of the growth came from single family homes. The median price of an existing home came in 5.8% ahead of a year ago, hitting its highest level on record. Demand remained strong, with the typical property on the market just 27 days, the shortest time frame since they began tracking it in 2011. The months' supply edged up to 4.2, all due to more inventory.
Also in May, New Home Sales pushed up 2.9%, going solidly over the 600,000 threshold to a sales rate of 610,000 units per year. This was above expectations, sending sales 8.9% ahead of a year ago. Figures for prior months were revised upward and that trend should prevail. Job gains are pushing wages higher and the low home ownership rate should deliver more buyers as the economy improves. The median price of new homes sold was up an oddly high 16.8% over a year ago, but last May saw an unusually big price drop. The FHFA Index of prices for homes financed with conforming mortgages is up just 6.8% from a year ago.
Review of Last Week
The blue chip Dow and the broadly-based S&P 500 had flattish performances although both ended up for the week, the Dow by fewer than a dozen points and the S&P by just 0.2%, but our "techy" Nasdaq friends soared to a 1.8% weekly gain. Investors seemed to lack the conviction to move the market up or down, except for certain technology, biotech and energy issues. Beyond the housing reports covered above, there wasn't a whole lot of economic news to chew on. Crude fell for the fifth week in a row, below $43 a barrel for the first time in 18 months, which should help us all at the gas pump.
Take note of some interesting financial developments: The Fed announced the results of its latest stress tests on the nation's largest banks. All 34 institutions passed the quantitative portion of this year's test, meaning they all have "strong" levels of capital and would be able to keep lending even during a severe recession. St. Louis Fed President James Bullard told a convention in Nashville that the Fed can afford to stop raising short-term rates and wait and see where the economy is headed. Cleveland Fed President Loretta Mester said the Fed must continue raising rates to avoid inflation. We like Bullard, don't you?
Where Are Rates Headed?
The week ended with the Dow up just 11 points, to 21395; the S&P 500 UP 0.2%, to 2438; and the Nasdaq UP 1.8%, to 6265.
Bond prices held up well despite Friday's better than expected May New Home Sales. Good economic reports tend to drive investors back into riskier stocks but many still liked the safety of bonds. The 30YR FNMA 4.0% bond we watch finished the week UP .06, at $105.48. Freddie Mac's Primary Mortgage Market Survey for the week ending June 22 saw national average 30 year fixed mortgage rates dip down a tick, remaining near their lows for the year.
This Week’s Forecast
It will be nice to see Pending Home Sales come back up if forecasts hold true. Likewise, the Core PCE Prices inflation measure should be up, though not enough to curtail Personal Spending. The Chicago PMI read on Midwest manufacturing is forecast solidly over the 50 mark. And the GDP-3rd Estimate is predicted to stay at 1.2%, modest but typical of Q1 performance the last few years.
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 June 26th – June 30th
Jun 26 09:45 Durable Goods Orders
Jun 27 10:00 Consumer Confidence
Jun 28 10:00 Pending Home Sales
Jun 28 10:30 Crude Inventories
Jun 29 08:30 Initial Unemployment Claims
Jun 29 08:30 Continuing Unemployment Claims
Jun 29 08:30 GDP - 3rd Estimate
Jun 29 08:30 GDP Deflator - 3rd Estimate
Jun 30 08:30 Personal Income
Jun 30 08:30 Personal Spending
Jun 30 08:30 Core PCE Prices
Jun 30 09:45 Chicago PM
Jun 30 10:00 U. of Michigan Consumer Sentiment - Final
Federal Reserve Watch
Speculative Forecasting Federal Reserve policy changes in coming months:
After this month's hike, the expectation is that the Fed will keep the Funds Rate where it is through the November meeting.
Note: In the lower chart, a 3% probability of change is a 97% certainty the rate will stay the same.
Current Fed Funds Rate: 1.0%-1.25%
After FOMC meeting on:
Jul 26 1.0%-1.25%
Sep 20 1.0%-1.25%
Nov 1 1.0%-1.25%
Probability of change from current policy:
After FOMC meeting on:
Jul 26 3%
Sep 20 18%
Nov 1 20%
Where are interest rates headed?
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