Month: July 2015

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The past week yielded numerous reports for the housing market. Home price appreciation showed respectable growth, rising 0.4% in May following a 0.4% increase in April. Year-on-year, the FHFA reported that home prices appreciated by 5.7%, the best rate since April of last year.

New home sales for June displayed quite a bit of volatility, plunging 6.8% to a much lower-than-expected annual rate of 482,000 units, the lowest level since last November. Despite two straight months of declines, new home sales are actually up 18.1% compared to June of last year, leaving the housing market recovery intact. Another positive is the surge in the number of new homes on the market, up 3.4% in June to 215,000. This is the highest supply of new homes since May 2010.

Existing home sales numbers were very strong for the month of June, increasing by 3.2% to a higher-than-expected annual rate of 5.49 million, the best rate since February 2007. Year-on-year existing sales also displayed significant growth with an increase of 9.6%. The median home price for June was a record $236,400, a 3.3% increase from the previous month. First-time buyers, a group that has been depressed since 2008, continue to make up only 30% of total sales. More future involvement from first-time buyers could point to a significant increase in momentum for total home sales.

Jobless claims data shocked analysts when initial claims fell by 26,000 in the week ending July 18 to 255,000, a 42-year low! However, the 4-week average served to smooth out this volatility, decreasing only 4,000 to 278,500, a level that is little changed from the month-ago comparison. After some consideration, many Wall Street experts believe that the drop may be in part due to temporary auto company layoffs, as these companies typically shut down facilities in July to do some maintenance. Continuing claims for the July 11 week also fell, down 9,000 to a new multi-year low of 2.207 million. The 4-week average for continuing claims dropped by 10,000 to 2.254 million, and is also very little changed from the month-ago comparison.

 

Mortgage Rates

Over the past week, rates have dropped across the board. Most loan programs saw only slight decreases of 1/8 percentage points or less, and some programs, such as the 30-year conventional, 15-year conventional, the 30-year jumbo, simply returned to the same rate levels seen two weeks prior. The largest rate decrease was seen in the 30-year conventional program, which dropped 1/8 percentage points to 4.000% (4.040% APR), and is trending slightly below the year-ago rate of 4.125% (4.182% APR). 30-year conventional mortgage rates, along with those in other loan programs, have displayed much back-and-forth movement over the past few weeks, as can be seen below:

Sean Becketti, chief economist with Freddie Mac, commented that conventional mortgage rates were likely driven down by the drop in U.S. Treasury yields, due to announcements that many blue chip companies’ earnings failed to meet expectations. He continued to discuss the present economy, noting, “Housing continues to be the bright spot in the economic recovery. Existing home sales beat market expectations coming in at a seasonally adjusted annual rate of 5.49 million homes. This is up 9.6 percent from a year ago and the fastest pace since 2007. Also, housing starts jumped 9.8 percent responding to strong demand in the multifamily market.”

Retail sales came in below expectations with a decrease of 0.3% for the month of June. Sales of automobiles, furniture, apparel, and building materials were the main contributors to the low overall sales numbers, as they all displayed losses higher than 1.0% last month. There were some positives in the report, however, including the 0.8% increase in gas station sales due to the swift rebound of gas prices.

Initial jobless claims for the week of July 11 fell 15,000 to 281,000. Despite this drop, the 4-week average actually rose 3,250 to a 282,500 level and is more than 5,000 higher than the month-ago comparison, which may not bode well for the July employment report.

Housing starts data for June brought some positives, as the strong demand for apartment units greatly increased the number of housing starts and permits for the month. Starts had a 9.8% increase in June at a 1.174 million rate, reflecting the 29.4% swell in the multi-family component, and in spite of the 0.9% decrease in the single-family component. Permits rose 7.4% in June to a higher-than-expected 1.343 million rate, with multi-family permits up 15.3% and single-family permits up 0.9%.

The Beige Book is not pointing to a liftoff for the Fed’s rate hike. Ten of 12 Fed districts are reporting only moderate to modest growth with two others, Cleveland and Boston, reporting no more than steady or improving growth. Lending activity and real estate were generally on the climb through most districts as are auto sales and tourism. Here are some notable excerpts from the report: “Several Districts reported that residential real estate activity had increased during the reporting period”; “Home sales were reported as generally increasing across most markets in Boston, Cleveland, Atlanta, Chicago, St. Louis, Minneapolis, and Kansas City. Richmond cited improvement, and San Francisco reported continued growth in home sales”; and “Real estate lending was up in half of the Districts.”

Consumer inflation for the month of June displayed a 0.3% increase, as was expected. Year-over-year, total inflation is up 0.1%, which is minute, but is the first positive consumer inflation reading of the year. Contributing to the increase was a 1.7% rise for energy, with gasoline rising 3.4%, and a 2.0% increase in airfares.

Consumer sentiment for mid-July shows less strength than in previous months, decreasing to 93.3 in the mid-month reading, and coming in below the expected 94.5 level. The current conditions component is down nearly 3 points to 106.0, which likely indicates weakness in consumer activity over the next month. The expectations component fell to 85.2, but is still considered to be at a respectable level, and points to further confidence in the jobs outlook.

The coming week will bring multiple updates for the housing market, including house prices, and new and existing home sales.

Mortgage Rates

Over the past week, mortgage rates for almost all loan programs increased, many of them returning to levels last seen in the week of June 30. The 30-year fixed conventional rate rose 1/8 percentage points to 4.125% (4.165% APR), and is right around the same level as this time last year. The largest rate increases were displayed by the FHA 203k and VA programs, both rising more than 2/8 percentage points in the course of the past week. The only loan program that remained unchanged was the FHA manufactured.

Freddie Mac’s Primary Mortgage Market Survey also reported a slight increase to rates as of late. Sean Becketti, chief economist for Freddie Mac, commented on the rate movement:

“The crisis in Greece continues to generate volatility in U.S. Treasury yields. The tentative agreement hammered out last weekend gave investors the confidence to pull back a bit from Treasuries. Rates rose about 16 basis points on the 10-year Treasury from last week. As a result, the average rate on a 30-year fixed-rate mortgage rose 5 basis points this week to 4.09 percent, the highest level since October of last year.”

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The Labor Department released their Job Openings and Labor Turnover Survey (JOLTS) on Tuesday, reporting that job openings rose 0.5% in May to a record 5.363 million, up from 5.335 million in April. Within the report, the quits rate was unchanged at 1.9%, and the layoff rate decreased one tenth to 1.2%. The hiring rate also dropped one tenth to 3.5%, which may tell of the increasing difficulty of finding qualified employees in certain fields.

Within the minutes released from the most recent Federal Open Market Committee meeting, it was evident that although there were differing opinions regarding voting for a rate hike, most members wanted to see greater employment growth and upward pressure on inflation. The increasingly uncertain risks associated with Greece and China were also discussed. The minutes reporting stabilization in the dollar, as well as in energy prices, adding to inflation, which policy-makers saw rising to their 2% goal. Based on the minutes, the outlook for a rate hike seems to be moving more toward December as opposed to September.

According to Gallup’s Consumer Spending Measure, Americans’ self-reported daily spending averaged $90 for the month of June. This reading relatively unchanged from May and April, and is consistent with June averages from both 2014 and 2013. The past few years have also displayed a pattern of spending increases between June and July, which could very well happen again this year. Consumer credit is showing some life with consumer borrowing rising $16.1 billion in May, following a $21.4 billion increase in April. Revolving credit increased by $1.6 billion in the month, and non-revolving credit, inflated by the student loan subcomponent, increased by $14.5 billion.

In its June 2015 Economic Housing Outlook, Fannie Mae’s Chief Economist suggests that total housing starts and total home sales in 2015 should rise about 10 and 5 percent, respectively. Freddie Mac also published its June 2015 U.S. Economic and Housing Market Outlook. The outlook suggests there will be growth in home prices and home sales. The cash share of home sales are also expected to decline within the next two years.

Mortgage Rates

Mortgage rates for the majority of loan programs have retreated slightly over the past week. The 30-year conventional rate dropped 1/8 percentage points to 4.000% (4.040% APR) on July 8, and is averaging about 1/4 percentage points lower than the year-ago rate. The high balance, manufactured conventional, 30-year FHA, VA, and USDA programs also displayed rate decreases ranging from 2.5 to 12.7 basis points. The 15-year conventional, jumbo, FHA 203k, and manufactured FHA loan programs all remained unchanged from the previous week.

Sean Becketti, chief economist for Freddie Mac, commented that the decline in rates is likely a result of investor concerns regarding the financial turmoil occurring in Greece and China.

“In addition,” he noted, “the minutes of the June meeting of the Federal Open Market Committee suggest the Federal Reserve will proceed cautiously—monitoring events both overseas and in the U.S. to ascertain the appropriate moment to begin raising short-term interest rates. As a result, mortgage rates may remain in the neighborhood of 4 percent for a while.”

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The past week was dominated by employment reports. June payroll growth displayed soft numbers, with private payrolls up 223,000, lower than the expected 230,000 increase, and weaker than the 250,000 gain in May. Wage pressure was also weak in June, with the average hourly earnings remaining unchanged, and the year-over-year rate down 0.3%. The US unemployment rate decreased to 5.3% from 5.5%, likely due to the end of the school year, resulting in many new entrants to the labor market. The strongest sector of the labor market proved to be business services, which displayed a 64,000 rise in jobs in June, followed by a 33,000 rise in retail jobs. Manufacturing and construction jobs remained stagnant.

Challenger reported that layoff announcements came in at 44,842 in the month of June, up from 41,034 in May, and significantly higher than 31,434 in June of last year. The retail sector produced the most layoff announcements in the month.

Opposite of job cuts is the most recent Gallup US Job Creation index, which remained high in June at plus 32. The index score is based on 43% of workers reporting that their employer is hiring and expanding the size of its workforce, along with 11% saying their employer is issuing layoffs and reducing the size of its workforce. The percentage of adults participating in the workforce was at 67.1% in June, up from May’s rate, and is now the highest rate since last September.

Initial jobless claims, although still near 15-year lows, did increase by 10,000 in the June 27 week to 281,000. The 4-week average inched 1,000 higher to 274,750, and is relatively unchanged from a month ago. Continuing claims from the June 20 week rose by 15,000 to 2.264 million and the 4-week average rose by 15,000 to 2.253 million. Both are considered very low readings.

Pending home sales displayed yet another strong report for the housing market as the index increased 0.9% in May, the highest level since 2006. The housing market is most likely being boosted by the stronger jobs market, and the potential for higher mortgage rates seems to be pushing homebuyers into the market.

Consumer confidence continues to rise, with a nearly 7-point increase for the June index to a 101.4 level. Expectations are up 8.2 points to 94.6, reflecting Americans’ optimism over the outlook for jobs and income. Americans are also confident in the present situation of the economy, as that component rose 4.5 points to 111.6. Strong consumer confidence is also reported by the consumer comfort index, which came in at 44.0 in the June 28 week, up from 42.6, 40.9, and 40.1 in the three prior weeks.

Keep an eye out this week for reports on consumer spending, job openings, and the release of the Federal Open Market Committee meeting minutes.

 

Mortgage Rates

The past week brought minimal mortgage rate movement. Seven out of the ten loan programs we report rate for displayed no movement at all. Both the 20-Year Manufactured Conventional and the 30-Year VA programs showed slight increases, but they rose less than 0.1%. The 15-year Fixed Conventional was the only program to have a rate decrease, dropping 1/8 percent points from 3.500% (3.570% APR) to 3.375% (3.445% APR). The 30-Year Fixed Conventional rate remained at 4.125% (4.165% APR), which is nearly identical to the year-ago rate of 4.125% (4.213% APR).

Chief economist for Freddie Mac, Sean Becketti, commented on current mortgage rate movement:

“Overseas events are generating significant day-to-day volatility in interest rates… The MBA composite index of mortgage applications fell 4.7 percent in response to what is now three consecutive weeks of mortgage rates over 4 percent. Other measures, however, confirmed continued strength in housing — pending home sales rose 0.9 percent, exceeding expectations, and the Case-Shiller house price index recorded another solid increase.”

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