Inventory Shortage Hampers Pending Home Sales:

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Published Date 10/2/2017

Realtor Report

Inventory Shortage Hampers Pending Home Sales:

The National Association of Realtors released their Pending Home Sales report and there is a glaringly obvious issue: Lack of inventory available for purchase.

The Pending Home Sales Index a forward-looking indicator based on contract signings, retreated 2.6 percent to 106.3 in August from 109.1 in July. The index is now at its lowest reading since January 2016 (106.1), is 2.6 percent below a year ago, and has fallen on an annual basis in four of the past five months.

Lawrence Yun, NAR chief economist, says this summer’s terribly low supply levels have officially drained all of the housing market’s momentum over the past year. “August was another month of declining contract activity because of the one-two punch of limited listings and home prices rising far above incomes,” he said. “Demand continues to overwhelm supply in most of the country, and as a result, many would-be buyers from earlier in the year are still in the market for a home, while others have perhaps decided to temporarily postpone their search.”

With little relief expected from the housing shortages that continue to plague several areas, Yun believes the housing market has essentially stalled. Further complicating any sales improvement in the months ahead is the fact that Hurricane Harvey’s damage to the Houston region contributed to the South’s decline in contract signings in August, and will likely continue to do so in the months ahead. Furthermore, the temporary pause in activity in Florida this month in the wake of Hurricane Irma will slow overall sales even more in the South.

Yun now forecasts existing-home sales to close out the year at around 5.44 million, which comes in slightly below (0.2 percent) the pace set in 2016 (5.45 million). The national median existing-home price this year is expected to increase around 6 percent. In 2016, existing sales increased 3.8 percent and prices rose 5.1 percent. “The supply and affordability headwinds would have likely held sales growth just a tad above last year, but coupled with the temporary effects from Hurricanes Harvey and Irma, sales in 2017 now appear will fall slightly below last year,” said Yun. “The good news is that nearly all of the missed closings for the remainder of the year will likely show up in 2018, with existing sales forecast to rise 6.9 percent.”

The PHSI in the Northeast fell 4.4 percent to 93.4 in August, and is now 4.1 percent below a year ago. In the Midwest the index decreased 1.5 percent to 101.8 in August, and is now 3.2 percent lower than August 2016.

Pending home sales in the South retreated 3.5 percent to an index of 118.8 in August and are now 1.7 percent below last August. The index in the West declined 1.0 percent in August to 101.3, and is 2.4 percent below a year ago.

Source: NAR

This Week's Mortgage Rate Summary

How Rates Move:

Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage-Backed Securities (MBS) which are traded in real time, all day in the bond market. This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, mortgage rates or pricing generally goes down. When they fall, mortgage pricing goes up.

Rates Currently Trending: Neutral

Mortgage rates are trending slightly lower this morning. Last week the MBS market worsened by -21bps. This was enough to worsen mortgage rates or fees. Mortgage rate volatility was high last week.

This Week's Rate Forecast: Neutral

Three Things: These three areas have the greatest ability to impact mortgage rates this week. 1) Geopolitical, 2) Fed and 3) Domestic.

1) Geopolitical: The bond market is very much interested in the fallout of the Catalonia referendum which saw over 2M votes with 90% opting to leave Spanish control. This has the potential to push back the EU's tapering of their bond purchases which many have been speculating would begin soon. We also get the Minutes from the last ECB meeting.

We also will continue to react to any movement on the tax reform front as we hear from key members of the House and Senate.

2) Fed: While we will hear from Fed Chair Janet Yellen again this week the bond market is probably more influenced by shifting odds of who the next Fed Chair will be. Last week, Warsh got some traction which pressured MBS as he is viewed as being more "Hawkish" than Yellen.

10/02 Robert Kaplan
10/03 Jerome Powell
10/04 James Bullard, Janet Yellen
10/05 John Williams, Patrick Harker
10/06 Raphael Bostic

3) Domestic: We have our Big Jobs Friday which of course will get a lot of attention by the markets, but we also some very important reads with ISM Manufacturing and Services.

This Week's Potential Volatility: High

There's a lot going on this week politically and economically that can push mortgage rates higher or lower. The bias, as has been the case for some time now, is toward higher mortgage rates with above average volatility.

Bottom Line:

If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.

Source: TBWS

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