Pending Home Sales Best Since June

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Published Date 12/4/2017

Realtor Report

Pending Home Sales Best Since June:

The Pending Home Sales Index, a forward-looking indicator based on contract signings, rose 3.5 percent to 109.3 in October. The index is now at its highest reading since June (110.0).

Lawrence Yun, NAR chief economist, says pending sales in October were primarily driven higher by a big jump in the South, which saw a nice bounce back after hurricane-related disruptions in September. “Last month's solid increase in contract signings were still not enough to keep activity from declining on an annual basis for the sixth time in seven months,” he said. “Home shoppers had better luck finding a home to buy in October, but slim pickings and consistently fast price gains continue to frustrate and prevent too many would-be buyers from reaching the market.”

According to Yun, the supply and affordability headwinds seen most of the year have not abated this fall. Although homebuilders are doing their best to ramp up production of single-family homes amidst ongoing labor and cost challenges, overall activity still drastically lags demand. Further exacerbating the inventory scarcity is the fact that homeowners are staying in their homes longer. NAR's 2017 Profile of Home Buyers and Sellers – released last month – revealed that homeowners typically stayed in their home for 10 years before selling (an all-time survey high). Prior to 2009, sellers consistently lived in their home for a median of six years before selling.

“Existing inventory has decreased every month on an annual basis for 29 consecutive months, and the number of homes for sale at the end of October was the lowest for the month since 19991,” said Yun. “Until new home construction climbs even higher and more investors and homeowners put their home on the market, sales will continue to severely trail underlying demand.”

With two months of data remaining for the year, Yun forecasts for existing-home sales to finish at around 5.52 million, which is an increase of 1.3 percent from 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.

Source: NAR.com

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 sideways this morning. Last week the MBS market worsened by -14bps. This may've moved mortgage rates slightly higher last week. Mortgage rate volatility has really picked up the last few days.

This Week's Rate Forecast: Neutral

Three Things: These are the three areas that have the greatest ability to impact mortgage rates this week. 1) Jobs, 2) Geopolitical and 3) Across the Pond

1) Jobs: We have a slew of wage and jobs related data this week with the market focus primarily on Friday's Non-Farm Payrolls and Average Hourly Wages YOY. The stronger these data points are, the worse it is for mortgage rates, the weaker this data is - the better it will be for rates.

12/05 - ISM Services - Employment Index
12/06 - ADP Private Payrolls, Unit Labor Costs
12/07 - Challenger Grey Job Cuts, Initial Jobless Claims
12/08 - Non-Farm Payrolls, Unemployment Rate, Participation Rate, Average Hourly Wages.

2) Geopolitical: There will be plenty of drama this week. Now that the Senate has passed their form of the Tax Bill, it must be reconciled with the House version. The final Bill that emerges out of that process could be different than what the markets expect. For example, the corporate tax rate could end up being 22 or 23 percent instead of the 20% rate passed by the Senate. The final Bill that is put forth for the President's signature will drive markets. Of course, the Michael Flynn/FBI vs Trump saga will get plenty of press and attention by the markets as well.

3) Across the Pond: We have an important week for international events that can impact the bond markets and mortgage rates. Both Canada and Australia have Central Bank meetings and interest rate decisions. Brexit is front and center with Great Britain and Ireland already hammering out border agreements, and Prime Minister May will be meeting with key EU leadership on finalizing the financial penalty for their leaving the EU.

We also get some significant economic releases from the worlds' largest economies.

China: Caixin Services PMI, Imports and Exports
Japan: Consumer Confidence, GDP
Eurozone: PPI, Retail Sales, Non-Monetary Policy ECB Meeting

This Week's Potential Volatility: High

As noted above, mortgage rate volatility has picked up the last few days. We have a lot on the table this week that could push rates out of a relatively tight channel. Expect continued increased mortgage rate 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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