Home Builders’ Sentiment Jumps:
The National Association of Home Builders (NAHB) released their recent Housing Market Index and it showed a very robust reading of 68. Its the 4th highest reading since 2007. Any reading above 50.0 is considered positive for the housing market.
Builder confidence in the market for newly-built single-family homes rose four points in August to a level of 68 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI).
“Our members are encouraged by rising demand in the new-home market,” said NAHB Chairman Granger MacDonald, a home builder and developer from Kerrville, Texas. “This is due to ongoing job and economic growth, attractive mortgage rates, and growing consumer confidence.”
“The fact that builder confidence has returned to the healthy levels we saw this spring is consistent with our forecast for a gradual strengthening in the housing market,” said NAHB Chief Economist Robert Dietz. “GDP growth improved in the second quarter, which helped sustain housing demand. However, builders continue to face supply-side challenges, such as lot and labor shortages and rising building material costs.”
All three HMI components posted gains in August. The component gauging current sales conditions rose four points to 74 while the index charting sales expectations in the next six months jumped five points to 78. Meanwhile, the component measuring buyer traffic increased a single point to 49.
Looking at the three-month moving averages for regional HMI scores, the Northeast rose one point to 48. The West, South and Midwest all remained unchanged at 75, 67 and 66, respectively.
What Happened to Rates Last Week?
Mortgage backed securities (FNMA 3.50 MBS) gained +2 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move sideways from the prior week. The market saw its lowest rates on Thursday and its highest rates on Tuesday.
At a weekly change of just +2 basis points, it was not enough of a move to cause mortgage rates to change. We had some downward pressure (bad for rates) due to a very strong Retail Sales report but had some terrific upward support due to geo-political concerns across the globe.
Key Domestic Data from Last Week:
Retail Sales: Were much stronger than expected. The headline July reading hit 0.6% vs est. of 0.4%. Plus June was revised upward significantly from -0.2% all the way up to +0.3%. When you strip out Autos, Retail Sales increased by 0.5% vs est. of 0.3% and June was revised upward from -0.2% to +0.1%
The Talking Fed:
The bond market focused on anything related to the timing of their taper. The Minutes said “Participants generally agreed that, in light of their current assessment of economic conditions and the outlook, it was appropriate to signal that implementation of the program likely would begin relatively soon, absent significant adverse developments in the economy or in financial markets. Many noted that the program was expected to contribute only modestly to the reduction in policy accommodation.” As well as “Although several participants were prepared to announce a starting date for the program at the current meeting, most preferred to defer that decision until an upcoming meeting while accumulating additional information on the economic outlook and developments potentially affecting financial markets.”
Those statements combined make it clear that they are sending the message that they will announce the start of the taper in September. However, once again the markets have not completely bought into their forward guidance.
Separately, we heard from two Fed Presidents. Dallas Fed President Robert Kaplan said “We have to be careful in our further moves” and the Federal Reserve should be “very patient and judicious” as it considers whether to raise interest rates. The White House says he will stay in his current position.
Minneapolis Fed President Neel Kashkari said that the Fed is watching the debt ceiling and how it will be handled in Congress before making a final decision on the timing of adjusting their balance sheet (tapering).
What to Watch Out For This Week:
The above are the major economic reports that will hit the market this week. They each have the ability to affect the pricing of Mortgage Backed Securities and therefore, interest rates for Government and Conventional mortgages. I will be watching these reports closely for you and let you know if there are any big surprises.
It is virtually impossible for you to keep track of what is going on with the economy and other events that can impact the housing and mortgage markets. Just leave it to me, I monitor the live trading of Mortgage Backed Securities which are the only thing government and conventional mortgage rates are based upon.