Sellers Still Expect Prices to Rise

Sellers Still Expect Prices to Rise:
The Fannie Mae Home Purchase Sentiment Index® (HPSI) increased 1.2 points in August to 88.0, just below the all-time high set in June.

The net share who reported that now is a good time to sell a home rose 8 percentage points in August and is now up 21 percentage points compared to the same period last year.

“In the early stages of the economic expansion, home selling sentiment trailed home buying sentiment by a significant margin. The reverse is true today,” said Doug Duncan, senior vice president and chief economist at Fannie Mae. “The net good time to sell share is now double the net good time to buy share, with record high percentages of consumers citing home prices as the primary reason for both perceptions. Such a sizable gap between selling and buying sentiment, if it persists, could weigh on the housing market through the rest of the year.”

Meanwhile, the net share who said it’s a good time to buy fell 5 percentage points in July and is down 16 percentage points year-over-year. Respondents continue to cite high home prices as the most important reason behind the bad time to buy and good time to sell indicators. The net share of those who believe mortgage rates will go down increased 4 percentage points, while the net share of Americans who believe home prices will go up increased 1 percentage point. Americans also expressed a reduced sense of job security, with the net share who say they are not concerned about losing their job falling 1 percentage point. Finally, the share of consumers who reported that their income is significantly higher than it was 12 months ago remains unchanged.

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 3.50 MBS) gained +43 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move lower from the prior week and set a new record low for rates for 2017.

A perfect storm:  That is what it took to drive MBS pricing higher (which means lower rates) last week.  Uncertainty and fear drove demand for our longer term bonds in the face of Harvey and the impending Irma, North Korea and our Debt Ceiling.  We also had the number 2 person at the Fed (Stanley Fischer) retire early (his term ends in June 2018 but he will step down October 2017.)  On the Central Bank front, the Bank of Canada surprised the markets with a 1/4 point rate hike but the European Central Bank disappointed with no real guidance on the timing of winding down their massive bond purchasing program.

Here are the major economic release last week:
The Talking Fed:
The Beige Book was released.  Little has changed in the 12 Federal Reserve Districts from the last report as all districts reported “moderate” to “modest” growth.  In fact, the word “modest” was used 140 times and the word “moderate” was used 80 times in the report.  It looks like several districts were concerned about a slow down in the auto sector (you can dismiss this folks…..auto sales will spike as all of those water-logged cars from Harvey, Irma and Jose will need to be replaced…a huge boon to the auto market in the next 60 days).
Participants cited tight labor markets and non-wage (benefits) compensation as having less of an impact on attracting workers which could indicated that actual wages paid may soon be rising in order to hire away good workers.

Geo-Political: The House voted to “kick the can” down the road until December 8th, as they voted to “suspend” (so not raise but suspend) the debt ceiling.  They also approved $115B for Harvey relief efforts.

European Central Bank (in)Action: The European Central Bank left their Interest Rate, Deposit Rate and Asset Purchase programs alone with no changes.  ECB President Mario Draghi said “ECB discussion on QE was very preliminary. Various scenarios were discussed as well as various pros and cons. The ECB discussed the QE covered length, size of plan.”  He also said that they have not discussed increasing the types of assets that they can buy which is interesting as they have already gobbled up most of the inventory.
What to Watch Out For This Week: