Mortgage Rates

Last week’s economic news included readings on sales of new and previously owned homes. Despite expectations of lower sales in both categories, sales surpassed expectations and April sales. Analysts were concerned about extremely tight inventories of available homes limiting home sales and did not expect May home sales to increase.

May Home Sales Surpass Expectations

Sales of new homes increased to a seasonally-adjusted annual rate of 610,000 sales as compared to expectations of 590,000 sales and an annual sales pace of 593,000 homes in April. Home builders have repeatedly cited a lack of buildable lots and skilled labor, but growth in new home sales could prompt more housing starts. Real estate industry pros insist that building more homes is the only way to ease tight inventories and high demand for homes.

Existing Home Sales, National Median Home Price Rise

Sales of previously-owned homes also increased in May according to the Commerce Department. Pre-owned homes were sold at a seasonally-adjusted annual pace of 5.62 million sales as compared to expectations of 5.51 million sales and April’s reading of 5.57 million sales. The National Association of Realtors® said that the current sales pace is “unsustainable” and that “would-be buyers are having to delay or postpone their home search due to short supplies of homes for sale.” The national median home price rose 5.80 percent to $252,800 year-over-year.

Regional readings for existing home sales were mixed. Sales of existing homes were 6.88 percent higher in the Northeast while the Midwest was -5.90 percent. Existing home sales increased by 2.20 percent in the South and 3.40 percent in the West.

Mortgage Rates Hold Steady, New Jobless Claims Rise

Freddie Mac reported slightly lower mortgage rates last week as the average rate for all three mortgage types: The average rate for a 30-year fixed rate mortgage was 3.90 percent. Rates for a 15-year fixed rate mortgage averaged 3.17 percent and rates for a 5/1 adjustable rate mortgage averaged 3.14 percent. Discount points were unchanged at 0.50 percent across the board.

New jobless claims reported week rose to 241,000 and exceeded expectations of 240,000 new claims based on the prior week’s reading of 238,000 new claims. Week-to-week fluctuations can be volatile; the four-month rolling average of new jobless claims rose by 1,00 claims to 244,750 new jobless claims filed. New claims have remained below the benchmark reading of 300,000 new claims for 120 weeks, which is the longest consecutive run since the 1970s.

Analysts said that while job markets remain strong, employers continue to have difficulty in finding skilled candidates for jobs offered.

What‘s Ahead

This week’s economic news releases include Case-Schiller Housing Market Index reports, pending home sales and inflation. Mortgage rates and new jobless claims will also be released.

Last week’s economic reports included readings on inflation, core inflation, and the Federal Reserve’s FOMC statement. The NAHB Housing Market Index, housing starts and building permits issued were also released, along with weekly readings on mortgage rates and new jobless claims.

Inflation fell by -0.10 percent in May, which was lower than the no-change reading expected by analysts based on April’s reading of +0.20 percent. The core inflation reading for May, which excludes volatile food and energy sectors, grew by 0.10 percent. Analysts had estimated a gain of 0.20 percent based on April’s reading of 0.10 percent growth.

Builder Confidence Slips, Housing Starts and Building Permits Lower

The National Association of Home Builders Housing Market Index was two points lower in June with an index reading of 67. Each of the three component readings for the HMI was also two points lower than May’s readings. While any reading over 50 is considered positive, builders cited ongoing concerns with shortages of lots and labor challenges to builder confidence and new home construction.

Housing starts and building permits issued were lower in May. 1.09 million starts were reported on a seasonally-adjusted annual basis as compared to expectations of 1.23 million starts and April’s reading of 1.16 million starts. Builders started fewer multi-family housing developments and concentrated on single-family homes. Housing starts fell year-over year and were lower for the third consecutive month.  Fewer building permits were issued in May according to the Commerce Department. Building permits were 4.90 percent lower than in April and hit a 13-month low.

Mortgage Rates Rise, Fed Raises Target Federal Funds Rate

Freddie Mac reported higher mortgage rates last week. The average rate for a 30-year fixed rate mortgage rose three basis points to 3.91 percent; the average rate for a 15-year fixed rate mortgage increased by two basis points to 3.18 percent. Rates for a 5/1 adjustable rate mortgage rose four basis points to 3.15 percent on average. Discount points averaged 0.50 percent for all three mortgage types and were unchanged from the prior week.

The Federal Reserve’s Federal Open Market Committee raised the target federal funds rate to 1.00-1.25 percent as expected. Consumer loan and mortgage rates typically rise along with the federal funds rate. Last week’s dip in the inflation rate could cause rates to fall in coming weeks.

New jobless claims fell to 237,000 last week as compared to an expected reading of 244,000 new claims and the prior week’s reading of 245,000 new jobless claims. Strong readings in the labor sector suggest that job markets are healthy, but can also be influenced by workers leaving the workforce. Unemployment claims require workers to be actively seeking employment.

Consumer sentiment fell to an index reading of 94.50 in June as compared to an expected reading of 97.30 and May’s index reading of 97.10. The University cited consumer uncertainty related to recent political events as the cause of waning consumer confidence.

Last week’s economic news was slim, with few scheduled reports released. Job openings for April, along with weekly readings on mortgage rates and weekly jobless claims were released. Job openings rose in April, while weekly jobless claims were lower. The headline event last week was a further decrease in fixed-rate mortgage interest rates.

Mortgage Rates Lowest in Almost 7 Months

Freddie Mac reported that average rates for fixed rate home loans fell again last week. Mortgage rates typically follow 10-year Treasury yields, which also fell last week. The average rate for a 30-year fixed rate mortgage dropped five basis points to 3.89 percent; the average rate for a 15-year fixed rate mortgage was three basis points lower at 3.16 percent. The average rate for a 5/1 adjustable rate mortgage was unchanged at 3.11 percent; discount points for all three mortgage types were also unchanged at an average of 0.50 percent.

Analysts cited mixed economic reports and uncertainty as factors contributing to lower mortgage rates. After months of short supplies of homes and high demand coupled with rapidly increasing home prices, first-time and moderate- income home buyers may gain a foothold in some housing markets that were previously inaccessible.

New Jobless Claims Fall, Job Openings Increase

First-time jobless claims were lower last week with 245,000 new claims filed as compared to an expected reading of 245,000 new claims and the prior week’s reading of 255,000 new jobless claims. In related news, job openings were higher in April with a reading of 6.0 million job openings as compared to 5.80 million job openings in March. Fewer new jobless claims coupled with more job openings suggests that layoffs are not driving new jobless claims.

What‘s Ahead

Next week’s scheduled economic reports include readings on Inflation, core inflation, and the Federal Open Market Committee of the Federal Reserve will release its post-meeting statement. Fed Chair Janet Yellen is set to give a press conference after the FOMC statement. The FOMC statement will indicate if the Fed will raise its target federal funds rate. The National Association of Home Builders will release its Housing Market Index for June. Weekly readings on mortgage rates and new jobless claims will also be released.