Market Recap
Pending Home Sales Hit Six Year High:
The number of people who signed contracts to buy U.S. homes jumped in May to the highest level in more than six years, suggesting people are seeking to buy before mortgage rates rise further.Existing home sales improved in May but the supply of homes for sale remains tight – which isn’t good news for buyers, the National Association of Realtors said Thursday. The National Association of Realtors says that its seasonally adjusted index for pending home sales rose 6.7% to 112.3 last month. That’s the highest level since December 2006. Signed contracts have risen 12.1% in the past 12 months. The increase could reflect an effort by potential buyers to complete deals before mortgage rates rose further. Mortgage rates rose in May and then jumped after Federal Reserve Chairman Ben Bernanke suggested last week the Fed could slow its bond purchases later this year. The increase points to healthy gains in home sales in the coming months. There is generally a one- to two-month lag between a signed contract and a completed sale. The Realtors’ group forecasts that sales will likely total nearly 5.1 million in 2013, which would be the highest in seven years. Other private economists have similar projections.
What Happened to Rates Last Week?
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We started the week once again going the wrong direction with MBS selling off and hitting a new low for 2013 which in turn, gave us the highest mortgage rates for the year. The sell off occurred in response to better than expected Durable Goods Orders, New Home Sales and Consumer Confidence.
But the bond market reversed course on Tuesday after getting a much bigger downward revision to the 1st quarter GDP data. This meant that our economy grew less than originally thought and that is always a positive for bonds. MBS carried on their rally throughout the week on some commentary by various FOMC and Fed officials. They didn’t make any new announcements or policy changes. Instead their job was to calm the markets and to convey that a pull-back in monthly bond purchases is data dependent and will not necessarily occur as soon as the markets had been pricing in. Remember, the primary reason why mortgage rates have increased since May 1st is that MBS have been selling off due to concern that the single largest purchaser of MBS (the Fed) would begin to purchase less each month.
We had very weak demand for the 2 year and 5 year U.S. Treasury auctions but saw some good demand for our 7 year auction. We rounded out the week with stronger than expected Pending Home Sales and Consumer Sentiment.
