MARKET UPDATE
New Home Sales dipped 6.9% in April, but that’s compared to March’s 11-year high. The 673,000 annual rate is still 7% ahead of a year ago and the 14.6% boost in units sold before construction began signals strong demand.
Existing Home Sales slipped 0.4% in April, but Q1 was 1.2% ahead of Q4 2018, the first quarterly increase after four declines. Plus, rates are low and price gains are slowing, as inventories have been rising year-over-year nine months in a row.
Freddie Mac’s chief economist notes: “The drop in mortgage rates is causing purchase demand to rise, and the mix…is skewing to the higher end as more affluent consumers are typically more responsive to declines in rates.”
REVIEW OF LAST WEEK
TRADE FATIGUE… Fending off a deluge of trade headlines for another week exhausted the markets. Equities lacked the oomph (meaning investor interest) to climb higher, sending the three major stock indexes down.
Wall Street worried that the U.S. and China were moving further from reaching a trade deal. Stirring the pot was a threatened U.S. ban on China’s giant Huawei Technologies because of national security risks.
In the end, both sides confirmed they wanted a deal, and the President gave Huawei a 90-day reprieve, saying they could be included in the final agreement. Also good, minutes from the last Fed meeting indicated interest rates will stay low.
The week ended with the Dow down 0.7%, to 25586; the S&P 500 down 1.2%, to 2826; and the Nasdaq down 2.3%, to 7637.
Traders sought solace in the safe haven of bonds, pushing prices up nicely. The 30YR FNMA 4.0% bond ended UP .11, at $102.89. The national average 30-year fixed mortgage rate fell for the fourth week in Freddie Mac’s Primary Mortgage Market Survey. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up-to-the-minute information.
DID YOU KNOW?
An online real estate database reports vacant homes sell for $11,306 less, on average, than comparable occupied homes, and spend an average of six more days on the market.
THIS WEEK’S FORECAST
PENDING HOME SALES UP, GDP STRONG, INFLATION BENIGN… The Pending Homes Sales index of contracts signed on existing homes should register another gain in April. The GDP-2nd Estimate for Q1 is forecast north of 3%, underlining strong economic growth, while the Core PCE Price Index is expected to show inflation remains under control, good news for interest rates.
The U.S. stock and bond markets were closed Monday, May 27, in observance of Memorial Day.
NOTE: Weaker economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and higher loan rates.
FEDERAL RESERVE WATCH
Forecasting Federal Reserve policy changes in coming months… Sentiment is subsiding for a rate cut any time soon, looking at the projections from the Fed Funds Futures market. Note: In the lower chart, a 5% probability of change is a 95% probability the rate will stay the same.
Current Fed Funds Rate: 2.25%-2.50%
| AFTER FOMC MEETING ON: | CONSENSUS |
| Jun 19 | 2.25%-2.50% |
| Jul 31 | 2.25%-2.50% |
| Sep 18 | 2.25%-2.50% |
Probability of change from current policy:
| AFTER FOMC MEETING ON: | CONSENSUS |
| Jun 19 | 5% |
| Jul 31 | 18% |
| Sep 18 | 48% |
