Mortgage Rates

Last week’s economic readings included reports on construction spending, Case-Shiller Home Price Indices and pending home sales. Fed Chair Janet Yellen said in a speech that federal interest rates would “likely” be raised. Weekly reports on new jobless claims and mortgage rates were also released.

Pending Home Sales Slump as Available Homes Dwindle

Pending Home sales fell in January as inventories of available homes declined. Prospective buyers faced with fewer choices may have chosen to wait rather than purchase homes that weren’t a good match for their needs. Analysts expected pending home sales to grow by 1.10 percent in January, but they fell by 2.80 percent to an index reading of 106.4, which was the lowest reading since January 2016. Additional factors contributing to lower pending sales, which represent sales under contract but not yet closed, include consumer uncertainty about economic conditions under the new administration and fear of rising mortgage rates. Affordability is also an issue for first-time buyers as short supplies of homes create more competition among prospective buyers.

Real estate pros have repeatedly said that the only way to resolve shortages of homes is to build more. While home builder confidence in market conditions has grown in recent months, housing starts and construction spending have not followed suit. Construction spending in January was 0.10 percent lower despite projections of 0.60 percent growth in construction spending and a positive reading of 0.10 percent in spending for December. Winter weather conditions can affect construction during winter months. Ongoing shortages of available lots and labor have also held back builders from optimum construction rat

Home Prices Rise in December

S&P Case-Shiller Home Prices rose to 5.80 percent on a seasonally-adjusted annual rate. November’s reading showed 5.60 percent growth in average home prices, Home prices continue to grow in the West as Seattle, Washington, Portland, Oregon and Denver, Colorado held on to the top three spots for fastest growth in home prices among cities surveyed.

Mortgage Rates, New Jobless Claims Lower

Freddie Mac reported lower average mortgage rates last week. 30-year fixed rate mortgages averaged 4.10 percent rate, which was six basis points lower than the prior week. The average rate for a 15-year fixed rate mortgage was five basis points lower at 3.32 percent. 5/1 adjustable rate mortgage rates were two basis points lower at 3.14 percent on average. Discount points averaged 0.50 percent for fixed rate mortgages and 0.40 percent for 5/1 adjustable rate mortgages.

New jobless claims were lower last week with 233,000 new claims filed as compared to expectations of 245,000 new claims filed. There were 244,000 new claims filed in the prior week.

What‘s Ahead

Labor reports including ADP payrolls Non-farm payrolls and the national unemployment rate will be released along with weekly readings on mortgage rates and new jobless claims.

Last week’s readings on new and existing home sales provided further evidence of strengthening housing markets. Both categories of home sales exceeded December’s readings. Consumer sentiment was lower in February than for January and average rates were mixed with fixed rates higher and the rate for 5/1 adjustable rate mortgages lower. Consumer sentiment lower in February.

New and Previously–owned Home Sales Higher in January

Home sales volume rose in January regardless of obstacles including higher mortgage rates and rising home prices. The National Association of Realtors® reported more sales of pre-owned homes in January. 5.69 million homes were sold on a seasonally-adjusted annual basis in January, which surpassed expectations of 5.57 million sales and December’s reading of 5.51 million sales of previously-owned homes.

New home sales also rose in January. 555,000 new home sales were reported, which fell short of 586,000 new home sales expected. 535,000 new homes were sold in December.

Mortgage Rates Mixed

Mortgage rates have traditionally been tied to the performance of 10-year Treasury notes, but this connection may be weakening due to uncertainty about current economic influences. Freddie Mac reported that the average rate for a 30-year mortgage rose one basis point to 4.16 percent; the average rate for a 15-year fixed rate mortgage rose two basis points to 3.37 percent and the average rate for a 5/1 adjustable rate mortgage dropped two basis points 3.16 percent. Discount points averaged 0.50 percent for fixed rate mortgages and 0.40 percent for 5/1 adjustable rate mortgages.

New Jobless claims also rose last week; 244,000 new claims were filed as compared to expectations of 237,000 new claims and the prior week’s revised reading of 238,000 new claims. The weekly reading for new jobless claims remained below the benchmark of 3000 new claims. The less volatile four-week rolling average of new claims filed reached its lowest level since July 1973 and fell by 4,000 new claims to 241,000 new claims filed. Layoffs remain low, so week-to-week variances in new jobless claim filed do not necessarily indicate faltering job markets.

What‘s Next

This week’s economic news includes readings on pending home sales, Case-Shiller Housing Market Indices, pending home sales and inflation. Weekly reports on mortgage rates and new jobless claims.

Last week’s economic releases included readings on housing starts, building permits issued and the National Association of Home Builders/ Wells Fargo Housing Market Index. Fed Chair Janet Yellen testified before the House Finance Committee and consumer spending and core consumer spending reports were also released. Mortgage rates and new jobless claims were little changed week-to-week.

Home Builder Sentiment Slows as Industry Faces Obstacles

NAHB reported lower reading for its January Housing Market Index. January’s index reading was two points lower at 65 than December’s reading. Builders surveyed for the index cited ongoing shortages of buildable lots and labor, they also said that housing regulation were causing home prices to rise as new home prices are adjusted to compensate for feels associated with new construction. Any reading above 50 for the NAHB Housing Market Index is considered more positive than negative.

Builder concerns could raise additional issues for housing markets as a persistent shortage of homes for sale has driven prices up and caused fierce competition among home buyers. First-time and moderate income home buyers have been sidelined in favor of cash buyers in ultra-competitive metro areas. There was some evidence that rapidly escalating home prices may be approaching their peak. Home prices in San Francisco, California increased more slowly in recent months and were unchanged in January.

Housing Starts Lower; More Building Permits Issued

Fewer new homes were started in January as compared to December. 1.246 million homes were started in January as compared to December’s reading of 1.279 million new homes started. Winter weather can cause fluctuations in housing starts; more building permits were issued in January than for December. 1.246 million permits were issued for January as compared to December’s reading of 1.228 million permits issued.

Home builders were also concerned about rising mortgage rates as reducing affordability for would-be home buyers; Fed Chair Janet Yellen indicated in her testimony before the House Finance Committee that economic conditions are normalizing and that the Fed would likely continue to raise the target federal funds rate as economic conditions continue to improve.

Mortgage Rates Fall, New Jobless Claims /Rise

Freddie Mac reported lower mortgage rates last week. Average mortgage rates were two basis points lower at 4.15 percent for 30-year fixed rate mortgages; the average rate for 15-year fixed rate mortgages was four basis points lower at 3.35 percent. 5/1 adjustable mortgage rates were three basis points lower at 3.18 percent. Discount points averaged 0.50 percent for fixed rate mortgages and 0.40 percent for 5/1 adjustable rate mortgages.

New jobless claims were higher last week with 239,000 new claims filed as compared to an expected reading of 242,000 new claims and the prior week’s reading of 234,000 new jobless claims.

What‘s Ahead

Next week’s scheduled economic reports include readings on new and previously owned home sales and consumer sentiment index. Freddie Mac will report mortgage rates and new weekly jobless claims will be released as usual.