1. Home
  2. Blog
  3. Economic Insights
  4. Housing Starts Underperform, Mortgage Rates Flat – Market Update

I hope everyone had a good weekend! I want to jump in because last week was quite eventful.

We had some housing data to begin the week, but the big market mover was the meeting of the Federal Reserve. We’ll get into that more when we talk about mortgage rates, but first, let’s take a peek at the data underlying the Fed’s decisions.

Headline News

Housing Market Index

Builder confidence was down slightly in June metrics, falling two points to come in at 64, which still indicates strong growth in the market.

Current sales as well as expectations for sales over the next 6 months were both down slightly at 71 and 70, respectively. However, the real laggard that’s holding everything back is the amount of traffic of prospective buyers going through homes. An index number of 48 means traffic continues to shrink.

The West was down four points in the index, but it still leads the way at 69, while the South was flat at 68. The Northeast and Midwest trail with confidence levels of 60 and 59.

Housing Starts

Overall housing starts were down 0.9% to come in at 1.269 million in May. Single-family starts came in at a seasonally adjusted, annual rate of 820,000 which is down 12.5% since last year at this time. Multifamily units are up 13.7% for the year to 449,000.

On the permit side, these are down 0.5% overall and on pace for 1.294 million permits this year. Completions of homes are also down quite a bit at 1.213 million which is adding to the supply problem in the market.

The report does conclude by noting that starts and permits are moving back to the numbers seen before the start of last year’s big downturn, and there’s some optimism that low mortgage rates will help the market in the coming months.

MBA Mortgage Applications

Overall applications were down 3.4% last week, but given that applications were up 26.8% last week, there’s still a very high volume of activity going on out there. To give you an idea of how good rates are, people are finally edging into the purchase market, with purchases being up 4% on the year.

Getting back to the weekly numbers, both purchases and refinances were down 4% on the week. The average rate on a conventional 30-year fixed mortgage was up a couple of basis points to 4.14%.

Jobless Claims

Initial jobless claims were down 6,000 last week to come in at 216,000. Meanwhile, the 4-week moving average was up 1,000 claims to 218,750.

This is also the comparison week that gets sampled for the employment report. While initial claims are up 4,000 since the last time this was sampled, the four-week average over that time is down 1,750.

On the continuing claims side, these were down 37,000 to 1.662 million. The 4-week average fell 5,250 to come in at 1.679 million.

Existing Home Sales

Existing home sales were up 2.5% in May to come in at a seasonally adjusted, annualized rate of 5.34 million. This is still down 1.1% compared to last May. Additionally, it’s down quite a bit from the 5.48 million pace that was seen in February. And the three-month average is down 0.9% at 5.253 million.

Single-family sales and existing homes were up 2.6% at 4.75 million, while there was an increase of 1.7% to 590,000 condo sales. The Northeast and Midwest saw gains in the mid-single digits while the South and West saw gains that were slightly lower.

On the sales side, there are more resales coming on the market as these are up 4.9% at 1.92 million. There was a 4% increase in the median price of a home at 277,700. This is up 4.8% since the same time a year ago.

Mortgage Rates

Before we get into mortgage rates, let’s briefly touch on what happened at the Federal Open Market Committee (FOMC) meeting last week because the market reacted rather swiftly.

For the first time since it started increasing rates at the end of 2015, the Committee acknowledged that inflation had declined since the last meeting. It also mentioned for the first time possible risks to the longer-term economic outlook, and that it would be keeping an eye on them in order to be ready to make a move to support continued economic expansion. This is a little more explicit than they normally are in their language and the market is nearly certain there will be a cut in short-term interest rates shortly. This is one strategy to boost inflation a bit, which the Fed would actually like to see because this thread of prices being higher causes people to buy now, which stimulates the economy.

While not directly correlated to longer-term mortgage rates, short-term rates being lower does tend to mean good things for their longer-term counterparts. Put plainly, lower short-term rates tend to mean lower long-term rates for things like mortgages.

Mortgage rates didn’t move much in the data from the Freddie Mac survey last week because it was all collected before the end of the meeting, but we’ll see what kind of movement the policy statement causes in next week’s numbers.

One thing that’s sure is that mortgage rates are really good right now. If you’re looking to buy or refinance, it’s a good time to apply.

The average rate for a 30-year fixed mortgage was up two basis points to 3.84% with 0.5 points paid in fees. This is down from 4.57% a year ago.

Meanwhile, the average rate on a 15-year fixed mortgage was down a single basis point at 3.25% with 0.4 points paid. This has fallen from 4.04% last year.

Finally, the average rate on a 5-year treasury-indexed, hybrid adjustable rate mortgage (ARM) with 0.4 points paid fell three basis points to 3.48%, which is down from 3.83% at the same time in 2018.

Stock Market

The S&P 500 came up just short of a record on Friday. A couple of major themes helped serve as the reason for the week’s gains. As mentioned above, the market is expecting a stimulus in the form of an interest rate cut from the Fed, but they were also happy when it was reported there was positive momentum in trade talks with China. However, this momentum was tempered a little bit as it was also announced that five additional Chinese companies wouldn’t be able to order components from the U.S. without prior approval. Silicon chipmakers in particular fell back.

The Dow Jones Industrial Average was down 34.04 points on the day, closing at 26,719.13, but still rising 2.41% on the week. Meanwhile, the S&P 500 closed at 2,950.46, down 3.72 points on the day, but still up 2.2% on the week. Finally, the Nasdaq was up 3.01% on the week despite closing at 8,031.71, down 19.63 points for the day.

The Week Ahead

Tuesday, June 25

FHFA House Price Index (9:00 a.m. ET) – The Federal Housing Finance Agency (FHFA) House Price Index (HPI) covers single-family housing using data provided by Fannie Mae and Freddie Mac. The HPI is derived from transactions involving conforming conventional mortgages purchased or securitized by Fannie Mae or Freddie Mac.

S&P Case-Shiller HPI (9:00 a.m. ET) – The S&P Case-Shiller home price index tracks monthly changes in the value of residential real estate in 20 metropolitan regions across the U.S.

Consumer Confidence (10:00 a.m. ET) – The Conference Board surveys consumers on their feelings about current and future business and employment conditions as well as their future spending plans.

New Home Sales (10:00 a.m. ET) – This report measures the number of newly constructed homes with a committed sale during the month. This will be the report for January.

Wednesday, June 26

MBA Mortgage Applications (7:00 a.m. ET) – The mortgage applications index measures applications to mortgage lenders. This is a leading indicator for single-family home sales and housing construction.

Durable Goods Orders (8:30 a.m. ET) – These are based on new orders placed with domestic manufacturers for factory goods.

International Trade in Goods (8:30 a.m. ET) – The Bureau of Economic Analysis has begun breaking out the goods from the remaining international trade numbers to get an idea of import and export estimates for GDP calculations.

Thursday, June 27

Gross Domestic Product (GDP) (8:30 a.m. ET) – This release measures the monetary value of all final goods and services produced within the U.S. This report is released on a quarterly basis.

Jobless Claims (8:30 a.m. ET) – New unemployment claims are compiled weekly to show the number of individuals filing for unemployment insurance for the first time. An increasing trend suggests a deteriorating labor market. The 4-week moving average of new claims smooths out weekly volatility.

Pending Home Sales Index (10:00 a.m. ET) – The National Association of REALTORS® developed the Pending Home Sales Index as a leading indicator of housing activity. Specifically, it’s a leading indicator of existing home sales – not new home sales.

Friday, June 28

Personal Income and Outlays (8:30 a.m. ET) – This is a measurement of how much consumers are taking in as well as their corresponding spending. This also gives insight into how much is being saved.

Consumer Sentiment (10:00 a.m. ET) – The University of Michigan’s Consumer Survey Center questions 500 households each month on their financial conditions and attitudes about the economy. Consumer sentiment is directly related to the strength of consumer spending.

There’s quite a lot of data headed our way next week. Probably the biggest reports are those on personal income and spending as well as the always important GDP number as a measure of overall economic growth. We’ll have it all covered in next week’s Market Update!

This post is a bit dry on a Monday afternoon. We’re aware of it. Fortunately, we’ve got plenty more home, money and lifestyle content to share with you if you subscribe to the Zing Blog below. This week, Emma Tomsich is looking out for your wallet with 24 Top Money Saving Tips. Enjoy the first full week of summer!

Leave a Reply

Your email address will not be published. Required fields are marked *