New Home Sales

“I’ve got to admit it’s getting better. A little better all the time.” (The Beatles) Sales of new homes increased from July to August, with the available inventory of homes also a welcome sign.

August New Home Sales rose 3.5 percent from July to an annual rate of 629,000, per the Commerce Department. However, July’s sales figure was revised lower to 608,000 from the 627,000 originally reported. Sales rose sharply in the Northeast, increased in the Midwest and West, and fell in the South. There was positive news for homebuyers around the country struggling with limited inventory. The level of new homes for sale was at a 6.1-month supply, just above the 6-month supply considered normal.

Home price gains eased a bit in July and have begun to slow after the big gains seen in the past few years. The S&P/Case-Shiller 20-City Home Price Index rose 5.9 percent from July 2017 to July 2018, down from the 6.4 percent year-over-year gain seen in June. On a monthly basis, prices were up just 0.1 percent from June to July.

There was also positive news about the strength of the economy in the second quarter, as the final reading on Gross Domestic Product (GDP) was released. The Bureau of Economic Analysis reported that GDP rose 4.2 percent, up from the 2.2 percent increase recorded in the first quarter. GDP is the monetary value of all finished goods and services produced within a country’s borders in a specific time period. It is considered the broadest measure of economic activity.

After its Federal Open Market Committee meeting, the Fed announced an increase to the benchmark Federal Funds Rate by 0.25 percent. The Fed Funds Rate is the short-term rate at which banks lend money to each other overnight. It is not directly tied to long-term rates on consumer products like purchase or refinance home loans. In other words, consumers should not expect home loan rates to rise as a direct result of the Fed’s decision.

The Fed noted that the economy and labor market continue to strengthen and that inflation remains near its target of 2 percent. Later in the week, data on the Fed’s favorite measure of inflation, Core Personal Consumption Expenditures, was released and it was unchanged from July to August at 2 percent on an annual basis. If inflation can stay in check, this could be good news for home loan rates. Inflation reduces the value of fixed investments like Mortgage Bonds, and home loan rates are tied to Mortgage Bonds.

Mortgage Bonds rebounded in the latest week due in part to the talk of low inflation. Home loan rates remain historically attractive.

  • There will be manufacturing news via the ISM Index on Monday, followed by the ISM Services Index on Wednesday.
  • The ADP National Employment Report will also be delivered on Wednesday.
  • As usual, weekly Initial Jobless Claims will be released on Thursday.
  • On Friday, the Jobs Report for September will be released, which includes Non-Farm Payrolls, the Unemployment Rate, Hourly Earnings and Average Work Week.

If you or someone you know has any questions about home loan rates, please give me a call. I’d be happy to help.

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