Stellar Housing Data This Week and a Break From Mortgage Rate Volatility
After beginning the week on shaky footing thanks to recently higher rates, the housing market was treated to great news in the form of strong reports on home sales and prices.
New Home Sales surged 16.6 percent from March to April and 23.8 percent versus April 2015, according to data released by the Census Bureau this week. The Southern region led the charge with a gain of 52.8 percent this month and a staggering 323.1 percent year-over-year.
Not to be outdone, Pending Home Sales, which measures contract activity in Existing Homes, rang in at the strongest level since early 2006 in data released by the National Association of Realtors. Both housing reports resoundingly exceeded analyst forecasts and both accomplish some important goals on the charts.
If the gain holds in New Home Sales after revisions, it will bring an end to the ceiling that's been in place for more than a year, thus breathing new life into a trend that looked to be flattening out.
The gain in Pending Sales accomplishes a similar goal (rising above early 2015 levels), but it also trumps the big spike seen at the expiration of the homebuyer tax credit in early 2010.
With strong sales come strong prices, and the FHFA confirmed that in the most recent installment of its Housing Price Index. Appreciation has been strong and steady, with the annual rate running just over 6 percent and the 3-year rate of appreciation holding just under 20%.
Rates even calmed down over the course of the week, but threats remain as June's Fed meeting approaches. After the Fed released April's meeting minutes (last week), rates leapt higher as investors concluded the Fed was more likely to hike its policy rate in June or July.
Despite last week's spike, rates managed to remain inside the same increasingly narrow range we've been following all year. A chart of 10yr Treasury yields (which closely track mortgage rate movement) is a great way to observe this consolidating momentum. The 800lb gorilla in the room is the fact that the "higher lows" and "lower highs" will be colliding right about the time we hear from the Fed in June (see below).
Although mortgage rates aren't directly connected to the Fed Funds Rate, the two tend to move in the same direction over time. Moreover, Treasury yields and mortgage rates can move preemptively based on the Fed rate hike outlook. As such, mortgage rates and 10yr Treasury yields will have already broken higher or lower out of their increasingly narrow ranges if investors even THINK they know what the Fed will do.
Market volatility should be increasing next week (markets are closed for Memorial Day on Monday). Naturally, it makes more sense to guard against the possibility of a break higher in rates given that we're closer to the higher end of the range.
