Quiet Week in Mortgage Markets
Some weeks are packed with exciting news and wild and crazy price swings. Last week, however, represented the opposite extreme. Mortgage markets barely strayed from their starting points, and average 30-year fixed rates decreased by a slim 0.02%, as measured by the Fannie Mae Required Net Yield. Mortgage rates are now about 0.50% below their recent peak reached in June, but they are still about 0.75% higher than they were one year ago.
With a lack of major events, the housing sector received more attention than usual last week. Two reports on Home Sales from the National Association of Realtors (NAR) showed a sharper than expected slowdown in July. Many media reports played up catchy headlines such as new home inventories rising to eleven year highs or activity rates falling to multi-year lows, while failing to mention one vital point which cannot be overemphasized. So far in 2006, the overall housing market is operating at the third fastest pace ever. Only in comparison to the last two record years could this year’s level of housing activity be viewed as weak.
In fact, the NAR just released a revised set of forecasts for 2006. Existing home sales are projected to fall about 7% from last year, while median prices rise 4%. Also according to the NAR, housing starts will decline 9%, while 30-year fixed mortgage rates will slowly rise from current levels by about 0.40% in the fourth quarter. If the actual results come in close to these levels, it would represent the third highest level of sales after 2005 and 2004. While some regions are faring better than others, it bears repeating that the 2006 housing market is performing well by historical standards.
Also Notable:
• Median existing home prices were 9% higher than one year ago
• The NAR projected that 30-year fixed mortgage rates will rise from current levels
by about 0.40% before the end of 2006
• 44 of Fannie Mae’s top 55 executives have departed since accounting problems
surfaced two years ago
• Single women represent the second largest buying group after married couples,
according to a Harvard University report
Week Ahead
The important August Employment Report will be released on Friday of next week. As usual, this data on the number of new jobs created and the Unemployment Rate will be the most influential economic data of the month, since the health of the labor market is perhaps the single biggest factor in the performance of the economy. Early estimates are for about 125,000 new jobs in August. Many other significant reports will be coming out as well. On Wednesday, the first revision to Third Quarter Gross Domestic Product (GDP) will be released. GDP is the broadest measure of US economic activity, and it is revised twice during each quarter. The two major national manufacturing indexes, the ISM and Chicago PMI, are also on the schedule at the end of the week. In addition, the
Pending Home Sales index on Friday will be a nice leading indicator of activity in the housing sector.
While the second half of the week will be packed with economic data, the first half may focus more on news from the Fed. The Fed’s annual summit in Jackson Hole kicked off on Friday and will continue through the weekend. Market moving news sometimes emerges from this event. On Tuesday, the minutes from the August 8 FOMC meeting will be released. This detailed description of the discussion during the last Fed meeting will be eagerly devoured and scrutinized for clues about future policy.
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