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Daily Rate Update: June 21st-25th

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Friday – June 25, 2021

The Fed’s favorite inflation gauge, the annual Core PCE, rose to the highest level since 1992 at 3.4% in May, meeting expectations. There were some fears that the figure would come in even hotter, so this was good news. The monthly number rose by 0.5% versus the +0.6% expected – again, this was OK. Within the report it showed that consumer spending was flat while incomes declined.

Consumer Sentiment rose to 85.5 in the final reading in June, up from 82.6 at the end of May. Within the report it showed that inflation expectations cooled a bit at the end of June. “When the pandemic first began, consumers were quite uncertain about their job and income prospects, but reported widespread declines in market prices for homes, vehicles and household durables,” Richard Curtin, director of the survey, said in the report.

Courtesy of Mortgage Market Guide 

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Thursday – June 24, 2021

Home borrowing costs jumped this week and remain at historically low levels. Freddie Mac reports that the 30-year fixed-rate mortgage rose to 3.02% this week from 2.93% last week with 0.7 in points and fees. A year ago at this time, the rate was 3.13%. It is up from 2.65% on January 7 of this year. Sam Khater, Freddie Mac’s Chief Economist said, “As the economy progresses and inflation remains elevated, we expect that rates will continue to gradually rise in the second half of the year. For those homeowners who have not yet refinanced – and there remain many borrowers who could benefit from doing so – now is the time.”

First-time unemployment claims inched lower in the latest week as the labor market continues to get back to full strength. At present, there are 9.3 million jobs available across the nation, according to the Bureau of Labor Statistics. Weekly Initial Jobless Claims fell to 411,000 for the week ended June 19, 2021, from 418,000 in the previous week. To put it into perspective, the week of April 4, 2020 claims were over 6 million as the shutdowns took hold. Continuing claims, or those receiving benefits for at least two weeks straight, fell to 3.390 million from 3.534 million. With all U.S. states having reopened their economies, many unemployed Americans should be able to go back to work as the enhanced unemployment benefits are set to expire in September.

This morning’s economic data had little impact on the markets with the final reading of Q1 2021 GDP unchanged at 6.4%, while May Durable Orders rose 2.3% versus the gain of 2.8% expected. Recent economic readings continue to come in beneath expectations – this also gives the Fed cover to hold rates at zero and reiterate that “now is not the time” to taper bond purchases. Tomorrow the markets will have to digest the Fed’s favorite inflation report, the Core PCE, to gauge if pricing pressures continue to rise.

Courtesy of Mortgage Market Guide 

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Wednesday – June 23, 2021

A lack of supply coupled with higher prices cooled sales of single-family homes in May though demand continues to be strong for the overall housing market. May New Home Sales fell nearly 6% from April to an annualized rate of 769,000 units, the lowest pace in a year. Sales were up 9.2% from a year ago. Sales were up big in the Northeast, flat in the Midwest, slightly higher in the West and fell in the South. The median sales price for a new home was $374,000, up 18.1% from a year ago. Inventories were at a 5.1 month supply.

Home borrowing costs inched higher in the latest week and remain at historically low levels. The Mortgage Bankers Association reports that the 30-year fixed-rate mortgage rose seven basis points to 3.18% with 0.48 in points for the week ending June 18, 2021. The Market Composite Index increased 2.1%, the Purchase Index was essentially unchanged while the Refinance Index gained 2.8%. Spokesperson Joel Kan said, “Despite the jump in rates, refinances increased for the second consecutive week, pushed higher by a 4% bump in conventional refinance applications.”

The Mortgage Bankers Association (MBA) also reports that mortgage applications to purchase new homes fell 9% in May from April and declined nearly 6% from a year ago. By product type, conventional loans made up 74% of loan applications, FHA 14.8%, RHS/USDA 0.9% and VA loans 10.4%. The average loan size of new homes rose from $377,434 in April to $384,323 in May. An MBA spokesperson said, “Loan balances continue to rise because of a larger share of sales in the higher end of the market, as well as increased sales prices from strong demand and elevated building material costs.”

Courtesy of Mortgage Market Guide 

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Tuesday – June 22, 2021

Existing Home Sales fell nearly 1% in May from April to an annual rate of 5.80 million units versus the 5.71 million expected. However, sales are up 44.6% from a year ago when most of the country was in lock downs. Existing Home Sales includes single-family homes, townhomes, condominiums and co-ops. The median home price for all housing types in May rose to $350,300 up 23.6% from May 2020, a record high. Inventories were running at a 2.5 month supply, well below 6 months that is seen as normal.

“Home sales fell moderately in May and are now approaching pre-pandemic activity,” said Lawrence Yun, NAR’s chief economist. “Lack of inventory continues to be the overwhelming factor holding back home sales, but falling affordability is simply squeezing some first-time buyers out of the market. The market’s outlook, however, is encouraging. Supply is expected to improve, which will give buyers more options and help tamp down record-high asking prices for existing homes.”

Fed Chair Powell will testify before the House Select Committee on the Coronavirus around 2:00 p.m. ET. In his prepared remarks Mr. Powell said, “Inflation has increased notably in recent months. As these transitory supply effects abate, inflation is expected to drop back toward our longer-run goal.” It’s just like years ago with the slogan … “When E.F. Hutton talks, people listen.” And that is what the bond markets are felling right now. When Mr. Powell speaks, all other Fed member speeches and pundits take a backseat to the Chairman. Time will tell if Mr. Powell is right as the market watches the inflation reports over the next few months. This Friday’s inflation reading Core PCE for May will be closely scrutinized along with the Consumer Price Index and the Core PCE for June being released next month for signs of continued upward price pressures.

Courtesy of Mortgage Market Guide 

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Monday – June 21, 2021

Home builder sentiment fell in June due in part to rising material costs and supply chain constraints. The National Association of Home Builders reports that its Housing Market Index fell slightly to 81 from 83 in May for newly-built single-family homes. Any number over 50 indicates that more builders view conditions as good than poor while a number of over 80 indicates strong demand despite a lack of inventory. NAHB Chairman Chuck Fowke said, “These higher costs have moved some new homes beyond the budget of prospective buyers, which has slowed the strong pace of home building. Policymakers need to focus on supply-chain issues in order to allow the economic recovery to continue.”

The U.S. Census Bureau recently reported that Housing Starts rose 3.6% in May from April to an annual rate of 1.57 million units versus the 1.635 million expected. Single-family starts rose 4.2% to an annual rate of 1.10 million while multi-family dwellings, which includes apartment buildings and condos, rose 2.4% to a 474,000 pace. Building Permits, a sign of future construction, rose 3% to an annual rate of 1.681 million.

Heavy added supply, key inflation data along with Fed Chair Powell on Capitol Hill this week are a few events ahead that could further impact the markets as well as rates. Fed Chair Powell will be on Capitol Hill on Tuesday testifying before a House Select Subcommittee on the Coronavirus Crisis and the Fed’s response. Mr. Powell will be also speaking on the economy. There will also be a host of Fed members speaking this week and comes after the Fed’s Bullard’s hawkish comments which added more volatility to the markets.

Courtesy of Mortgage Market Guide 

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