05/29/2024
Mortgage Market Update
MBS Road Signs
Week of May 20, 2024 in Review
The pace of home sales declined in April, though the speed at which existing homes sold accelerated. Plus, a parade of Fed speakers and the minutes from their last meeting shed light on their views about inflation, the labor market, rate cuts and more. Here are the headlines:
Existing Homes Selling Fast
New Home Sales Slip in April
Full Week of Fed Chatter
Initial Jobless Claims Decline During Key Data Week
Existing Homes Selling Fast
Sales of existing homes fell 1.9% in April to a 4.14-million-unit annualized pace, per the National Association of REALTORS® (NAR), though sales in March were revised higher and this offset some of the decline. This report measures closings on existing homes in April and likely reflects people shopping for homes in February and March.
What's the bottom line?
While the pace of sales declined in April, the speed at which homes sold accelerated. Homes remained on the market for a shorter period in April, with the 26-day average down from 33 days in March. Plus, 27% of homes sold above list price. These factors both signal that demand and competition remain during this spring buying season, even in the face of elevated rates.
Inventory also saw a boost, as the 1.21 million homes available for sale at the end of April were up 9% from March and 16.3% from a year earlier. While this remains below healthy levels at just a 3.5 months' supply at the current sales pace, rising inventory is certainly a step in the right direction to help improve ongoing tight supply.
New Home Sales Slip in April
New Home Sales, which measure signed contracts on new homes, fell 4.7% from March to April, missing forecasts that were expecting them to rise. Signed contracts were also 7.7% lower than they were in April of last year.
What's the bottom line?
This report measures buyers who were shopping for homes last month when rates peaked, so the pullback is understandable as some buyers chose to delay their home search.
However, demand for new construction remains strong due to the persistent shortage of existing homes for sale. On that note, more "available" supply is needed to meet buyer demand. While there were 480,000 new homes available for sale at the end of April, slightly higher than the 470,000 seen in the previous report, only 98,000 were completed, with the rest either under construction or not even started yet.
Also, the median home price fell 1.4% from March but this was not due to falling home prices, which continue to rise nationwide per Case-Shiller and other appreciation indexes. The median home price represents the mid-price of sales, meaning it's influenced by the mix of sales in any given month. Builders are constructing smaller, more affordable homes to meet buyer demand, and that pushed the median home price lower comparatively.
Full Week of Fed Chatter
The minutes from the Fed's April 30-May 1 meeting were released last week, which showed that members had growing concerns about inflation. This wasn't a surprise, given that the meeting followed a string of reports showing inflation was more persistent than expected in the first quarter of this year. Since the Fed met, reports have shown cooler inflation as well as slower job growth, a rising unemployment rate and flat retail sales.
Last week also brought a parade of Fed speakers that included notable comments from Fed Governor Christopher Waller, who echoed several of his colleagues when he said, "In the absence of a significant weakening in the labor market, I need to see several more months of good inflation data before I would be comfortable supporting an easing in the stance of monetary policy."
An easing of monetary policy would bring cuts to the Fed's benchmark Fed Funds Rate, which is the overnight borrowing rate for banks.
What's the bottom line?
Remember the Fed has been working hard to tame inflation, hiking the Fed Funds Rate eleven times between March 2022 and July 2023. These hikes were designed to slow the economy by making borrowing more expensive, so the demand for goods would be lowered, thereby reducing pricing pressure and inflation.
