My Blog - William Mesch

Aaron Brandt's Rant

New Home Sales at 2-Year High:
The Commerce Department reported that sales of newly built homes rose much faster than expected in April, rising to their highest levels in nearly two years. Sales jumped 14.8 percent (month-over-month) to an annualized rate of 504,000 units in April. This is the highest rate since May of 2008.

The year-over-year increase was in excess of 22 percent. Certainly, the rush to sign a contract prior to the tax credit expiring has had an impact. But there is something else that it less temporary that is also having an impact. Consistently low 30 year fixed rates, an increase in consumer confidence, and a rise in non-farm payrolls are helping to fuel demand for housing. And unlike the tax credit, these items will not expire but continue to move upward.

The report also showed that inventories of new homes for sale fell a record seven percent to 211,000 units in April. That is the lowest level of inventories since October 1968! Lower inventories will eventually lead to further price stabilization.

Consumer Sentiment Rises:
The Thomson Reuters/University of Michigan's report showed that consumer sentiment rose again in May. The final May reading on the overall index was 73.6, up from April's reading of 72.2.

Consumer Spending drives 70 percent of our economy, so an increase in consumer sentiment readings could be good for economic growth in the near-term. Also, both consumer sentiment and consumer confidence are significant drivers for housing demand. Simply put, consumers are more likely to purchase a home if they feel more confident about their own financial outlook.

What Happened to Rates Last Week:

Mortgage backed securities (MBS) lost -69 basis points last week which caused 30 year fixed rates to increase for both government and conventional loans. The prior week, they were at their best levels of 2010. MBS pricing decreased (which causes mortgage rates to go up) due primarily to a rebound in the stock markets which pulled some money way from bonds. We also saw some strong economic data such as the Chicago PMI, Consumer Sentiment and Initial Jobless Claims. As the economy shows sign of expansion, it takes a toll on long bonds such as mortgage backed securities. However, mortgage rates remained at fantastic levels.

What to Watch Out For This Week:
The following are the major economic reports that will hit the market this week. They each have the ability to affect the pricing of Mortgage Backed Securities and therefore, interest rates for Government and Conventional mortgages. I will be watching these reports closely for you and let you know if there are any big surprises:

Date

Release

For

1-Jun