The housing and inflation data released this week contained no major surprises, and investors were mostly focused on the concerning increase in the spread of the coronarvirus in several states. It was a quiet week for mortgage markets, and rates ended slightly lower.
While the housing market data released this week was mixed, it clearly supported the case that a faster than expected recovery in the sector is taking place. First, the bad news was that existing home sales in May were weaker than expected with a decline of 10% from April and were 12% lower than a year ago.
The existing home sales report confirmed that housing market activity dropped sharply in March and April due to the shutdown of much of the economy. Existing home sales measure closings, and this was the period when buyers would be signing contracts for homes which would close in May.
The encouraging news was that the data which reflects more recent activity was much better. In May, new home sales, which are based on contracts signed during the month, unexpectedly surged 17% from April and were significantly higher than a year ago.
In addition, both Freddie Mac and the Mortgage Bankers Association reported that average rates for 30-year fixed-rate mortgages remained near record low levels this week. In addition, the MBA revealed that applications to purchase a home were a solid 18% higher than a year ago at this time, and refinance applications were a stunning 76% higher.
The reduced economic activity resulting from the pandemic has caused a decline in inflation, which has helped keep mortgage rates low. In May, the core PCE price index was just 1.0% higher than a year ago, which was the same annual rate of increase as last month. Core PCE is the indicator favored by the Fed, and officials have stated that their target level for annual inflation is 2.0%.
Looking ahead, investors will continue to watch for news about medical advances, government stimulus programs, Fed monetary actions, and plans for reopening the economy. In addition, the monthly Employment report will be released on Thursday, and these figures on the number of jobs, the unemployment rate, and wage inflation will be the most highly anticipated economic data of the month. Before that, the ISM national manufacturing index will be released on Wednesday. Mortgage markets will be closed on Friday in observance of July 4.
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