Even though last week we experienced a 7-year high in Existing Home Sales, concerns about rates and new construction remained. Theoretically, with two major central bank announcements and New Home Sales data, the current week could have added to this anxiety. In reality, just the opposite happened!
Let's begin with rates. At the beginning of the week, they stood at the highest levels since Brexit (the UK's withdrawal from the EU). Markets were waiting to see what the FED and Japan had to say in their respective policy announcements on Wednesday and Thursday. Expectations were that the FED would talk up the economy somewhat based on the last jobs report being strong and a so far less catastrophic fallout from Brexit. Some even feared a rate hike prediction at their September meeting.
Although the Fed Funds Rate doesn't affect mortgage rates directly, when a market consensus pushes the next hike further into the future, as was the effect of this week's announcement, most interest rates tend to fall, including mortgages. Also, major foreign banks have had a hand in creating the current reality for financial markets. Even so, the Bank of Japan's less than expected delivery Thursday night wasn't enough to deter bond buyers. Ultimately, rates moved back to 2-week lows by Friday afternoon. In the bigger picture, not only does this keep the long term trend intact, but also calls into question doomsday scenarios in the financial news. For these to be worthy of our attention, rates would need to be much higher than they are now, somewhere in the ''danger zone" as seen in the following chart.
Danger Zone chart
Based on current rates, it would be easier to argue an impending move to new all-time lows. Rates can always move higher, I'm merely saying that, based on the charts, the decades-long trend towards lower rates is alive and well.
Now for some housing-specific news. Rising home prices are also doing a great job of avoiding their demise. This week's data showed a slight deceleration in gains, but not enough to change the trend of 5-6% year-over-year appreciation, which has been uncannily steady over the past 2 years.
Rounding out our trio of good news, we had New Home Sales hit a post-crisis high this month, comin in at 592k homes versus a median forecast of 560k. This makes the past 5-6 years look stellar in terms of New Homes Sales growth, but in the bigger picture, we're just now getting back to the middle of the pre-boom range.
Housing data wasn't all sunshine though. Pending Home Sales were equivocal at best, only rising slightly from last month. Foreclosure starts were surprisingly higher, bucking a general trend of improvement in terms of mortgage performance. Finally, the Census Bureau reported home ownership fell to a new all-time low of 62.9 % in the 2nd quarter.
Next week brings a slew on important data, culminating in Friday's big jobs report. This could have an even bigger impact on the Fed rate hike outlook than it's policy announcement this week if the data is unified in its message. That means rates run the risk of bouncing in the event of strong data, and they stand a chance to move back to all-time lows if the data is weaker.
With that in mind, we're still experiencing some of the lowest mortgage rates in history. This is the point at which lenders have been less and less willing to improve rates very much or very quickly. It's also the territory that leaves us at more risk of bouncing back toward higher rates, even if that proves to be yet another bump in a road that ultimately leads to new all-time low rates. The reality is that rates are at a 2 week low. They have been over 4% at least once in the last 6 months and it is still possible for a reversal.