Stocks are lower this morning as tech continues to get beaten up. Bonds and MBS are flat.
The consumer price index rose 0.5% MOM and 4.2% YOY in May, according to BLS. Energy and shelter drove the increase. These numbers were in line with street expectations. If you strip out food and energy, prices rose 0.2% MOM and 2.9% YOY. These were a touch below expectations.
Energy prices are up 23% YOY. Food was up 3.1% and shelter 3.4%.
Existing home sales rose 3.2% in May, according to NAR. Unsold inventory stood at 1.55 million units, which represents a 4.5 month supply. This is still on the small side, however it is an improvement from the 3.5 month we were seeing a year or two ago. The median home price rose 1.2% YOY to $429,300. The housing affordability index rose as well as affordability improved across all regions.
“More Americans are on the move, with home sales rising to the highest level since December. This is great news for the housing market and the economy,” said NAR Chief Economist Dr. Lawrence Yun. “Improving affordability is helping drive this momentum. Even with mortgage rates ticking up compared to earlier in the year, they remain lower than a year ago and are essentially at the long-term historical average. Income gains are also outpacing home price growth by a small margin in most parts of the country.”
“The new record-high May home price reflects solid fundamentals for homeowners and ongoing supply constraints,” Yun said. “Only 1% of all home sales involved a foreclosure or an underwater situation in which the sale price could not cover the outstanding mortgage balance. This shows that homeowners are on solid financial footing.”
As time goes on, the rate lock in effect becomes smaller. On one hand, more and more mortgages have 6.5% rates and not 3.5% rates. This reduces the incentive to stay put for rate reasons. Second, as the era of 0% interest rates fades into history, recency bias takes over and people now think a mortgage rate of 6.5% is normal and 3.5% mortgage rates aren’t coming back. People are less likely to want to wait it out for lower rates to move.
Mortgage applications rose 10.8% last week as purchases increased 7% and refis rose 15%. There was an adjustment for the Memorial Day holiday which might be introducing some noise into the numbers.
“Mortgage rates were volatile last week as news from the Middle East continues to drive markets,” said Mike Fratantoni, MBA’s SVP and Chief Economist. “While the average rate was up slightly, with the 30-year fixed rate now at 6.6%, there were opportunities where borrowers were seeing somewhatlower rates. Both refinance and purchase applications rebounded coming out of the Memorial Day holiday week, with refinance applications up 15% and purchase applications up 7%.”
