The Fannie Mae Home Purchase Sentiment Index® (HPSI) increased 3.7 points in May to 92.0, just shy of the survey high set last May.
A 13-percentage point increase in the “Good Time to Buy” component drove the index higher. The net share of respondents expecting home prices to go up and mortgage rates to go down over the next 12 months also increased by 5 and 3 percentage points, respectively.
“Another sharp rebound in the ‘Good Time to Buy’ component lifted the HPSI nearer its survey high set during last year’s homebuying season, though several uncertainties remain,” said Doug Duncan, Senior Vice President and Chief Economist at Fannie Mae. “While consumers’ more favorable mortgage rate outlook suggests continued support for housing affordability, potential homebuyers still face supply constraints.
Source: Fannie Mae Home Purchase Sentiment Index Report
What Happened to Rates Last Week?
Mortgage backed securities (FNMA 4.00 MBS) gained +13 basis points (BPS) from last Friday's close which caused fixed mortgage rates to remain at very low levels.
Overview: We had another round of "solid" domestic economic data with good readings in manufacturing and services. The Fed's Beige Book was actually a smidge more upbeat than the last one. But we had a big miss in Friday's Non Farm Payroll data although the Unemployment Rate remained near an all-time historical low with another reading of 3.6%. The driving factor in global interest rates was not economic data though, it was geo-political. British Prime Minister Theresa May stepped down on Friday and the markets continued to be concerned over a lenghty trade battle with China as well as looming tariffs with Mexico. This uncertainty caused a continued desire to park money into long bonds which continues to push mortgage rates far below where they otherwise would be.
Jobs, Jobs, Jobs: It's Big Jobs Friday! You can read the official BLS report here.
Here is the tale of the tape:
May Non Farm Payrolls 75K vs est of 185K
April Non Farm Payrolls revised downward from 263K to 224K
March Non Farm Payrolls revised downward from 189K to 153K
After revisions, the three month rolling average is now 151K.
The Average Hourly Rate moved up 6 cents to $27.83 per hour.
Average Hourly Earnings increased by 0.2% on a MOM basis vs. estimates of 0.3%
Average Hourly Earnings increased by 3.1% on a YOY basis vs estimates of 3.2%
The Unemployment Rate remained at 3.6% which matched forecasts.
The Participation Rate remained at 62.8%
ISM Services: The May reading was very robust, coming in at 56.9 vs est of 55.4. Any reading above 50.0 is expansionary and readings in the upper 50's are very strong.
The Talking Fed: We got their latest Beige Book that is prepared in advance of their next FOMC Meeting this June. You can read the official Beige Book HERE.
Here are some key takeaways:
- A slight upgrade as the last Beige Book assessment was "slight to moderate" economic growth. This time around it is depicted as "modest pace overall", dropping the "slight" classifier.
- Tariffs are a major concern to businesses but overall, higher input prices increased at a modest pace in most districts.
- The word "slow" (or variant thereof) dropped from 38 times in the last report to only 26 in this report.
- Most districts saw modest or moderate growth in jobs and wages, though regions including Richmond and San Francisco cited difficulties finding workers or highlighted tight conditions. Wage pressures remained “relatively subdued” with some employers boosting benefits, contrary to widespread reports of continued labor shortages.
- Farms reported struggles across the U.S. In the Minneapolis district, a wet spring threatens the planting season, with some growers saying they might not be able to plant at all this year. Anecdotes from Chicago echoed these troubles, with farmers challenged by poor weather and low crop prices. On the Chinese front, China is said to be preparing their rare-earth mineral procedure for slowing down or stopping exports to the U.S. Also, they are looking into adding U.S. companies and individuals to a list that China will not allow business/trade with.