The Mortgage Corner
In spite of rising mortgage rates, new-home sales are booming and consumer confidence is at multi-year highs. March new-home sales rose 4.0 percent annualized to 694,000 and is just off the expansion high of 711,000 set in November last year.
“Sales of new single-family houses in March 2018 were at a seasonally adjusted annual rate of 694,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 4.0 percent above the revised February rate of 667,000 and is 8.8 percent above the March 2017 estimate of 638,000,” said their report.
But interest rates are rising, so what gives? Part of the answer is newly married millennials (Gen Y’ers) are entering the housing market in greater numbers, and personal incomes continue to rise faster than inflation. The share of new, entry-level buyers for existing single family homes has risen back to 40 percent of sales, according to the NAR.
Interest rates haven’t risen that much, either, and it’s April when consumers should be seeing larger tax refunds with the new tax bill. The 30-year conforming fixed rate is still 4.125 percent in California for a 1 pt. origination fee with the best lenders, for instance, which is up just 0.375 percent from last year’s low.
The Conference Board’s Consumer Confidence Index is up 6 percent in one year, and those surveyed said buying plans are special positives of the April report including big gains for autos, where sales were already strong in March, and also housing where this week’s data are confirming strength. Inflation expectations, however, remain unchanged at 4.7 percent which is low for this reading.
“Consumer confidence increased moderately in April after a decline in March,” said Lynn Franco, Director of Economic Indicators at The Conference Board. “Consumers’ assessment of current conditions improved somewhat, with consumers rating both business and labor market conditions quite favorably. Consumers’ short-term expectations also improved, with the percent of consumers expecting their incomes to decline over the coming months reaching its lowest level since December 2000 (6.0 percent).”
But rising interest rates are affecting both stocks and bonds, with the S&P having lost all its gains this month, and the 10-year bond yield breaching 3 percent. Traders are spooked because they have been living off fabulously cheap borrowed money to do their trading, the lowest rates over the past 4 years equaling post WWII lows, which may no longer be the case. The Fed says so, at least, as they no longer want to buy some of those T Bonds to keep long term rates this low.
But stay tuned, with the world order changing rapidly, and a President being investigated for criminal activities. Bonds have been a notoriously popular safe haven in times of panic, and we are seeing such signs on many fronts, which could drive interest rates back down to historic lows, even with a booming economy. Markets need supervision by capable adults, while budgets have to be paid for, eventually.
Harlan Green © 2018
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