Market Update: Rates Inch Upward, Case-Shiller Home Price Index, New Home Sales, Pending Home Sales

Blog posted On May 24, 2021

Last week, mortgage rates saw a slight upward trend. The bond market took a turn on Wednesday after a scheduled treasury auction, but the bigger rate factor was the Fed’s policy meeting minutes on Wednesday afternoon. The minutes showed that the Fed was debating tapering soon. This means that they will gradually reduce the amount of bond purchases they make until it reaches zero. Historically, mortgage rates tend to move up when the Fed tapers their bond purchases. In 2013, rates spiked abruptly in reaction to the Fed’s taper discussion. However, this year is different because of the pandemic’s effect on the economy. The Fed is still looking for further economic recovery before they taper, and even when they do, it will be gradual.

This week, there are several important housing reports scheduled for release. On Tuesday, the Case-Shiller home price index will be released, followed by new home sales. Pending home sales are scheduled for release on Thursday.

The S&P Case-Shiller home price index tracks changes in the value of homes involved in two or more sales transactions across 20 major metropolitan areas throughout the country.  Though the data lags by a month, it is still used to gauge home price appreciation trends. In February, home prices appreciated 1.2% month-over-month and 11.9% year-over-year – marking the biggest home price increase in 15 years. Right now, the high home prices are reflecting high home buyer demand and a restricted supply of homes are on the market. Steep lumber prices are putting additional upward pressure on home prices. March’s data should provide more insight on whether or not home prices are leveling out.

The new home sales report tracks the sales of newly constructed homes and accounts for about 10% of total residential real estate transactions.  In March, new home sales surged 20.7% month-over-month. The 1.02-million-unit pace was the fastest recorded since 2006, showing that buyers are undeterred by the rising cost of homes. Mortgage rates trended slightly higher in April, and housing starts took a tumble, so we could see a slowdown in new sales as well.

The pending home sales index tracks changes in the number of homes that are under contract but not yet closed. In March, pending home sales jumped 1.9% month-over-month and 23.3% annually. If pending sales continue to increase without an increase in supply, it could mean higher home prices too.

Other reports scheduled for release this week include the FHFA home price index on Tuesday, the weekly mortgage application survey on Wednesday morning, and GDP on Thursday. Also scheduled for release is personal income, consumer spending, and core inflation.

Even with home prices as high as they are, people who purchase homes now can save thousands of dollars in interest over the life of their loan due to historically low mortgage rates. Those that wait for prices to drop in order to buy actually could end up paying more overall when interest rates start to rise. To learn more about the benefits of buying now, contact us.

Sources: MarketWatch, MarketWatch, MarketWatch, Mortgage News Daily, Mortgage News Daily