Blog posted On July 06, 2018
Markets were closed on Wednesday of this week, in observance of the Independence Day holiday. Mortgage rates did not move significantly up or down. Construction spending increased, driven by spending on public projects. The Mortgage Bankers Association (MBA) weekly mortgage application survey showed an increase in new purchase applications, but a decrease in refinance applications. The ADP employment report was gainful, but less than expected.
US construction spending increased 0.4% month-over-month and 4.5% year-over-year in May. Spending on private residential projects, specifically, increased 0.8%. The increase indicates more new home building activity, as home builders attempt to replenish low housing inventory. Spending on public construction projects also improved, up 0.7% month-over-month and 4.7% year-over-year. Strong state and local spending could boost this quarter’s Gross Domestic Product (GDP) growth. Ian Shepherdson, chief economist for Pantheon Macroeconomics, explained, “State and local government spending is particularly strong, heading for a 17% annualized increase in Q2, enough to add about 0.5 percentage points to GDP growth.”
With mortgage rates holding steady, the weekly mortgage application survey saw an increase in new purchase but decrease in refinance mortgage applications. New purchase applications were up 1.0% week-over-week and refinance applications were down 2.0% week-over-week for a composite decrease of 0.5%. As rates rise, refinance activity is expected to drop off. According to CoreLogic, more than half of today’s homeowners with a mortgage have rates lower than 4%. More first-time home buyers continue to enter the market this year. MBA chief economist, Mike Fratantoni noted, “Applications for government purchase loans fared better on the week, indicating that first-time buyers remain in the market.”
The ADP employment report showed the addition of 177,000 jobs in June, slightly less than the forecasted 190,000. The data shows that the top struggle businesses are facing is finding qualified workers to fill open positions. This month’s report marks the fourth straight month, with a growth figure below 200,000. Economists expect the tight labor market will put upward pressure on wage growth. This wage inflation would likely cause the Federal Reserve to raise interest rates more rapidly. With unemployment near an 18-year-low, the labor market is the tightest it has been in decades.
Although mortgage rates are climbing, they are low by historic standards. The biggest challenge facing today’s home buyers is low for-sale inventory. Buyers looking to stay competitive in today’s market should get preapproved by a mortgage lender before they start shopping. Mortgage preapproval shows the seller that you are serious and ready to start the mortgage financing process when you make an offer.