Overview: Despite strong economic data suggesting that the economy is recovering much more quickly than expected, mortgage markets were relatively quiet over the past week, and rates ended slightly lower.
Tuesday’s report on retail sales revealed a massive surprise to the upside. Since consumer spending accounts for about 70% of all economic activity in the U.S., the monthly retail sales data is a key indicator of financial conditions. Following a 15% decline in April due to the partial shutdown of the economy, retail sales surged a record 18% in May, which was more than double the consensus forecast. Spending at clothing stores shot up 188% from April, and furniture sales posted a monthly increase of 90%.
The most recent economic data contained several signs that the housing market also may be rebounding more quickly than expected. A lack of inventory has been one factor holding back home sales in many regions, so it was nice to see that housing starts in May rose modestly from April. Even more encouraging, building permits, a leading indicator of future construction, increased 14% from April. In addition, the sentiment index of builder confidence from the National Association of Home Builders (NAHB) shot up to 58 from 37 last month.
Along the same lines, the Mortgage Bankers Association (MBA) reported that mortgage applications to purchase a home have increased for nine straight weeks and have reached the highest level in over 11 years. According to the MBA, average contract interest rates for 30-year fixed-rate mortgages with conforming loan balances fell slightly to record-low levels in the week ending June 12.
Looking ahead, investors will continue watching for news about medical advances to fight the pandemic, plans for reopening the economy, Fed actions, and government stimulus programs. Beyond that, the housing data will be the most significant economic data released over the next week. The Existing Home Sales report will be released on June 22, followed by the New Home Sales report on June 23.
Retail Sales (% change)