Overview: Over the past week, increased concern that the pace of global economic growth may be slowing was positive for mortgage markets, since slower growth would reduce future inflationary pressures. The minutes from the May 4 Federal Reserve meeting released on Wednesday caused little reaction, and rates ended the week lower.
Higher mortgage rates dragged down sales of existing homes in April, which posted an expected small decline from March to the lowest level since June 2020. Sales were 6% lower than last year at this time. Inventory levels, down 10% from a year ago, remained a major headwind, at just a 2.2-month supply nationally. The steadily climbing median existing-home price was 15% higher than a year ago at a record $391,200.
Sales of new homes, a timelier indicator, fared much worse in April, dropping a much larger than expected 17% from March to the lowest level since April 2020. The median new-home price was a shocking 20% higher than last year at this time at $450,600. Since new-home sales are based on contracts signed during the month, while existing-home sales measure closings, they better reflect more recent housing market activity.
The Fed minutes indicated that they may raise the federal funds rate enough to restrain the economy. Monetary policy conditions have been extremely loose since the start of the pandemic to help the economy recover. With inflation running at the highest levels in decades, however, the Fed is now in the process of tightening, and the minutes noted that simply getting back to a “neutral” stance may not be enough. Instead, officials may need to bring about “restrictive” monetary policy to slow the economy and bring down inflation. Investors had anticipated this news, and their outlook for future policy was little changed by the minutes.
Existing-Home Sales (millions)
May 27 — Core Personal Consumption Expenditures (PCE) Price Index
Mortgage markets close early in observance of Memorial Day
May 30 — Mortgage markets closed in observance of Memorial Day
June1 — Institute for Supply Management (ISM) Manufacturing Index
June 3 — Employment Report