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Home Sales Fall


Overview: Over the past week, investors reacted to the prospect of a lengthy period of tight monetary policy from global central banks, which would be negative for mortgage markets. The other economic news caused little reaction, and mortgage rates ended the week a bit higher.

 

Sales of existing homes fell for the 10th straight month in November to the lowest level since 2010 and were 35% lower than last year at this time. Inventory levels were a little higher than a year ago, but still sat at just a 3.3-month supply nationally. The median existing-home price of $370,700 was 3.5% higher than a year ago. While it was tough to find good news in this report, overall, mortgage rates have dropped significantly since early November, which could boost the results next month.

A lack of inventory of homes for sale has been a significant issue for a long time, yet the pace of new construction continues to be disappointing. In November, single-family housing starts were down 4% from October to the lowest level since May 2020. Single-family building permits, a leading indicator of future activity, fell 7% from October and were 30% lower than a year ago. In addition, a survey of home builder sentiment from the National Association of Home Builders (NAHB) declined for the 12th straight month to a reading of 31, less than half what it was just six months ago, and the lowest reading since 2012. A level below 50 is considered negative. Higher prices and shortages for land, materials, and skilled labor remained major issues holding back builders.


In November, retail sales fell 0.6% from October, well below the consensus forecast for a decline of just 0.3%. Weakness was seen in a wide range of areas, especially in furniture stores, building materials, and auto dealers. This report increased investor concerns about a slowdown in consumer spending during the critical holiday season.

Inflation in Japan has been much lower than in the U.S. and Europe, and, in contrast to most other large central banks, the Bank of Japan (BOJ) has not raised benchmark rates this year. On Tuesday, however, the BOJ caught investors by surprise with an announcement about a change in monetary policy. Unlike the U.S. Federal Reserve, the BOJ maintains tight control of Japanese bond yields, and the new policy will allow the 10-year Japanese government bond to trade in a wider range. Investors viewed the change as a possible early step in a broader future effort to tighten monetary policy. This would reduce the demand for bonds, which would be negative for mortgage rates.

 

Existing Home Sales (millions)

 

Week Ahead


Looking ahead, investors will keep watching for hints from Fed officials on the pace of future rate hikes and bond portfolio reduction. The core Personal Consumption Expenditures (PCE) Price Index, the inflation indicator favored by the Fed, will be released on Friday and will be the last significant economic report of the year. Mortgage markets will close early on Friday and will be closed on Monday in observance of Christmas.

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