Overview: There was little major economic news over the past week. The investor outlook for inflation and future Federal Reserve policy did not change, and mortgage rates ended nearly flat from last week.
In light of rapidly rising mortgage rates in recent months, it was no surprise that sales of previously owned homes, which make up roughly 90% of the market, fell in May. Investors were caught off guard, however, when May sales of new homes, which make up the remaining 10% of the market, unexpectedly jumped 11% from April. This ended a streak of four straight months of declines. The median new-home price was 15% higher than a year ago at $449,000, down from last month’s record high. Inventory levels relative to sales for new homes remained substantially higher than for previously owned homes.
As expected, the latest reading for U.S. consumer confidence fell to the lowest level since February 2021, reflecting the negative impact of inflation on the outlook for the economy. Interestingly, consumers continued to view the labor market as very strong and gave little indication of cutting back on spending for large purchases such as motor vehicles or large appliances. However, there was a significant decline in planned vacations, due to higher gas prices and airfares. Investors will be watching closely to see whether consumers scale back spending in a wider range of areas in coming months.
Higher mortgage rates have had a major impact on mortgage application volumes, which have dropped to the lowest levels in 22 years. According to the latest data from the Mortgage Bankers Association (MBA), average 30-year fixed rates are over 2.5% higher than a year ago. Purchase applications are down 24% from last year at this time, and applications to refinance a loan have plunged a massive 80% from one year ago.
New-Home Sales (thousands)
June 30 — Core Personal Consumption Expenditures (PCE) Price Index
July 1 — Institute for Supply Management (ISM) Manufacturing Index
Mortgage markets close early for holiday weekend
July 4 — Mortgage markets closed in observance of Independence Day
July 5 — Employment Report