Tariffs Continue to Impact Markets

Overview: News about tariffs caused some volatility in mortgage markets over the past week but had little lasting impact. This week’s economic data also caused just a minor reaction, and the spotlight was mostly on the housing sector. Mortgage rates ended the week slightly higher.

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Friday morning, President Trump recommended raising tariffs on the European Union to 50% beginning June 1 due to a lack of progress on negotiating trade deals. Before markets reopened on Tuesday, however, Trump agreed to delay imposing the higher tariffs until July 9. The result was a couple of volatile trading sessions with little net movement in bonds or stocks.

In April, sales of existing homes, which account for roughly 85% of the total market, declined slightly from March and fell short of the consensus forecast. Sales were at the slowest pace for April since 2009. The median existing-home price of $414,000 was up 2% from last year at this time … a record high for the month of April. Inventory levels remain extremely low, standing at just a 4.4-month supply nationally, far below the 6-month supply typical in a balanced market. The trend is positive, however, as inventories were 20% higher than a year ago.

The latest results were far superior for the segment containing newly constructed homes. In April, new-home sales, which account for the remaining 15% of the market, jumped 11% from March and were 3% higher than a year ago. The median new-home price of $407,200 was down 2% from a year ago. While existing-home sales measure actual closings during the month, new-home sales are based on contracts signed, making them a leading indicator of future housing market activity.

The Conference Board’s monthly report on consumer confidence showed a strong rebound after five straight months of declines. The most recent reading showed a sharp rise to 98, far above the consensus forecast of 86. Last month, many people were highly troubled by an apparent trade war with China, but a truce in early May significantly improved sentiment in several areas. For example, optimism about future job prospects climbed, with 19% of respondents expecting more jobs to be available in the next six months. This is up from just 14% in April.

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Existing-Home Sales (millions)

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Week Ahead

May 30

Personal Income and Outlays

Personal Consumption Expenditures (PCE) Price Index

June 2

Institute for Supply Management (ISM) Manufacturing Index

June 4

ISM Services Index

June 6

Employment Report