THE FULL SCOOP

*POWERED BY MBS HIGHWAY*

7/22 - 7/26

Existing Home Sales

Existing Home Sales, which measures closings on existing homes, fell 5.4% in June to an annualized pace of 3.89M units, which was worse than the 3% drop expected. Sales ​are now down 5.4% year over year.

This report likely measured people shopping for homes in April and May, when rates were above 7%. Rates have since come down, which could lead to more sales in the ​upcoming reports.

Inventory increased 3.1% month over month to 1.32M units, which is a slight increase from 1.28M in the previous report Some in the media will make a big deal of this increase, ​saying that it will lead to lower home prices, however, it’s important to remember that there is seasonality to inventory and we always see inventory move up and peak during ​this time of the year, then begin to fall.

Additionally, as explained below, homes sold quicker despite the increase in inventory, pointing to strong demand for what is out there. Most of the new inventory is also ​concentrated to Florida and Texas, with most areas around the country well below pre-pandemic inventory levels. Inventory is now up 23% from last year, and based on the ​pace of sales, there is a 4.1-month supply of homes, which is up from 3.7 months, but still tight because 4.6 months is considered normal.

Homes remained on the market for 22 days on average, down from 24 days in May, 26 days in April and 33 days in March. Even with more inventory, the speed at which ​homes moved increased, which shows strength. We also saw 29% of homes sold above the list price, down slightly from 30% in the previous report. Almost one in three homes ​are selling above list price - Make sure to use the bid over ask tool to solve this problem for your Realtors and help consumers emotionally get comfortable with it.

The median home price was $426,900, up 2.3% from last month and 4.1% from last year. First-time homebuyers accounted for 29% of sales, which is down from 31% in the ​previous report, but up from 28% this time last year. Cash buyers accounted for 28% of sales, unchanged from April. Investors made up 16%, also unchanged.

Bottom Line – The level of sales is very weak, but there is a good chance we have reached the bottom and things will pick up from here. Interest rates have started to come ​down, the Fed will likely cut rates in September, and there has been a slight increase in inventory. The combination will hopefully lead to more transactions in the coming ​months!

New Home Sales

New Home Sales, which measures signed contracts on new homes, fell ​0.6% in June to a 617,000 unit annualized pace, which was lower than ​market estimates. When factoring in the slight positive revision to last ​month, sales were really down 0.3%....which is essentially flat.

There were 476,000 new homes for sale at the end of June, which was up ​slightly from 472,000 in May. At the current pace of sales, there is an 9.3 ​month’s supply, which is up from 9.1. However, only 102,000 are completed, ​and when looking at the pace of sales vs homes that are completed ​(available supply), there is only a 1.98 months’ supply, up from 1.9 in May. ​This means that 374,000 homes are either not started or under ​construction, and it’s unclear how many will actually make it to the finish ​line because financing and carrying costs are very high.

The median home price was reported at $417,000, which is up 2.5% from ​the previous month and down 0.1% from last year.

Bottom line – inventory will remain tight for the foreseeable future, and ​with household formations on pace for 2M annualized, there is much more ​demand than supply.

Q2 GDP (First Reading)

The first reading on Q2 GDP showed that the US economy grew by 2.8%, which was ​much stronger than the 2% expected and previous quarter reading of 1.4%. Consumer ​spending was strong and rose 2.3%, which was better than estimates of 2%.

A big part of the reason for the GDP beat was Inventory build, which added 0.82% to ​GDP. Without it we would have seen a figure right around estimates at 2%.

Within the GPD report there is also a quarterly reading on PCE prices, ahead of ​tomorrow’s monthly reading, which is more real time and important. The headline ​reading fell from 3.1% in Q1 to 2.3% in Q2, which was a big decline and lower than ​the 2.6% expected.

The core reading fell from 3.7% to 2.9%, which is also a big improvement, but still ​above the 2.7% expected. Tomorrow’s monthly Core PCE reading for June is ​expected to come in light between 0% to 0.1% and should be a positive for the Bond ​market.

Mortgage Applications

Purchase applications fell 4% last week and are now down 15% year over year. Refinance volume was flat last ​week and is now up 38% from last year. Refi’s made up 40% of total applications, which is significant. Rewatch our ​update on Monday to see what the refinance opportunity will look like once rates come down.

Interest rates fell slightly from 6.87% to 6.82% last week and are the same as they were this time last year.

Durable Goods Orders

Durable Goods Orders in June fell 6.6%, which was much weaker than estimates of 0.3%. When looking deeper, the entire decline was due to a drop in aircraft orders. ​When stripping out transportation, orders rose 0.5%.

Core Durable Goods Orders rose 1% and were stronger than estimates of 0.2%, following the previous reading of -0.9%. This figure gets plugged into GDP and will ​likely lead to some higher Q2 estimates.

Initial Jobless Claims

Initial Jobless Claims, which measures individuals filing for unemployment benefits for the first time, fell 10,000 to 235,000.

Continuing Claims, which measures Individuals continuing to receive benefits after their initial claim, fell 9,000 to 1.851M, still hovering around the highest levels in three ​years. This continues to show weakness in the labor market.

Durable Goods Orders

Personal Consumption Expenditures (PCE) showed that Headline or all-in inflation rose 0.1% in June, which was in line with estimates. Year over year inflation declined from 2.6% ​to 2.5%, which was also as expected. Energy costs fell 1% during the month, which helped the headline come in low.

The core rate, which strips out food and energy costs and is the main focus of the Fed, rose 0.2% last month, which was hotter than the 0% to 0.1% reading expected. Year over ​year, core inflation remained at 2.6%, but the market was anticipating this to fall to 2.4% or 2.5%.

This was still not a bad monthly reading. When looking at the last three months of readings and annualizing them, the headline is on track for 1.5% and the core on track for ​2.28%.

Shelter rose 0.27% in June, which is an improvement from the 0.42% in the previous month and is confirmation that shelter is in fact starting to catch up, just like we saw in the ​CPI inflation report. Year over year, shelter is up 5.35%, down from 5.54%. Rent rose 0.26% and is up 5.05%, down from 5.26%. Owners’ equivalent rent rose 0.27% and is at ​5.44% down from 5.62%.

Also within the report were figures on consumer incomes, spending, and their savings rate. Incomes rose by 0.2%, which was half what the market expected. Consumer spending ​rose 0.3%, which was in line with estimates, but the previous report was revised higher from 0.2% to 0.4%.

As a result of spending more than income, the savings rate fell from 3.5% to 3.4%, which is the lowest level since November 2022.The consumer has been extremely resilient, but ​one would assume that eventually this catches up and consumers hit a wall.

Bottom line – The PCE report was not what we had hoped for, but it was still showing some decent inflation figures. The market is reacting positively and the Fed is likely still on ​track for a September rate cut.