Online Course Notes For Financial Markets
US New Home Sales dropped 7.8% MoM in April to 626k units SAAR.
Notice that new home sales YoY are down 3.7% while median prices for new home sales are down 2.7% YoY. New home sales YoY peaked in 2012 and have been slowing cooling.
And new home sales are declining despite declining mortgage rates.
Today, the Federal Reserve’s Open Market Committee (FOMC) met and revealed … no change to rates. BUT are willing to cut more than 25 basis points at the upcoming meeting on July 31 (more flexibility).
The FOMC’s Dots Plot (where members think rates will be in the future) is expected to rise after 2020. (Thanks to Rudy Havenstein!)
The economy is generating only 1.5% core inflation, below The Fed’s target rate of 2%.
On the announcement of no rate cuts and a possible rate cut of 50 basis points in July, both the 10-year and 2-year Treasury yields declined.
10-year Treasury Note.
2-year Treasury Note.
Fed Funds volatility surface? Looks like a Tsunami!
Where is the inflation??
Don’t panic. It is June. Mortgage purchase applications typically peak in May and it is generally downhill from there until the beginning of January.
Mortgage purchase applications dropped 5% for the week ending June 14. Mortgage refi applications dropped 3.5%.
Mortgage purchases applications have been trending down since 2007 until 2015 when they began rising again. Note that mortgage originations with FICO scores below 620 also plunged after 2007.
Mortgage purchase applications rose after the first of the year with declining mortgage rates, but that happens every year (even when rates rise!). But mortgage purchase application are remaining strong relative to previous years, likely due to declining mortgage rates.
Mortgage refi applications declined 3.5% WoW as mortgage rates were steady. But we are not seeing the surge in refi applications with a large decline in mortgage rates since the pool of eligible refi applications has shrunk.
So, don’t panic! The Fed is likely going to cut their target rate again in July.
