Home Purchaser’s Sentiment Matches All-Time High:
The Fannie Mae Home Purchase Sentiment Index® (HPSI) increased 0.3 points in September to 88.3, matching the all-time high set in June.
The rise can be attributed to increases in three of the six HPSI components. The good time to buy component rose the most month-over-month, with the net share increasing 10 percentage points compared to August. Renter respondents, in particular, buoyed the net good time to buy component, showing a substantial upward change in optimism in September. The net share who reported that now is a good time to sell a home rose 2 percentage points in September and is now up 23 percentage points compared to the same period last year.
Meanwhile, the net share who said home prices will go up in the next 12 months fell 8 percentage points. Even so, respondents continue to cite high home prices as the most important reason behind the bad time to buy and good time to sell indicators. The net share of those who believe mortgage rates will go down decreased 2 percentage points. Americans also expressed a slightly increased sense of job security, with the net share who say they are not concerned about losing their job increasing 1 percentage point. Finally, the net share of consumers who reported that their income is significantly higher than it was 12 months ago fell by 1 percentage point.
“The biggest driver for the increase in the HPSI is the rebound in the good time to buy sentiment, which outweighed the largest drag—a sizable reduction in the net share of consumers expecting home prices to rise over the next year,” said Doug Duncan, senior vice president and chief economist at Fannie Mae.
Duncan also said that the “details in the survey showed a meaningful pickup in the good time to buy component, especially from the renter respondents. Additionally, perceptions of easing inventory helped boost the net share saying that now is a good time to buy, which is consistent with less bullish home price appreciation sentiment during the month. Overall, we believe that the devastating impacts of the hurricanes will likely weigh on home sales in coming months, posing downside risks for our forecast, which already calls for only a modest gain in home sales this year.”
What Happened to Rates Last Week?
Mortgage backed securities (FNMA 3.50 MBS) lost -8 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move slightly higher from the prior week. While a net change under -10BPS is very tame, we certainly saw some “choppiness” last week with a -56BPS swing from our best levels of the week to the worst levels of the week.
Overview: We had a very volatile week as we had very encouraging economic news with very strong manufacturing, services and wages. All of which are very positive for the economy but negative for rates. On the flip side, we had heightened global concern over North Korea and a potential testing of a missile that could hit CA and the tearing apart of Spain as their richest province voted, passed and declared independence from Spain. This global instability caused many to purchase long bonds and is good for rates.
Jobs, Jobs, Jobs: Big Jobs Friday hit last week, what did we learn? We learned that pricing pressure in wages is very real.
Tale of the Tape:
September Non-Farm Payrolls -33K vs est of 0K
August was revised from 156K up to 169K.
The “whisper” numbers on Wall Street were actually at -50k, so this is actually not a shock to the system, the last time that we had a major hurricane, NFP also went negative so the markets are giving this piece of data a “pass”.
Unemployment Rate dropped down to 4.2% vs est of 4.4% and might have some teeth. Recently, this number has dropped along with the participation rate. But in this case the participation rate actually increased from 62.9% to 63.1%
Wages: The MOM Average Hourly Earnings moved up by 0.5% vs est 0.3%, but the bond market focuses on the YOY reading which came in at 2.9% vs est of 2.5%. This is the highest reading since June of 2009!
Manufacturing: Just like the regional Chicago PMI report, the September ISM National Manufacturing report was much better than expected and hit its highest levels in 13 years with a 60.8 reading. New Orders rose to a 4 month high and Employment broke 60.0 for the first time in 6 1/2 years.
ISM Services: This represents over 2/3 of our economic engine. Any reading above 50.0 is very good and expansionary. The market was expecting a very high reading of 55.5 but instead we got a very robust reading of 59.8 which is one of the highest readings on record.
The Talking Fed:
The Senate voted to confirm Randal Quarles as a new Federal Reserve Board Governor, he is replacing Daniel Tarullo who was the unofficial head of the banking industry resigned in April. Quarles will now be the official Fed head of banking regulations and favors fewer of them. This is the very first run at getting a Fed member through the Senate by the Trump administration and it actually went very smoothly with a 65-32 vote. There are still two vacant Fed Board positions that were never filled during the Obama administration and Fischer (retires in October) will need to be replaced. That is three permanent voting members that will be appointed by President Trump in addition to the next Fed Chair.
What to Watch Out For This Week: