There was little news this week to change the outlook for economic growth or future Fed policy. As a result, mortgage rates ended nearly unchanged.
The core PCE price index is the inflation indicator favored by the Fed, and their stated target level is 2.0%. In May, core PCE was 3.4% higher than a year ago, slightly below the consensus forecast, but up from an annual rate of increase of 3.1% last month. This was the highest annual rate since 1992. While economists have been expecting readings of this magnitude during the reopening of the economy, there are differing views on whether higher inflation will be a temporary spike or persist for years.
Home sales recovered from the partial shutdown of the economy last spring far more quickly than expected and have remained at very high levels. However, they have seen several straight months of small declines from their peak, mostly due to a lack of inventory in many regions. In May, existing home sales fell 1% from April, but still were 45% higher than a year ago during the pandemic. The median existing-home price was 24% higher than last year at this time, at a new record of $350,300. Inventory levels were down 21% from a year ago, at just a 2.5-month supply nationally, well below the 6-month supply which is considered a healthy balance between buyers and sellers.
New home sales also had a tough month. In May, new home sales fell 6% from April to the lowest level since May of last year. In general, the pace of both new and existing sales is being dictated by the supply of homes available each month.
Looking ahead, investors will closely watch comments from Fed officials for hints about changes in monetary policy. Beyond that, the monthly Employment report will be released on Friday, and these figures on the number of jobs, the unemployment rate, and wage inflation will be the most highly anticipated economic data of the month. The ISM national manufacturing index will come out on Thursday.
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Raleigh Mortgage Group, Inc.
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