Services Sector Strength

Raleigh Mortgage GroupUncategorized

Unexpected strength in the services sectors around the world was unfavorable for mortgage markets this week. The latest comments from Fed officials did not stray from the message at the last meeting. As a result, mortgage rates ended a little higher.

An economic report which has just recently come across the radar of investors and gained prominence was the most influential data this week. The Global Services PMI, measuring the strength of the services sectors in over 40 countries, jumped to 54.8, far above the consensus forecast, and the highest level since May 2023. This strong report increased investor concerns about inflation, making it negative for mortgage rates.

In the housing sector, sales of existing homes in April fell 2% from March, slightly below the consensus forecast, and were a little lower than last year at this time. The median existing-home price of $407,600 was up 6% from last year at this time, at a record high for the month of April. Inventory levels remain stuck near historic lows, standing at just a 3.5-month supply nationally, far below the 6-month supply typical in a balanced market.

One interesting note is that both inventory levels and sales of homes priced over $1 million were up roughly 40% from last year at this time. Sales of new homes, which make up about 15% of the total market, fell much more than expected from March and were 8% lower than a year ago.

The minutes from the May 1 Fed meeting released on Wednesday revealed no significant surprises. The consistent message continues to be that officials are in no hurry to cut interest rates. They prefer to wait for “greater confidence” that inflation will continue on a path down to their target level of 2.0%. Based on recent speeches, this suggests a minimum of three months of data indicating that the downward trend has resumed. Most investors now anticipate that the first rate cut will take place in September. 

Investors will continue to watch for Fed officials to elaborate on their plans for future monetary policy. For economic reports, Consumer Confidence will be released on Tuesday. Personal Income and the PCE price index, the inflation indicator favored by the Fed, will be released on Friday. Mortgage markets will be closed on Monday for Memorial Day.

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