Strong housing data continued to roll in over the past week. In November, contracts signed to buy new homes surged 18% from October to the highest level since 2007. Contracts signed in November to buy previously owned homes also exceeded the expected levels. Despite the strong data, mortgage rates ended the week a little lower.
The recent inflation data also contained good news for the housing market. The core PCE price index revealed that core inflation, which excludes the volatile food and energy components, was just 1.5% higher than a year ago. While Fed officials have stated that they would like to see inflation rise to their target level of 2.0%, core PCE has remained close to the current level for most of the year.
Tame inflation is one reason that mortgage rates are ending the year a good deal lower than they were at the end of 2016.
Beyond low mortgage rates, there are other reasons to be optimistic about the housing market in 2018. Consumer confidence is at very high levels, partly due to a record high stock market and a low unemployment rate. In addition, one of the big factors holding back home sales activity in 2017, a lack of inventory, may be easing to some degree. Toward the end of the year, home builder confidence jumped to the best level in years and the pace of new construction picked up.
Looking ahead, the important monthly Employment report will be released on January 5. As usual, this data on the number of jobs, the unemployment rate, and wage inflation will be the most highly anticipated economic data of the month. Before that, the ISM national manufacturing index will be released on Tuesday and the ISM national services index on Thursday. The minutes from the December 13 Fed meeting will come out on Wednesday. These detailed minutes provide additional insight into the debate between Fed officials. Mortgage markets will close early at 2:00 et on Friday and will be closed on Monday.
source: Mortgage Time Newsletter