Markets hesitate before Fed minutes are released later today

Dow slid back 18, decliners over advancers 3-2 & NAZ was up 6.  The MLP index fell 2 to the 279s & the REIT index edged lower to the 376s.  Junk bond funds eased higher & Treasuries had limited selling, raising yields slightly (more below).  Oil drifted lower in the 78s & gold sank 32 to 2393 following recent strength.

AMJ (Alerian MLP Index tracking fund)

Sales of previously owned homes fell 1.9% in Apr from Mar to 4.14M, on a seasonally adjusted annualized basis, according to the National Association of Realtors.  The forecast had been for a slight gain.  Sales were also down from Apr 2023, off 1.9% from last year.  These sales are based on closings, so contracts likely signed in Feb & Mar.  Mortgage rates jumped at the start of Feb & then held around 7% for the next 2 months before moving even higher in Apr.  “When we see these mortgage rates, which is a 300 basis point increase from pre-Covid pace, we are in a new territory as to how the lock-in effect will restrain home sales,” said Lawrence Yun, chief economist for the Realtors.  Total housing inventory at the end of Apr was 1.21M units, up 9% month to month & up 16% from the year before, but still just a 3.5-month supply at the current sales pace.  A 6-month supply is considered balanced between buyer & seller.  The supply of homes priced over $1M, however, was up 40% year over year, which is why that segment of the market is most active.  Sales of homes priced below $100K fell 7.1% year over year, while sales of those priced over $1M jumped 40%.  Tight supply kept prices under pressure.  The median price of an existing home sold in Apr was $407K, an increase of 5.7% year over year, another record high price for Apr.  With multiple offers, due to strong demand, 27% of homes sold above list price.  “Home prices reaching a record high for the month of April is very good news for homeowners,” said Yun.  “However, the pace of price increases should taper off since more housing inventory is becoming available.”

Home sales slipped unexpectedly in April, despite big gains in supply

Mortgage interest rates fell for the 3rd straight week last week, sparking increased demand for refinances.  Homebuyers, however, were not impressed.  Total mortgage application volume rose 1.9% compared to the previous week, according to the Mortgage Bankers Association's (MBA) seasonally adjusted index.  The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $766K or less decreased to 7.01% from 7.08%, with points decreasing to 0.60 from 0.63, including the origination fee, for loans with a 20% down payment.  Applications to refinance a home loan rose 7% for the week & were 21% higher than the same week one year ago.  Rates last week were just 32 basis points higher than they were a year ago, & that gap has been shrinking.  The vast majority of today’s borrowers still have rates significantly lower than what is offered today, so even with the weekly gain, demand is still at a very low level.  “Rates coming down from recent highs spurred some borrowers to act, with increases across both conventional and government refinance applications,” said Joel Kan, MBA's VP & deputy chief economist.  “VA refinances had a double-digit increase for the third consecutive week, although the current level of refinancing is still well below its historical average.”  Applications for a mortgage to purchase a home fell 1% for the week & were 11% lower than the same week one year ago.  While higher mortgage rates certainly hurt affordability, today's buyers are still facing very low supply & stiff competition, which fuels bidding wars.  Mortgage rates have not moved much so far this week, & there is not much expectation of a reaction to the release of the minutes from the Federal Reserve today.  “In this environment of high transparency and frequent speeches from Fed members, it’s hard to imagine that the minutes will cause any drama,” wrote Matthew Graham, COO at Mortgage News Daily.  “This is a bit of a paradigm shift for some market watchers who have seen the minutes send rates quickly higher or lower in the past.”

Weekly mortgage refinance demand revives as interest rates fall to 7-week low

Treasury yields were higher as investors considered the latest comments from Federal Reserve speakers about the outlook for inflation & interest rates.  The 10-year Treasury yield was up by more than 3 basis points at 4.449% & the 2-year Treasury yield was last at 4.867% after also rising by 3 basis points.  Yields & prices move in opposite directions & 1 basis point equals 0.01%.  A series of Fed officials yesterday urged patience when it comes to rate cuts as inflation remains above the Fed's 2% target.  Fed Governor Christopher Waller yesterday said he would need to see more data showing that inflation & the economy is easing before cutting rates.  “The economy now seems to be evolving closer to what the Committee expected,” he said.  “Nevertheless, in the absence of a significant weakening in the labor market, I need to see several more months of good inflation data before I would be comfortable supporting an easing in the stance of monetary policy.”  Fellow Fed officials echoed this sentiment, with Boston Fed Pres Susan Collins saying patience “really matters” right now & Atlanta Fed Pres Raphael Bostic saying he was “not in a hurry to cut rates.”  Further Fed officials are set to give remarks today & minutes from the central bank's latest meeting are due to be released.

U.S. Treasury yields rise as investors weigh Fed speaker comments

The minutes from the Fed's last meeting (in a few hours) will give more clues to the officials' thinking on interest-rate cuts.  Eyes will be on any deviation from policymakers' repeated message that they want to be more confident of a cooldown in inflation before starting to cut rates.

Dow Jones Industrials