Making Sense of Mortgage Rates – May 22, 2023

Improving Home Builder Confidence Signals Strength in U.S. Housing Market

Recent economic reports shed light on various aspects of the U.S. housing market, providing valuable insights for investors and homeowners alike. Key indicators, such as U.S. housing markets, sales of previously-owned homes, housing starts, building permits issued, mortgage rates, and jobless claims, were released last week.

According to the National Association of Home Builders (NAHB), home builder confidence experienced a notable increase in May. The index reading for current housing market conditions rose by five points to reach 50, surpassing April’s reading of 45. Analysts had expected a more conservative estimate of 45 for May. A reading above 50 suggests that a majority of home builders hold a positive outlook on current housing market conditions. Additionally, the component readings of the home builder index also exhibited improvement, with the gauge for current market conditions rising by five points to 50, the reading for market conditions over the next six months increasing by seven points, and the index reading for buyer traffic growing by two points.

Builders surveyed revealed that homeowners are currently less motivated to sell, as many took advantage of the low mortgage rates during the pandemic to purchase or refinance their homes. As a result, aspiring homeowners are turning to new homes to explore more options, given the persistent demand for housing that outpaces the availability of previously-owned homes.

To meet the high demand, developers have reduced incentives for homebuyers. In May, the percentage of homebuilders offering price reductions on new homes declined from 30 percent in April to 27 percent. The NAHB noted that these price reductions averaged around six percent of the original home prices.

In terms of mortgage rates, Freddie Mac reported a slight increase in average rates for last week. Rates for 30-year fixed-rate mortgages averaged 6.39 percent, a four-basis-point rise from the previous week. Rates for 15-year fixed-rate mortgages, on the other hand, remained unchanged from the previous week, averaging 5.75 percent.

Regarding jobless claims, the number of initial claims filed last week was lower than expected. A total of 242,000 claims were filed, compared to the projected 255,000 claims. This figure represents a decline from the 264,000 first-time jobless claims filed during the previous week.

Looking ahead, this week’s economic reporting will feature crucial readings on new and pending home sales, minutes from the Federal Open Market Committee meeting, and the final consumer sentiment reading for May. Additionally, weekly updates on mortgage rates and jobless claims will be provided, ensuring that market participants stay informed about the latest developments in these key areas.


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