New Home Sales Rise

Last Week in Review:
Sales of new homes rose in May while annual inflation readings edged higher. First quarter GDP disappointed.

Sales of new homes rose 6.7 percent from April to an annual rate of 689,000, the Commerce Department reported. However, April's sales figure was revised lower to 646,000 from the original reading of 662,000. From May 2017 to May 2018, sales surged 14.1 percent. There was a 5.2-month supply of new homes for sale on the market, just below the 6 months that is considered normal.
The final reading on Gross Domestic Product for the first quarter of 2018 came in at 2.0 percent, below the second reading of 2.2 percent. GDP is the monetary value of all finished goods and services produced within our borders in a specific time. It is considered the broadest measure of economic activity. GDP readings between 2.5 to 3.0 percent are considered healthy, so the final reading for the first quarter was a disappointment. However, many forecasters are expecting a stronger GDP reading for the second quarter.
The inflation-measuring Personal Consumption Expenditures (PCE) and Core PCE, which excludes volatile food and energy prices, both ticked up 0.2 percent from April to May, in line with expectations. However, on an annual basis Core PCE ticked up to 2.0 percent, after rising 1.8 percent annually in April. The bottom line for inflation is that it reduces the value of fixed investments like Mortgage Bonds. Home loan rates are tied to Mortgage Bonds, so rising inflation can also cause rates to move higher.
For now, home loan rates remain attractive historically.