Last Week’s Economic News in Review

Brexit Impact

Of course the biggest economic news from last week was Friday’s Brexit vote, in which the citizens of Britain voted to leave the European Union. While the actual process to leave the EU could take as long as two years, the economic impact was felt almost instantly. By the day’s end the Dow closed 611 points down, marking its worst day since 2011. Also, the pound fell to a 30-year low against the dollar, ending the week at $1.32.

This left U.S. housing market watchers wondering about how the uncertainty resulting from the Brexit vote could impact interest rates in the near term. Six months after the Fed’s December 0.25 percent increase on its benchmark rate, there had been signs that the Fed might be considering another small increase. But given the Fed’s sensitivity to market uncertainty and the stronger position of the dollar, any upward change to rates by the Fed appears to be on the backburner.

“It is unclear whether this will just be a short-term disruption, or whether it will have a longer-term impact,” Mike Fratantoni, chief economist at the Mortgage Bankers Association, told Forbes. “Our best guess at this point is that the impact on the mortgage market will be to keep rates lower for longer.”

Existing Home Sales

Low interest rates have been one of the key factors that have helped drive home sales despite high prices. Sales of existing single-family homes, townhomes, condominiums and co-ops increased 1.8 percent to an annual rate of 5.53 million in May, according to last week’s report from the National Association of Realtors. Compared to last year, sales are 4.5 percent higher than May 2015, and they are at their highest annual rate since February 2007.

“This spring’s sustained period of ultra-low mortgage rates has certainly been a worthy incentive to buy a home, but the primary driver in the increase in sales is more homeowners realizing the equity they’ve accumulated in recent years and finally deciding to trade-up or downsize,” NAR Chief Economist Lawrence Yun commented in a public statement. “With first-time buyers still struggling to enter the market, repeat buyers using the proceeds from the sale of their previous home as their down payment are making up the bulk of home purchases right now.”

In terms of price, May’s sales surpassed last June’s peak median sales price to hit $239,700, which was 4.7 percent higher than May 2015. In terms of supply, the inventory of existing homes at the end of May grew 1.4 percent to hit 2.15 million homes for sale, representing a 4.7-month supply at May’s sales rate. Notably, this supply was down 5.7 percent from May 2015.

New Home Sales

While existing homes were up, sales of new single-family homes dropped a considerable 6 percent in May to an annual rate of 551,000, the Census Bureau and the Department of Housing and Urban Development reported last week. That said, when compared annually, May’s sales were 8.7 percent higher than May 2015’s rate of 507,000.

Looking at price, average sales price of new homes sold in May was $358,900 and the median sales price was $290,400. In terms of inventory, the estimated number of new homes for sale at the end of May totaled 244,000, which represented a 5.3-month supply at May’s sales pace.

This week we can expect:

• Tuesday — First quarter GDP, third estimate, from the Bureau of Economic Analysis; June consumer confidence from The Conference Board.
• Wednesday — May personal incomes and spending from the Bureau of Economic Analysis.
• Thursday — Initial jobless claims for last week from the Employment and Training Administration.
• Friday — May construction spending from the Census Bureau; June car and truck sales from the auto manufacturers.