USA: 2016 is the 'break-out' year for the housing market - Wells Fargo

Analysts at Wells Fargo explained the reasons behind the strong gains on existing home sales in the United States, which beat consensus expectations.

Key Quotes:

"Sales for previously owned homes rose more than the consensus forecast in June, increasing 1.1 percent, with single-family and condo sales both up during the month. At a 5.57 million-unit annual rate, the level is up 3.0 percent from a year earlier and is the strongest pace since February 2007."

"Following the United Kingdom’s unexpected vote to leave the European Union, the U.S. 10-year Treasury yield fell sharply, pulling the 30-year fixed mortgage rate below 3.5 percent."

"Market participants have largely deduced that much of the fall-out from Brexit will likely occur in the United Kingdom and have largely unwound the flight-to-safety trade into the U.S. Treasury market, with the U.S. 10-year Treasury yield now back to its pre-Brexit reading. Mortgage rates will almost certainly follow the uptrend in long rates in the coming weeks."

"Although the report was generally favorable, we suspect some payback is on the horizon. Pending home sales, which typically lead existing home sales by one or two months, have been trending lower." 

"With resale sales activity and home building posting strong gains, we can officially mark 2016 as the break-out year for the housing market."