Tucson Mortgages Home Loan News 10-18-2021

By Todd Abelson NMLS #180858 on .

Week of October 11, 2021 in Review

After the markets were closed Monday for Columbus Day, inflation data, employment news and the Fed minutes made plenty of headlines.

Consumer inflation rose by 0.4% in September, in line with expectations, per the Consumer Price Index (CPI). The year over year reading increased from 5.3% to 5.4%. Core CPI, which strips out volatile food and energy prices, rose by 0.2%, which was in line with expectations. On a year over year basis, Core CPI remained at 4%.

Wholesale inflation set another record per the Producer Price Index (PPI), which rose 0.5% in September and 8.6% on a year over year basis. This is up from the 8.3% annual reading in August and a new record high. Core PPI, which again strips out volatile food and energy prices, rose 0.2% in September and 6.8% on a year over year basis. Wholesale inflation continues to move higher, which can lead to hotter consumer inflation levels if producers pass those higher costs on to consumers.

Speaking of inflation, the minutes from the Fed’s September 21-22 meeting showed members thought there were inflation risks to the upside and that substantial further progress had been made regarding employment. They concluded that a gradual tapering of their ongoing purchases of Mortgage Backed Securities (MBS) and Treasuries was appropriate, starting mid-November to mid-December. Read on for important details about this.

The Jobless Claims picture continues to make significant improvement, with the number of Initial Jobless Claims falling below 300,000 for the first time since the pandemic began. Continuing Claims, Extended Benefits and the federal COVID plans all showed declines in the latest week as well. There are now 3.6 million people in total receiving benefits, which is down over 520,000 from the previous report.

Retail Sales were stronger than anticipated in September, rising by 0.7% versus the expected 0.1% decrease. Sales in August were also revised higher from a gain of 0.7% to a gain of 0.9%. Yet even though consumers spent more than expected last month, the National Federation of Independent Business (NFIB) Small Business Optimism Index fell 1 point to 99 in September, which is the weakest reading since March.

The biggest concern of small businesses is their inability to meet demand due to a lack of workers and ongoing supply chain issues. In fact, it was reported that 4.3 million people quit their jobs in August, which is 3% of the workforce and the highest level on record. Food and retail industries were especially hit hard, with almost 7% of restaurants, bars and hotels and 5% of retail workers leaving.

Lastly, investors were closely watching Tuesday’s 10-year Treasury Note auction and Wednesday’s 30-year Bond auction to see the level of demand. Find out the results below.

 

What May Be Ahead for Consumer Inflation

The Consumer Price Index (CPI), which measures inflation on the consumer level, rose by 0.4% in September, coming in slightly higher than expectations. The year over year reading increased from 5.3% to 5.4%.

Core CPI, which strips out volatile food and energy prices, was in line with expectations, rising by 0.2%. On a year over year basis, Core CPI remained at 4%.

Within the report, rents rose 0.5% in September and 2.4% on a year over year basis, up from 2.1% reported in August. Note that the CPI report is not capturing the increases we are seeing in many other rent reports that are showing double digit increases year over year. We may see some catch up in this CPI data in future months but for now the reporting continues to be dragged down by their methodology.

Remember that to calculate year over year inflation, the readings for the more current months replace the older readings from 2020 (for e.g., the readings for September 2021 replaced the readings for September 2020). The next several readings for 2020 are low, which means if we continue to see monthly increases going forward, we could see the year over year figures start to accelerate again.

Inflation is critical to monitor because rising inflation reduces a Bond’s fixed rate of return. In other words, inflation can cause Mortgage Bonds to worsen or lose value and the home loan rates tied to them to rise. Though many factors influence the markets, it will be especially important to monitor inflation data in the months ahead.

 

Wholesale Inflation Hits a New Annual High

The Producer Price Index, which measures inflation on the wholesale level, rose 0.5% in September and 8.6% on a year over year basis. This is up from the 8.3% annual reading in August and a new record high.

Core PPI, which strips out volatile food and energy prices, rose 0.2% in September and 6.8% on a year over year basis. While the Core annual reading was lower than expectations, it is still up from the 6.6% reported in August.

Wholesale inflation continues to move higher, which can lead to hotter consumer inflation levels if producers pass those higher costs on to consumers.

On a related note, Cass Freight showed that shipping costs were up 31% year over year in September, which accelerated from 27% in August. This can certainly lead to more inflation. President Biden announced last week that some of the shipping ports were going to run 24/7 to try to alleviate supply chain issues. However, if there is not enough trucking capacity and drivers, the containers will still just sit on the ground.

 

Fed Minutes Hint at Taper Timing

The minutes from the Fed’s September 21-22 meeting were released and they showed that Fed members collectively thought a gradual tapering process for their purchases of Mortgage Backed Securities (MBS) and Treasures was appropriate. These purchases have been ongoing to stabilize the markets.

The Fed did change their tune regarding inflation, noting they believe it will stay elevated in 2022, with the risk to the upside. Most also saw substantial further progress towards maximum employment. These are the Fed’s two benchmarks for tapering.

Fed members thought that tapering could begin as soon as mid-November to mid-December. This likely means that, barring any huge economic developments, the Fed will announce tapering at their November 3 meeting and may begin reducing their purchases in December, before the end of the year.

Once the Fed begins tapering, they are expected to reduce their purchases by $15 billion per month. This would mean that if they began tapering in December, they would be done with their purchases by the end of June 2022. Even with tapering, these ongoing purchases means their policy remains accommodative. Plus, they are also buying $60 billion per month in MBS through their reinvestments of their holdings.

 

Initial Jobless Claims Reach Important Milestone

The number of people filing for unemployment for the first time fell 36,000 in the latest week, as Initial Jobless Claims were reported at 293,000. This is the first reading beneath 300,000 since before the pandemic began.

 

Continuing Claims, which measure people who continue to receive benefits, also fell by 134,000 to 2.6 million.

The federal COVID plans, including the Pandemic Unemployment Assistance and Emergency Claims, declined by almost 290,000 as those plans continue to expire. Extended Benefits also dropped by nearly 170,000.

There are now 3.6 million people in total receiving benefits, which is down over 520,000 from the previous report. The Claims picture continues to make significant improvements.

 

Note and Bond Auctions Have Strong Results

Investors were closely watching Tuesday’s 10-year Treasury Note auction and Wednesday’s 30-year Bond auction to see the level of demand. High demand, which is reflected in the purchasing of Bonds and Treasuries, can push prices higher and yields or rates lower.

Weak demand, on the other hand, can signal that investors think yields will continue to move higher, which can have a negative effect on rates.

The 10-year Treasury Note auction was met with above average demand. The bid to cover of 2.58 was above the one-year average of 2.45. Direct and indirect bidders took 88.8% of the auction compared to 79.7% in the previous 12. The 30-year Bond Auction was met with strong demand. The bid-to-cover of 2.36 was well ahead of the average over the past 12 months of 2.32, with indirect bidders taking down 70.5 of the auction compared to the average 63.0%. This helped push yields lower and Mortgage Backed Securities higher following the results.

 

Family Hack of the Week

Halloween is nearly here! Enjoy an afternoon of carving pumpkins thanks to these handy tips from our friends at Good Housekeeping.

Start with a pumpkin that has a sturdy stem, no bruises and a flat bottom so it will stay in place once you start carving it.

Instead of cutting the lid at the top, cut it at the bottom. Not only can this help prevent the sides from caving in, but it will also be easier to place the pumpkin over candles or lights.

An ice cream scoop is a handy tool for removing the pulp. Thin the area for the face to around 1 1/4-inches, so it will be easier to carve the eyes, nose and mouth.

Sketch your design on paper first, or download a template, and then trace your design onto the pumpkin to avoid any errant cuts. To keep your pumpkin fresh and moist, spread petroleum jelly on the edges.

 

What to Look for This Week

Housing data will be the big headline maker, beginning Monday with the National Association of Homebuilders Housing Market Index for October, which is a near real-time read on builder confidence.

On Tuesday, we’ll get a look at Housing Starts and Building Permits for September, while Existing Home Sales will be reported Thursday.

Also on Thursday, the latest Jobless Claims figures will be reported as usual, along with regional manufacturing news via October’s Philadelphia Fed Index.

Investors will also be watching Wednesday’s 20-year Bond auction for the level of demand.

 

Technical Picture

Mortgage Bonds broke beneath an important floor of support at 102.735 on Friday and ended the week battling with the next floor at 102.563. The 10-year ended the week trading at around 1.57%, in a wide range between 1.46% and 1.60%.

Todd Abelson - Tucson Mortgages

Tucson Mortgages Home Loan News 10-12-2021

By Todd Abelson NMLS #180858 on .

Week of October 4, 2021 in Review

There was mixed news from the labor sector in September while home prices remained red hot in August.

Just 194,000 jobs were created in September, the Bureau of Labor Statistics (BLS) reported, which was much lower than expectations of 500,000 new jobs. However, revisions to the data for July and August added 169,000 new jobs in those months combined, which took some of the sting out of the disappointing news. And on another positive note, the Unemployment Rate fell from 5.2% to 4.8% while wages were also on the rise.

Private sector job creations did beat expectations in September per the ADP Employment Report, which showed a gain of 568,000 jobs. Both the goods-producing and service-providing sectors showed gains, with services contributing the majority share at 466,000 jobs. Job gains were also reported across all sizes of business.

Jobless claims fell across the board in the latest week, with the number of people filing for unemployment benefits for the first time dropping by 38,000 to 326,000 while those continuing to receive benefits declined by 100,000 to 2.7 million. Yet, the real headliner is that the federal COVID plans, including the Pandemic Unemployment Assistance and Emergency Claims, fell by 773,000 as those plans expired. There are now 4.2 million people in total receiving benefits, which is down from 5 million in the previous report.

In housing news, home prices sizzled as much as the temperatures in August, with prices rising 1.3% from July and 18.1% year over year, per CoreLogic’s Home Price Index. This is a notch higher than the 18% annual gain reported in July.

 

Job Creations Much Lower Than Expected

The Bureau of Labor Statistics (BLS) reported that there were 194,000 jobs created in September, which was much weaker than the 500,000 new jobs that were expected. However, there were positive revisions to the data for July and August adding 169,000 new jobs created in those months combined, which makes the miss in September look slightly better.

The private sector showed some good gains of 317,000 jobs, but government jobs fell by 123,000. In addition, leisure and hospitality only showed 73,000 job gains, which was disappointing and a mismatch from the ADP Employment Report that is highlighted below.

It’s important to understand that there are two reports within the Jobs Report and there is a fundamental difference between them. The Business Survey is where the headline job number comes from and it’s based predominately on modeling.

The Household Survey, where the Unemployment Rate comes from, is done by actual phone calls to 60,000 homes. The Household Survey also has a job loss or creation component, and it showed there were 526,000 job creations, while the labor force decreased by 183,000. The number of unemployed people decreased by 710,000, causing the Unemployment Rate to fall from 5.2% to 4.8%

Note that there has been a lingering misclassification error where people were classified absent from work for other reasons and not marked as unemployed on temporary layoff when they should have been. When we factor this into the calculations, the Unemployment Rate should have been around 0.1% higher at 4.9%.

In addition, there are 6 million people who have not looked for work in the last four weeks who are also not counted in the labor force or counted as unemployed, which is an increase from 5.7 million people in the previous report. It’s likely we will see this trend change in October’s report, given that the federal pandemic benefits expired on Labor Day and people will have had more time to look for work by the time that data is collected.

Wages were also on the rise. Average hourly earnings were up 0.6% from August to September and they also rose 4.6% year over year. Average weekly earnings, which we focus on more because it measures what people actually take home, were up 1.2% month over month and 4.6% year over year.

Wage growth is running at a 6% yearly increase pace over the last six months. Leisure and hospitality earnings are almost 11% higher year over year, but it appears this is still not enough to attract the workers we need in that sector.

 

Private Payrolls Strong in September

 The ADP Employment Report, which measures private sector payrolls, showed that there were 568,000 jobs created in September, which was much stronger than expectations of 428,000 new jobs. The data for August was revised lower by 34,000 to 340,000 jobs, but this was still a strong report.

Both the goods-producing and service-providing sectors showed gains, with services contributing the majority share at 466,000 jobs. Leisure and hospitality led the way with 226,000 job gains. And of note, construction added 46,000 jobs.

Job gains were reported across all sizes of businesses, with more than half of those reported at large businesses. Small businesses (1-49 employees) gained 63,000 jobs, mid-sized businesses (50-499 employees) gained 115,000 jobs, and large businesses (500 or more employees) gained 390,000 jobs.

 

Jobless Claims Decline

The number of people filing for unemployment benefits for the first fell by 38,000 in the latest week, as 326,000 Initial Jobless Claims were reported. Continuing Claims, which measure people continuing to receive benefits, also declined by 100,000 to 2.7 million.

But the real headliner is that the federal COVID plans, including the Pandemic Unemployment Assistance and Emergency Claims, fell by 773,000 as those plans expired.

There are now 4.2 million people in total receiving benefits, which is down from 5 million in the previous report.

 

Strong Home Price Appreciation Continues

CoreLogic released their Home Price Index report for August, showing that home prices rose by 1.3% from July and 18.1% year over year, which is a notch higher than the 18% annual gain reported in July.

Within the report, the hottest markets were Phoenix (+31%), San Diego (+23%) and Las Vegas (+22%).

CoreLogic forecasts that home prices will rise 0.3% in September and 2.2% in the year going forward (which is below their previous annual forecast of 2.7%). They remain conservative in their forecasting and continue to miss on the low side. For example, CoreLogic had forecasted prices for August would rise by 0.7% and prices ended up increasing 1.3%.

However, Frank Martell, the President and CEO of CoreLogic, did state that he thinks the trend of strong price gains will continue indefinitely with large amounts of capital chasing too few assets.

While monthly appreciation gains are still expected to occur, they could start to slow and this would make the year over year figures start to even out or come down a bit, like the annual figure reported for August. Note this does not mean home prices are expected to decline because there is still too big of a crop of homebuyers for too few homes. But the pace of gains could slow.

 

Family Hack of the Week

While dessert is delicious every day of the week, this Thursday, October 14, marks National Dessert Day! Enjoy the occasion with this easy and delicious One Bowl Chocolate Cake recipe, courtesy of our friends at Allrecipes.

Preheat oven to 350 degrees Fahrenheit. Grease and flour two nine-inch round pans.

In a large bowl stir 2 cups white sugar, 1 3/4 cups all-purpose flour, 3/4 cup unsweetened cocoa powder, 1 teaspoon salt and 1 1/2 teaspoons each of baking powder and baking soda.

Add two eggs, 1 cup milk, 1/2 cup vegetable oil and 2 teaspoons pure vanilla extract and mix with a mixer on medium speed for 2 minutes. Stir in 1 cup of boiling water. The batter will be thin. Pour evenly into the prepared pans.

Bake for 30 to 35 minutes until a toothpick inserted comes out clean. Cool in the pans for 10 minutes, then remove and place on a wire rack to cool completely. Frost with your favorite chocolate or buttercream frosting and enjoy.

 

What to Look for This Week

After the market closures on Monday in honor of the Columbus Day holiday, Tuesday brings an update on how small businesses were feeling last month with the National Federation of Independent Business Small Business Optimism Index.

Inflation data will be a major headline maker when September’s Consumer Price Index is reported on Wednesday. The Producer Price Index, which measures wholesale inflation, follows on Thursday.

Thursday also brings the latest Jobless Claims figures, as usual. Ending the week on Friday, we’ll learn how Retail Sales performed in September and we’ll get an update on manufacturing in the New York region via the Empire State Index for October.

Investors will also be monitoring two important auctions ahead, with the 10-year Note auction occurring Tuesday and the 30-year Bond auction on Wednesday. Also on Wednesday, the minutes from the Fed’s September meeting will be released, which has the potential to move the markets

 

Technical Picture

Mortgage Bonds broke beneath support at 102.703 and their next floor of support is at 102.563. The 10-year broke above the important ceiling at 1.60%. Their next ceiling is at 1.64%.

 

Todd Abelson - Tucson Mortgages

Tucson Mortgages Home Loan News 10-4-2021

By Todd Abelson NMLS #180858 on .

Week of September 27, 2021 in Review

The last week of September was jam packed with news on housing, inflation and jobless claims.

The Case-Shiller Home Price Index showed that prices rose 1.6% from June to July and they were up a record 20% annually. The Federal Housing Finance Agency (FHFA), which measures home price appreciation on single-family homes with conforming loan amounts, also showed strong appreciation. Home prices rose 1.4% from June to July and 19% year over year.

Rents are also rising at a feverish pace. Apartment List reported that rents rose 2.1% in September and 16.4% year to date, up from 13.8% in the previous report. This is the fastest rent growth on record and is on a 22% pace if these increases continue.

However, there was some good news for buyers who have been struggling with low inventory. Pending Home Sales, which measure signed contracts on existing homes, came in much stronger than expectations, jumping 8% from July to August. NAR’s Chief Economist, Lawrence Yun, noted that rising inventory and less pricing pressure accounted for the surge.

The latest Personal Consumption Expenditures (PCE) report showed that consumer inflation was up 0.4% in August, which was slightly hotter than expectations. Year over year the index rose from 4.2% to 4.3%, which is the hottest reading in 30 years. Core PCE, which strips out volatile food and energy prices and is the Fed’s real focus, was up 0.3% in August while the year over year reading remained at 3.6%.

Rising inflation is always critical to monitor because it can have a big impact on Mortgage Bonds and home loan rates, which are tied to them. While the PCE figures may appear to suggest that consumer inflation is holding steady, it’s important to look further into the data. Don’t miss our analysis below.

Initial Jobless Claims moved in the wrong direction in the latest week, as the number of people filing for unemployment for the first time rose by 11,000 to 362,000. However, the number of people continuing to receive regular benefits did decline. Yet, the real story is that the federal COVID plans, including the Pandemic Unemployment Assistance and Emergency Claims, fell by 6.5 million as those plans expired. There are now 5 million people in total receiving benefits, which is down over 6 million from the previous report.

And of note, the final reading of second quarter Gross Domestic Product (GDP) showed 6.7% growth on an annualized basis. This was slightly better than expectations and an increase from 6.6% in the previous reading. And changes are coming to the Fed, as both Boston Fed President, Eric Rosengren, and Dallas Fed President, Robert Kaplan, announced their retirement.

 

Home Price Appreciation Hits Another Record High

The Case-Shiller Home Price Index, which is considered the “gold standard” for appreciation, showed home prices rose 1.6% in July and 20% year over year. This annual reading set another record high, beating June’s 18.6% record.

The 20-city index also rose 20% year over year, with all the cities showing strong gains. Phoenix (+32%), San Diego (+28%), and Seattle (+26%) continued to report the highest annual gains.

The Federal Housing Finance Agency (FHFA) also released their House Price Index, which measures home price appreciation on single-family homes with conforming loan amounts. While you can have a million-dollar home with a conforming loan amount, the report most likely represents lower-priced homes, where supply has been tight and demand strong.

Home prices rose 1.4% in July and they were also up 19% year over year. This is the first time in recent memory that we have seen FHFA’s data below Case Shiller’s.

This dynamic shift could mark the peak of year over year appreciation gains. While monthly appreciation gains are still expected to occur, they could start to slow and this would make the year over year figures start to come down a bit. It’s important to note this does not mean home prices are expected to decline because there is still too big of a crop of homebuyers for too few homes. But the pace of gains could slow.

Rents are also rising at a feverish pace. Apartment List reported that rents rose 2.1% in September and 16.4% year to date, up from 13.8% in the previous report. This is the fastest rent growth on record and is on a 22% pace if these increases continue. To put this into context, rents from January 2017 to September 2019 averaged just a 3.4% rise. In addition, only a few cities remain cheaper than they were pre-pandemic, while 22 cities have increased more than 25% from the start of the pandemic.

 

Pending Home Sales Surge in August

 Pending Home Sales, which measure signed contracts on existing homes, jumped 8% in August, the National Association of Realtors (NAR) reported. This was much stronger than estimates of 1%.

Contracts are 8% lower compared to August of last year, though this is still pretty good considering the lack of inventory and tough comparisons to last year’s data.

NAR’s Chief Economist, Lawrence Yun, noted that rising inventory and less pricing pressure is accounting for the surge. Given the strong demand for housing the simple fact remains that if there were more homes for sale, there would be more sales.

 

What’s Ahead For Inflation?

The Fed’s favored measure of inflation, Personal Consumption Expenditures (PCE), showed that headline inflation was up 0.4% in August, which was slightly hotter than expectations. Year over year the index rose from 4.2% to 4.3%, which is the hottest reading in 30 years.

Core PCE, which strips out volatile food and energy prices and is the Fed’s real focus, was up 0.3% in August while the year over year reading remained at 3.6%.

Remember that the year over year figures are calculated on a 12-month rolling basis. This means that in last Friday’s report, the August 2020 reading of 0.3% for Core PCE was replaced with the August 2021 reading, which was also 0.3%. This is why the year over year reading remained the same from the previous report.

Yet, when we look ahead to the next three reports, here are the figures we will be replacing. The September 2020 reading of 0.1% will be replaced with data for September 2021 when it is reported on October 29. The October 2020 reading of 0.0% will be replaced with data for October 2021 when it is reported on November 24. And the November 2020 reading of 0.0% will be replaced with data for November 2021 when it is reported on December 23.

This means if we continue to see monthly readings of 0.3%, we would see the year over year Core PCE reading climb by 0.8% to somewhere around 4.2% or 4.3%, depending on rounding. The bottom line is that inflation does not appear to be as transitory as the Fed would like.

On that note, 224 S&P 500 companies mentioned inflation in their second quarter calls. And last Wednesday, Fed Chair Jerome Powell changed his tune a bit, saying that he still expects inflation to ease eventually, but that the current pressures are going to run into 2022.

Rising inflation is always important to note since inflation erodes a Bond’s fixed rate of return. In other words, rising inflation can cause Bonds to worsen or lose value. This includes Mortgage Bonds, to which home loan rates are inversely tied. When Mortgage Bonds move lower, be it due to rising inflation or other reasons, home loan rates can move higher. Though many factors influence the markets, inflation remains crucial to monitor in the months ahead.

 

Impact of the Expiring Pandemic Jobless Claim Programs

Initial Jobless Claims moved in the wrong direction in the latest week, as the number of people filing for unemployment for the first time rose by 11,000 to 362,000. However, the number of people continuing to receive regular benefits did decline by 18,000 to 2.8 million.

Yet, the real story is that the federal COVID plans, including the Pandemic Unemployment Assistance and Emergency Claims, fell by 6.5 million as those plans expired.

There are now 5 million people in total receiving benefits, which is down over 6 million from the previous report.

 

Home Hack of the Week

Fall is officially here, which means it’s time for all things pumpkin, football, and important seasonal home maintenance. Tick these items off your list, then relax and enjoy all the fun of the season.

If you notice any drafty areas by windows or doors, add weather-stripping or door sweeps to prevent any unexpected spikes to your heating bill. Also, consider scheduling a service call to make sure your furnace and fireplace are in working order ahead of the winter season.

Check your smoke and carbon monoxide detector batteries and be sure to always keep extra batteries on hand. Be sure that any equipment you’ll need for winter is in working order and stock up any items you use frequently ahead of time.

Drain all outdoor faucets and disconnect garden hoses from outside spigots to help keep water from freezing and prevent burst pipes. Make sure your gutters are cleared before winter weather arrives, to prevent water from pooling on your roof, which can lead to leaks or ice dams.

Lastly, wipe down all porch and patio furniture and then cover or store inside. Give pillows and cushions a clean so they’ll be ready when next spring arrives.

 

What to Look for This Week

We’ll get more news on home price appreciation when CoreLogic releases its Home Price Index report for August on Tuesday.

Then all eyes will be on the labor sector beginning Wednesday when the ADP Employment Report will give us an update on private payrolls for September. Thursday brings the latest Initial Jobless Claims data, as usual. Then ending the week on Friday, the highly anticipated Bureau of Labor Statistics Jobs Report for September will be released, which includes Non-farm Payrolls and the Unemployment Rate.

 

Technical Picture

Mortgage Bonds continued their rally on Friday, breaking above the 103.367 ceiling. They have a little more upside potential before reaching resistance at the 103.487 Fibonacci level. The 10-year has moved lower and is currently trading around 1.47%. There is some room to the downside until reaching the 100-day Moving Average at 1.40%.

 

Todd Abelson - Tucson Mortgages

Tucson Mortgages Home Loan News 9-27-2021

By Todd Abelson NMLS #180858 on .

Week of September 20, 2021 in Review

Housing data and the Fed meeting highlighted a jam-packed week of news for the markets to digest.

Sales of existing homes fell 2% from July to August, reaching an annual pace of 5.88 million units. Much-needed inventory also ticked lower, unfortunately, falling 1.5% from July to August and 13% year over year.

However, sales of new homes beat expectations, rising 1.5% from July to August. There were also positive revisions to July’s data, which means the gain is really like a 4.5% rise month over month.

Builder confidence held steady in September, per the National Association of Home Builders Housing Market Index. This real-time read on builder confidence came in above expectations, rising one point to 76. The drop in lumber prices and stabilization of other prices contributed to the increase in confidence, yet ongoing supply chain issues and labor shortages are expected to persist.

Housing Starts, which measure the start of construction on homes, rose 4% in August. While this is positive on the surface, looking closer at the data shows that starts for single-family homes, which are in such high demand among buyers, fell nearly 3%. Building Permits, which are a good forward-looking indicator of construction, increased 6% in August while Single-family Permits inched higher by 0.6%.

CoreLogic released their second quarter Equity Report, showing that equity has increased almost 30% from last year. Negative equity homes decreased by 12% from the first to second quarter and 30% year over year. This equates to only 2.3% of all mortgaged properties.

In employment news, Initial and Continuing Jobless Claims moved in the wrong direction in the latest week, ticking higher to 351,000 and 2.85 million respectively. But the big story was the decline in Pandemic Unemployment Assistance Claims and Pandemic Emergency Claims, which fell by a combined 752,000.

Lastly, the Fed held their two-day meeting of the Federal Open Market Committee. We break down the key takeaways below.

 

Tight Inventory Hinders August Existing Home Sales

Existing Home Sales, which measure closings on existing homes, fell 2% from July to August, reaching an annual pace of 5.88 million units. Sales were 15% lower when compared to August of last year. Sales of single-family homes were also down 2% on a monthly basis, but they were only 3% below the same time last year. Note that the annual comparisons are tough based on the dynamic of the pandemic last year.

Much-needed inventory also ticked 1.5% lower in August to 1.29 million homes for sale. Inventory is down 13% year over year.

The median home price was reported at $356,700. While this is up 15% from August of last year, it is cooler than the 18% annual increase reported for July and 24% for June. Note that the median home price is not the same as appreciation. It simply means half the homes sold were above that price and half were below it.

First-time homebuyers accounted for 29% of sales, a notch lower than the 30% seen in July. Cash buyers remained stable at 22%, but this figure is still up big from 16% last August. Investors purchased 15% of homes, which was stable from the previous month.

What do these figures suggest? Investors may be crowding out first-time homebuyers, as they are likely purchasing lower-priced homes that they can rent out.

 

New Home Sales Beat Expectations

New Home Sales, which measure signed contracts on new homes, came in stronger than expectations, rising 1.5% from July to August. There were also positive revisions to July’s data, which means the gain is really like a 4.5% rise month over month.

New Home Sales are at a 740,000 annualized pace, which is down on a year over year basis by 24%, but off tough comparisons.

Looking at inventory levels, there were 378,000 new homes for sale at the end of August. While this is up 1.5% from July, it is down 24% when compared to August of last year.

The median home price was reported at $391,000, which is 20% higher year over year. Again, this means that half the homes sold were above this level and half below it. This figure is not the same as appreciation.

 

Builder Confidence Inches Higher

The National Association of Home Builders Housing Market Index, which is a real-time read on builder confidence, came in above expectations, rising one point to 76 in September.

Looking at the components of the index, current sales conditions rose 1 point to 82, sales expectations for the next six months were unchanged at 81, and buyer traffic rose 2 points to 61.

Any reading over 50 on this index, which runs from 0 to 100, signals expansion. The drop in lumber prices and stabilization of other prices contributed to the increase in confidence. However, delivery times for new homes still remain extended due to ongoing supply chain issues. Labor shortages are also expected to persist.

D.R. Horton, America’s largest homebuilder, said that it “expects its homes closed for the fourth quarter of fiscal 2021 to be in a range of 21,300 homes to 21,700 homes compared to the previous range of 23,000 homes to 24,500 homes, due to continuing significant disruptions in the supply chain, including shortages and delivery delays in certain building materials along with tightness in the labor market.”

In other words, they are expecting to complete 10% less homes than previously forecast, which speaks to supply remaining tight.

 

Single-Family Starts Decline

Housing Starts, which measure the start of construction on homes, rose 4% in August at an annualized pace of 1.6 million homes. This is 17.4% higher than August of last year. However, starts for single-family homes, which are the most crucial, fell nearly 3% at a 1.1 million pace.

Building Permits, which are a good forward-looking indicator of construction, rose 6% in August and 13.5% year over year. Single-family Permits did tick higher, but only by 0.6%.

Housing Completions, which speak to delivery times being delayed, were down 4.5% in August, though completions on single-family homes rose nearly 3%. However, the number of single-family houses permitted but not even started yet is up 50% from last year.

So, what is the data telling us?

Overall Housing Starts were higher in August but starts for single-family homes fell, while single-family permits were essentially flat. Builders are having a difficult time completing homes, which shows that the supply issues we are facing are going to continue. With demand remaining strong, all of these factors point to the likelihood that homes will continue to appreciate.

 

Big Decline in COVID Plan Jobless Claims

The number of people filing for unemployment for the first time rose by 16,000 in the latest week, as Initial Jobless Claims were reported at 351,000. Continuing Claims, which measure people who continue to receive regular benefits, also increased by 131,000 to 2.85 million, bouncing off pandemic-era lows.

While these figures moved in the wrong direction, the big story is that the COVID-enacted plans saw significant improvements. Pandemic Unemployment Assistance Claims (which provide benefits to people who would not usually qualify) and Pandemic Emergency Claims (which extend benefits after regular benefits expire) fell by a combined 752,000.

As of the latest reporting, 11 million people are still receiving benefits throughout all programs, which is down 856,000 from the previous report.

 

Is a November Taper Announcement Ahead?

Last week’s Fed meeting was especially significant, as they have been under a lot of pressure to reduce their monthly purchases of Treasuries ($80 billion/month) and Mortgage-Backed Securities ($40 billion/month) that were enacted to keep rates low and aid the recovery.

The Fed has said they want to wait before tapering, or reducing, their purchases until inflation reaches their goal of 2% and there is “substantial further progress” towards maximum employment.

The Fed has previously said that its target for inflation (which is currently reported at between 4.2% to 5.3% depending on if you are looking at Personal Consumption Expenditures or the Consumer Price Index) has clearly already been met.

The Fed did not make any announcement regarding tapering at last week’s meeting, saying in their Monetary Policy Statement, “If progress continues broadly as expected, the committee judges that a moderation in the pace of asset purchases may soon be warranted.”

Yet, in his press conference following the meeting, Fed Chair Jerome Powell said that he felt that the Fed’s goal of maximum employment is all but met and that he doesn’t need to see an extremely strong jobs report for September (which will be released October 8) to taper. This likely means that, barring any huge economic developments, the Fed will likely announce tapering at their November 3 meeting and may begin reducing their purchases in December, before the end of the year.

Once the Fed begins tapering, they are expected to reduce their purchases by $15 billion per month. This would mean that if they began tapering in December, they would be done with their purchases by the end of June 2022. But in that time period, they would still buy an additional $660 billion in Bonds, which is $60 billion more than they bought during all of the QE2 program they used to help us get out of the 2007 to 2008 recession.

In other words, the Fed’s policy should remain very accommodative for a long period of time.

Regarding inflation, the Fed affirmed their continued stance that much of the increase we have seen is “transitory” due to temporary bottlenecks in supply chains. The Fed has been increasing their inflation expectations throughout this year, but they expect inflation to drop to 2.2% next year.

While some of the increase in inflation may be due to these transitory factors, we have also seen wage-pressured inflation, which tends to be stickier. In addition, there is anecdotal evidence from companies that supply chain issues may not be cleared up by next year, especially when it comes to shipping costs.

 

Family Hack of the Week

October is National Pumpkin Month and this Friday October 1 kicks things off with National Pumpkin Spice Day. This delicious Pumpkin Spice Cake courtesy of our friends at Allrecipes is the perfect way to enjoy the occasion.

Preheat oven to 350 degrees Fahrenheit. Grease and flour a 10-inch Bundt pan. Sift together 3 cups all-purpose flour, 2 teaspoons baking soda, 1 teaspoon salt, 3 1/2 teaspoons cinnamon, 1 teaspoon nutmeg, 1/2 teaspoon allspice, and 1/2 teaspoon ground ginger. Set aside.

In a large bowl, cream together 1 1/4 cups butter, 2 eggs (beaten), 1 cup packed brown sugar and 1 1/4 cups white sugar until light and fluffy. Beat in 1 15-ounce can pumpkin puree. Beat in the flour mixture. Stir in 1/2 cup chopped pecans. Pour batter into the prepared Bundt pan.

Bake for 60 to 65 minutes or until a toothpick inserted into the center of the cake comes out clean. Let cool in the pan for 10 minutes, then turn out onto a wire rack and cool completely before enjoying.

 

What to Look for This Week

More housing news follows this week, starting with an update on home price appreciation on Tuesday via July’s Case-Shiller Home Price Index and the Federal Housing Finance Agency (FHFA) House Price Index. Pending Home Sales for August will also be reported on Wednesday.

Also of note, Durable Goods Orders for August will be reported on Monday, while Thursday brings the final estimate on second quarter Gross Domestic Product and the latest Jobless Claims figures.

Important inflation news ends the week Friday when the Fed’s favored measure, Personal Consumption Expenditures is reported for August, along with Personal Income and Spending.

 

Technical Picture

After testing support at the 100.133 Fibonacci level, Mortgage Bonds were able to bounce higher and ended last week trading in the middle of a wide range. The 10-year has broken above its 100-day Moving Average and is now trading around 1.45%. There is room for yields to continue higher until reaching 1.49%.

 

Todd Abelson - Tucson Mortgages

Tucson Mortgages Home Loan News 9-20-2021

By Todd Abelson NMLS #180858 on .

Week of September 13, 2021 in Review

The economic calendar was relatively quiet, but news on consumer inflation, housing, jobless claims and retail sales made headlines.

Consumer inflation as measured by the Consumer Price Index (CPI) rose by 0.3% in August, which was in line with expectations. The year over year reading moderated slightly from 5.4% to 5.3%. Core CPI, which strips out volatile food and energy prices, rose by 0.1%, though this was lower than expectations. On a year over year basis, Core CPI decreased from 4.3% to 4%.

Inflation is critical to monitor because rising inflation reduces a Bond’s fixed rate of return. In other words, inflation can cause Mortgage Bonds to worsen or lose value and the home loan rates tied to them to rise. Does the decline in the annual CPI readings indicate that further decreases in inflation are ahead? Read on for important analysis about this.

In housing news, Zillow’s Rental Index report showed that rents rose 1.7% in August and 11.5% year over year. Zillow also said that home prices rose 1.8% in August and 17.7% year over year. They reported that inventory, although trending higher month over month, is still down 23% annually. Zillow also forecast that home values will grow nearly 12% over the next 12 months, which is very strong.

The ongoing dynamic of high demand and low inventory of homes has been a major factor in the rise in rental and home prices. Some people have wondered if the number of homes that will be leaving forbearance this fall will have an impact on inventory, as millions of homeowners paused or lowered their mortgage payments by entering forbearance during the pandemic in an effort to avoid foreclosure. We breakdown some important numbers about this below.

Initial Jobless Claims did tick higher in the latest week, as the number of people filing for unemployment benefits for the first time rose 20,000 to 332,000. While this was a move in the wrong direction, claims are getting closer to pre-pandemic levels of 180,000 to 200,000 new claims each week. In addition, the number of people continuing to receive regular benefits declined to a pandemic era low.

In other news, shoppers were out in droves last month as Retail Sales were much stronger than anticipated, rising 0.7% from July to August versus the expected 0.8% decrease. When stripping out car sales, which have been hindered by the ongoing chip shortage, sales rose 1.8%. However, sales in July were revised lower from a loss of 1.1% to a loss of 1.8%.

Lastly, there was positive news from the manufacturing sector, as regional reports for both New York and Philadelphia beat expectations in September. It will be important to see if these reports signal continued expansion or if ongoing supply chain issues will remain a headwind.

 

Moderating Inflation Start of a Trend?

The Consumer Price Index (CPI), which measures inflation on the consumer level, rose by 0.3% in August and was in line with expectations. The year over year reading moderated slightly from 5.4% to 5.3%.

Core CPI, which strips out volatile food and energy prices, rose by 0.1%, though this was lower than expectations. On a year over year basis, Core CPI decreased from 4.3% to 4%.

Within the report, rents rose 0.3% in August and 2.1% on a year over year basis. However, the CPI report is not capturing the increases we are seeing in rents that are being reported elsewhere showing around 2% increases in August and up double digit increases year over year, such as the data from Zillow below. We may see some catch up in this CPI data in future months but for now the reporting is being dragged down by their methodology.

One of the main questions about the August CPI numbers is whether this slight moderation in inflation is a sign that inflation will continue to fall in the months ahead?

Remember that to calculate year-over-year inflation, the readings for the more current months replace the older readings from 2020 (for e.g., the readings for August 2021 replaced the readings for August 2020). The monthly reading for August 2020 for both headline and Core CPI was 0.4%. It was replaced by 0.3% for headline CPI and 0.1% for Core CPI from this August, which is why both annual readings in August declined.

However, the next several readings from 2020 were much lower, so if we continue to see monthly increases going forward this fall, the year over year CPI figures could start to accelerate again.

On a related note, the National Federation of Independent Business Small Business Optimism Index showed that companies that expect higher selling prices rose 3 points to 49%, which is a 41-year high. This points to continued inflation from small businesses.

 

Rents On the Rise

Zillow released their Rental Index report, showing that rents rose 1.7% in August and 11.5% year over year. Zillow also said that home prices rose 1.8% in August and 17.7% from the same time last year. They forecast that home values will grow nearly 12% over the next 12 months, which is very strong.

Zillow also reported that although inventory is trending higher month over month, it is still down 23% from August of last year.

While some pundits have predicted that a lot of inventory will hit the market due to homes leaving forbearance this fall, it’s important to really analyze the numbers.

Initially about 5 million entered forbearance and of those who exited thus far:

  • 23% are now current
  • 13% made a lump sum reinstatement payment to bring their account current
  • 7% paid off loans through forbearance or a home sale (with no issues selling homes in this market)
  • 28% have deferral plans or partial claims
  • 12% exited forbearance into a loan modification
  • 16% cancelled without a loss mitigation (in process of modification or still need to be reached)
  • Only 0.65% of exits to date have been into other resolutions which include short sales

 

Currently, there are around 1.5 million still in forbearance. If the above numbers continued, this would mean that only around 2,400 homes would go into some type of short sale or foreclosure. Given the record low inventory of homes currently on the market, this amount would be easily absorbed without having much of an impact on rising rental or home prices.

 

Initial Jobless Claims Tick Higher

Initial Jobless Claims rose by 20,000 in the latest week, as the number of people filing for unemployment benefits for the first time was reported at 332,000. While this was a move in the wrong direction, claims are getting closer to pre-pandemic levels of 180,000 to 200,000 new claims each week.

Continuing Claims, which measure people continuing to receive regular benefits, did reach a pandemic-era low, declining 187,000 to 2.67 million.

The number of people receiving the extended $300 benefits decreased by 212,000. However, Pandemic Unemployment Assistance Claims (which provide benefits to people who would not usually qualify) and Pandemic Emergency Claims (which extend benefits after regular benefits expire), rose by a combined 397,000.

As of this latest report, 12 million people are still receiving benefits throughout all programs, which is up 179,000 from the previous report. Remember that although the extra and pandemic-specific benefits expired on Labor Day, the metrics within this report are delayed by one to three weeks, so we won’t see the impact of the expiration for a few weeks.

 

Family Hack of the Week

This Wednesday, September 22 is National Ice Cream Cone Day. Try your hand at making your own cones with this easy recipe from our friends at Allrecipes, sure to be a hit with friends and family alike.

In a large bowl, whisk together 2 eggs and 1/2 cup sugar until frothy. Whisk in 1/4 cup butter (melted and cooled), 3 tablespoons milk and 1/2 teaspoon pure vanilla extract. Gradually whisk in 1/3 cup all-purpose flour and 1/8 teaspoon salt until smooth. The batter should be thin; stir in more milk if needed.

Heat a small skillet or griddle over medium heat. Brush the pan lightly with vegetable oil. Pour about 1/4 cup of batter onto the skillet and turn so the batter spreads into a thin circle. When the underside is golden brown, flip over and cook until golden on the other side.

Remove from the pan and form into a cone while it’s hot. Squeeze the end to seal. Place on a wire rack to cool and harden completely. Repeat with the remaining batter.

Enjoy with your favorite ice cream. And as an added bonus, extras can be stored in an airtight container and re-crisped in the oven at 400 degrees Fahrenheit.

 

What to Look for This Week

Housing news will dominate this week’s economic calendar, beginning Monday with the National Association of Home Builders Housing Market Index, which will provide an update on builder confidence for September.

On Tuesday, we’ll get an update on Housing Starts and Building Permits for August. On Wednesday, August Existing Home Sales will be reported while New Home Sales follows on Friday.

The latest Jobless Claims data will be reported as usual on Thursday.

Investors will also be watching Tuesday’s 20-year Bond auction for the level of demand, while the Fed will also be making headlines with Wednesday’s press conference and Monetary Policy Statement following their two-day FOMC meeting.

 

Technical Picture

After breaking beneath their 100-day Moving Average last Thursday, Mortgage Bonds moved lower Friday where they tested an important floor of support at the 100.863 Fibonacci level and then rebounded higher. The 10-year tested the 1.37% ceiling and then bounced lower and is battling with its 200-day Moving Average.

 

Todd Abelson - Tucson Mortgages

Tucson Mortgages Home Loan News 9-13-2021

By Todd Abelson NMLS #180858 on .

Week of September 6, 2021 in Review

Wholesale inflation set a new record high while home price appreciation also remains red hot. Over in the labor sector, Initial Jobless Claims reached their lowest level since the start of the pandemic.

The Producer Price Index (PPI) showed that wholesale inflation rose 0.7% in August and 8.3% on a year over year basis. The annual reading was up from 7.8% in July and is a new record high. Core PPI, which strips out volatile food and energy prices, was also hotter on an annual basis than economists had forecasted. Inflation is critical to monitor because rising inflation can have a big impact on Mortgage Bonds and the home loan rates tied to them. See our important explanation about this below.

Hot home prices matched the hot temperatures in July, with prices up 1.8% from June and 18% year over year, per CoreLogic’s Home Price Index. This is an increase from the 17.2% annual gain reported in June.

The ongoing dynamic of low supply and high demand for homes around the country has been a key reason that home prices have appreciated. There was some good news related to this in the recent Jobs Report for August from the Bureau of Labor Statistics. Residential construction employment grew by 17,400 in August, which will likely help builders tackle their current backlogs of orders and may help the supply of new homes, which is desperately needed.

In other employment news, Initial Jobless Claims fell by 35,000 in the latest week, as the number of people filing for benefits for the first time was reported at 310,000 – the lowest level since the pandemic began. The number of people continuing to receive regular benefits also reached a pandemic era low.

All told, 11.9 million people are still receiving benefits throughout all programs, which is 256,000 less than the previous report. Note that extended and pandemic-related benefits expired on Labor Day. This should be reflected in reporting that starts in two weeks, given the delay in the metrics for this data.

Lastly, investors were closely watching Wednesday’s 10-year Treasury Note auction and Thursday’s 30-year Bond auction to see the level of demand. Find out the results below.

 

Wholesale Inflation Sets a Record High

The Producer Price Index (PPI), which measures inflation on the wholesale level, rose 0.7% in August and 8.3% on a year over year basis. The annual reading was up from 7.8% in July and is a new record high.

Core PPI, which strips out volatile food and energy prices, rose 0.6% in August and 6.7% on a year over year basis. This was hotter than expectations and up from 6.6% in July.

Rising inflation is always important to monitor because inflation erodes a Bond’s fixed rate of return. In other words, rising inflation can cause Bonds to worsen or lose value. This includes Mortgage Bonds, to which home loan rates are inversely tied. When Mortgage Bonds move lower, be it due to rising inflation or other reasons, home loan rates can move higher.

Though many factors influence the markets, inflation – and whether it continues to rise –remains crucial to monitor in the months ahead.

The Fed continues to stand by their position that the increase we have seen in inflation is transitory. However, we have seen wages continue to rise as well, which is typically stickier inflation. The Atlanta Fed’s Wage Growth Tracker, which has been lagging other reports regarding wage growth, showed a 3.9% annual increase in August. This matches the quickest pace of wage gains since 2008.

The increase in wages and inflation are going to be components the Fed has to keep in mind when deciding when to taper their purchases of Mortgage Backed Securities and Treasures, which have been ongoing to help stabilize the markets. The weak August Jobs Report and the Delta variant could also impact the Fed’s timing, possibly leading to a delay.

 

Appreciation Continues to Accelerate

CoreLogic released their Home Price Index report for July, showing that home prices rose by 1.8% from June and 18% year over year, which is an increase from the 17.2% annual gain reported in June.

Within the report, the hottest markets were Phoenix (+30%), San Diego (+24%) and Las Vegas (+21%).

A key reason for the rise in home prices has been the ongoing dynamic of low supply and high demand for homes around the country. There was some good news related to this in the recent Jobs Report for August from the Bureau of Labor Statistics. Residential construction employment grew by 17,400 in August, which will likely help builders tackle their current backlogs of orders and may help the supply of new homes, which is desperately needed. Residential building employment is now up 5% above pre-pandemic levels.

CoreLogic forecasts that home prices will rise 0.7% in August and 2.7% in the year going forward. But remember they remain conservative in their forecasting and continue to miss on the low side. For example, CoreLogic had forecasted prices for July would only rise by 0.7% and prices ended up increasing by 1.8%. On an annual basis, they are forecasting that prices will rise 2.7%, which is lower than their 3.2% annual forecast in June and lower than most other forecasts that have been made.

 

Initial Jobless Claims Hit Another Pandemic Era Low

The number of people filing for unemployment benefits for the first time fell 35,000 in the latest week, as Initial Jobless Claims were reported at 310,000. This is the lowest level of first-time filers since the pandemic began. California (+62K), Texas (+19K) and New York (+15K) reported the largest number of claims.

Continuing Claims also fell 22,000 to 2.8 million. This brought the number of people continuing to receive regular benefits to a new Covid-era low after the upward revision to the previous report.

The number of people receiving the extended $300 benefits increased nearly 200,000. However, Pandemic Unemployment Assistance Claims (which provide benefits to people who would not usually qualify) and Pandemic Emergency Claims (which extend benefits after regular benefits expire) fell by a combined 315,000.

Note that while the extended and pandemic benefits expired on Labor Day, the metrics within the Jobless Claims report are delayed, meaning we won’t see the impact of this expiration until we see the report in two weeks.

As of the latest reporting, 11.9 million people are still receiving benefits throughout all programs, which is 256,000 less than the previous report.

On a related note, the JOLTS (Job Openings and Labor Turnover Survey) showed that there were almost 11 million job openings in July. It will be important to see if the start of the school year and the end of extended and pandemic benefits will result in some of these positions being filled. It’s estimated that 7.5 million people have lost all their unemployment benefits, while another 3 million will no longer receive the extra $300 due to the expiration of these programs.

The lack of workers almost certainly played a role in the disappointing August Jobs Report from the Bureau of Labor Statistics, with just 235,000 new jobs reported – far below the 750,000 expected. In addition to the 11 million job openings reported via JOLTS, the National Federation of Independent Business recently reported that plans to hire and positions not able to fill both hit a 48-year record. Compensation was also at a 48-year high, as business are trying to attract workers.

 

Note and Bond Auctions Have Strong Results

Investors were closely watching Wednesday’s 10-year Treasury Note auction and Thursday’s 30-year Bond auction to see the level of demand. High demand, which is reflected in the purchasing of Bonds and Treasuries, can push prices higher and yields or rates lower.

Weak demand, on the other hand, can signal that investors think yields will continue to move higher, which can have a negative effect on rates.

The 10-Year Treasury Note auction was met with strong demand. The bid to cover of 2.59 was better than the one-year average of 2.42. Direct and indirect bidders took 87.7% of the auction compared to 78.4% in the previous 12. The 30-year Bond auction was also met with above average demand. The bid to cover of 2.49 was above the one-year average of 2.31. Direct and indirect bidders took 86.9% of the auction compared to 80.5% in the previous 12.

 

Family Hack of the Week

Fall flavors are some of the most delicious to bake with, and these Apple Strudel Muffins from our friends at Allrecipes are a great addition to any menu.

Preheat oven to 375 degrees Fahrenheit. Grease a 12-cup muffin pan or spray with nonstick baking spray.

Mix 2 cups all-purpose flour, 1 teaspoon baking powder, 1/2 teaspoon baking soda and 1/2 teaspoon salt in a medium bowl.

Separately, beat together 1/2 cup butter, 1 cup sugar and 2 eggs in a large bowl until smooth. Mix in 1 1/4 teaspoons vanilla and then stir in 1 1/2 cups chopped Granny Smith apples. Gradually blend in the flour mixture and then spoon the mixture into the prepared muffin pan.

In a small bowl, mix 1/3 cup packed brown sugar, 1 tablespoon flour and 1/8 teaspoon cinnamon. Cut in 1 tablespoon of butter until mixture resembles coarse crumbs. Sprinkle over tops of mixture in muffin pan.

Bake for 20 minutes or until a toothpick inserted in the center of a muffin comes out clean. Let muffins sit for 5 minutes before removing from pan. Cool on a wire rack and enjoy!

 

What to Look for This Week

More inflation news follows this week on Tuesday, when the Consumer Price Index for August is released. We’ll also get an update Tuesday on how small businesses were feeling in August via the National Federation of Independent Business Small Business Optimism Index.

The markets will also be watching for the latest news on regional manufacturing when September’s Empire State Index (which measures the New York region) and Philadelphia Fed Index are released Wednesday and Thursday, respectively.

Also on Thursday, the latest Jobless Claims figures will be reported along with August’s Retail Sales data.

 

Technical Picture

Mortgage Bonds ended last week battling their 25-day Moving Average. If they break below this level, the next floor of support is their 100-day Moving Average. The 10-year is testing resistance at its 200-day Moving Average, which will hopefully keep a lid on yields.

 

Todd Abelson - Tucson Mortgages

Tucson Mortgages Home Loan News 9-7-2021

By Todd Abelson NMLS #180858 on .

Week of August 30, 2021 in Review

August brought disappointing news from the labor sector, as job growth was much lower than expected. Meanwhile, home price appreciation continues at a record setting pace.

Just 235,000 jobs were created in August, the Bureau of Labor Statistics (BLS) reported, which was much lower than expectations of 750,000 new jobs. However, positive revisions to the data for June and July adding 134,000 new jobs in those months combined took some of the sting out of the disappointing news. The Unemployment Rate fell from 5.4% to 5.2% but an increase may be ahead, as explained below.

Private sector job creations were also much lower than expected in August. The ADP Employment Report showed a gain of 374,000 jobs, coming in below the expected 500,000 to 600,000 new jobs. Job gains were reported across all sizes of business, with leisure and hospitality jobs again showing a large increase as businesses open and people are traveling more.

On a positive note, Initial and Continuing Jobless Claims both reached post-pandemic lows in the latest week, reported at 340,000 and 2.7 million, respectively. All in all, 12.2 million people are still receiving benefits throughout all programs. With the extra benefits expiring this week, these figures are expected to improve even further in the coming months.

The low supply of existing homes remained a challenge for buyers around the country in July, as evidenced by the 1.8% drop in Pending Home Sales (which measure signed contracts). Lawrence Yun, chief economist for the National Association of Realtors, explained that there is still not enough supply to match demand, but inventory is slowly increasing and he expects that buyers should have more options in the coming months.

The low supply and high demand for home has helped home prices continue to appreciate. The Case-Shiller Home Price Index showed that prices rose 2.2% from May to June and they were up a record 18.6% annually in June. The Federal Housing Finance Agency (FHFA), which measures home price appreciation on single-family homes with conforming loan amounts, also came in strong. It showed that home prices rose 1.6% from May to June and 18.8% year over year.

And that’s not all. Rents are also rising at a feverish pace. Apartment List reported that rents rose 2.1% in August and a staggering 13.8% year to date. This is the fastest rent growth on record and is on a 20% pace if these increases continue.

 

August Job Creations Much Lower Than Expected

The Bureau of Labor Statistics (BLS) reported that there were 235,000 jobs created in August, which was much weaker than the 750,000 new jobs that were expected. However, there were positive revisions to that data for June and July, adding 134,000 new jobs created in those months combined.

It’s important to understand that there are two reports within the Jobs Report and there is a fundamental difference between them. The Business Survey is where the headline job number comes from and it’s based predominately on modeling.

The Household Survey, where the Unemployment Rate comes from, is done by actual phone calls to 60,000 homes. The Household Survey also has a job loss or creation component, and it showed there were 509,000 job creations, while the labor force increased by 190,000. The number of unemployed people decreased by 318,000, causing the Unemployment Rate to fall from 5.4% to 5.2%.

However, the true Unemployment Rate is higher than the headline figure. There is an ongoing misclassification error where people were classified absent from work for other reasons and not marked as unemployed on temporary layoff when they should have been. When we factor this into the calculations, the Unemployment Rate should have been around 0.3% higher, putting it closer to 5.5%.

In addition, there are 5.7 million people who have not looked for work in the last four weeks who are also not counted in the labor force or counted as unemployed. With extra benefits now expiring, some of these individuals are going to start looking for work again and will be counted in the calculations. This could actually cause the Unemployment Rate to move higher in the coming months until they find employment.

Wages were also on the rise. Average hourly earnings were up 0.6% from July to August and they also rose 4.3% year over year. Average weekly earnings, which we focus on more because it measures what people actually take home, also increased 0.6% month over month. Year over year, weekly earnings rose 4.6%, but if we extrapolate the last few months on a year over year basis, the increase in weekly earnings is closer to 7%, which is more indicative of what we are seeing.

 

Private Payrolls Also Disappoint

The ADP Employment Report, which measures private sector payrolls, showed that there were 374,000 jobs created in August, which was much lower than expectations of between 500,000 to 600,000 new jobs. Additionally, July’s report was revised lower by 4,000 jobs, bringing the total number of jobs created in July to 326,000.

The services sector again led the way with 329,000 job creations, with the bulk of these new jobs coming in the leisure and hospitality sector (+201,000). The goods producing sector increased by 45,000 jobs.

Job gains were reported across all sizes of businesses. Small businesses (1-49 employees) gained 86,000 jobs, mid-sized businesses (50-499 employees) gained 149,000 jobs, and large businesses (500 or more employees) gained 138,000 jobs.

 

Initial Jobless Claims Reach New Post-Pandemic Low

On a positive note, the number of people filing for unemployment for the first time reached a new post-pandemic low in the latest week, with Initial Jobless Claims dropping 14,000 to 340,000. California (+60K), Texas (+19K) and New York (+18K) reported the largest number of claims.

Continuing Claims fell 160,000 to 2.7 million, meaning the number of people continuing to receive regular benefits also reached a post-pandemic low.

The number of people receiving extended benefits decreased by 237,000. However, Pandemic Unemployment Assistance Claims (which provide benefits to people who would not usually qualify) and Pandemic Emergency Claims (which extend benefits after regular benefits expire) rose by a combined 414,000.

All in all, 12.2 million people are still receiving benefits throughout all programs, which is up 178,000 from the previous report. Remember that extra benefits expire this week, which should cause these figures to significantly improve in the coming months. Plus, as kids across the country return to school, many parents may be able to return to the labor force.

 

Record-High Home Price Appreciation

The Case-Shiller Home Price Index, which is considered the “gold standard” for appreciation, showed home prices rose 2.2% in June and 18.6% year over year. This annual reading set a record and is also almost 2% higher than the annual price gains seen in May.

The 20-city index rose 19% year over year, with almost all the cities showing strong gains. Phoenix (+29%), San Diego (+27%), and Seattle (+25%) continued to report the highest annual gains.

The Federal Housing Finance Agency (FHFA) also released their House Price Index, which measures home price appreciation on single-family homes with conforming loan amounts. While you can have a million-dollar home with a conforming loan amount, the report most likely represents lower-priced homes, where supply is tightest and demand is strongest.

Home price rose 1.6% in June and they were up 18.8% year over year, which is even higher than the 18% annual appreciation reported for May.

Rents are also rising at a feverish pace. Apartment List reported that rents rose 2.1% in August and 13.8% year to date. This is the fastest rent growth on record and is on a 20% pace if these increases continue.

 

Pending Home Sales Cool In July

Pending Home Sales, which measure signed contracts on existing homes, decreased by 1.8% in July, the National Association of Realtors (NAR) reported. This was slightly worse than expectations looking for a small gain. Contracts were also 8.5% lower on an annual basis.

NAR’s chief economist, Lawrence Yun, said that, “The market may be starting to cool slightly, but at the moment there is not enough supply to match the demand from would-be buyers.” However, he added that “inventory is slowly increasing and home shoppers should begin to see more options in the coming months.”

Also of note, 27% of buyers bypassed appraisal and inspection contingencies in July. This speaks to buyers hoping to accelerate the homebuying process, Yun explained.

 

Family Hack of the Week

If you’re a fan of football, kick off weekend is always an exciting one to look forward to. This Chicken Nachos recipe from our friends at Kitchn makes for delicious game day nosh.

Place a rack in the middle of the oven and heat to 425 degrees Fahrenheit. Line a rimmed baking sheet with aluminum foil.

Drain and rinse 1 can black beans and 1 can of sliced black olives (keep separate). Grate 12 ounces of sharp cheddar or Monterey jack cheese (about 3 cups) and set aside. Chop 1 Roma tomato and also set aside, then thinly slice 8 scallions and 1 small jalapeno pepper.

Shred 1 pound of cooked rotisserie chicken into a medium bowl. Add 1/2 cup of salsa and toss to combine.

In an even layer, add about 8 ounces of tortilla chips onto the prepared baking dish. Top with half of the chicken and salsa mixture and a handful of shredded cheese. Add another 8 ounces of chips, and then top with remaining chicken, cheese and black beans.

Bake the nachos until the cheese is melted and the chips are brown around the edges, approximately 8 minutes. Garnish with olives, jalapeno, tomato, scallions and a dollop of sour cream just before serving and enjoy!

 

What to Look for This Week

After the market closures on Monday in honor of Labor Day, the rest of the week ahead is relatively quiet but there are a few important reports to note.

On Tuesday we’ll get more news about home price appreciation when CoreLogic releases its Home Price Index for July. Thursday brings the latest Jobless Claims figures while on Friday we’ll receive an update on wholesale inflation via August’s Producer Price Index.

Investors will also be monitoring two important auctions ahead, namely the 10-year Note auction on Wednesday and the 30-year Bond auction on Thursday.

 

Technical Picture

Mortgage Bonds are trading in a range between support at the 100-day Moving Average and overhead resistance at the 50-day. The 10-year is trading near 1.33%, breaking above its 50-day Moving Average. The 200-day is nearby at 1.34% and should keep a lid on yields.

 

Todd Abelson - Tucson Mortgages

Tucson Mortgages Home Loan News 8-30-2021

By Todd Abelson NMLS #180858 on .

Week of August 23, 2021 in Review

Existing and New Home Sales both beat expectations in July. Consumer inflation also remains hot and Fed Chair Jerome Powell delivered some key remarks.

Sales of existing homes rose 2% from June to July, reaching an annual pace of 5.99 million units. Sales are also up 1.5% when compared to July of last year and are still at strong levels. Inventory is starting to increase, albeit slowly. There were 1.32 million homes for sale at the end of July. While this is up 7% from June, it is still 12% lower than the same time last year.

New Home Sales were also up 1% from June to July. While inventory remains tight, due in part to the cost, supply and labor challenges builders have been facing, it was up 4% from June’s report and 7% from May’s, so certainly a move in the right direction.

Consumer inflation remains red hot, per Personal Consumption Expenditures (PCE), which is the Fed’s favored measure of inflation. On an annual basis, PCE and Core PCE (which strips out volatile food and energy prices) reached the hottest readings in 21 and 20 years, respectively.

Inflation is critical to monitor because rising inflation can have a big impact on Mortgage Bonds and the home loan rates tied to them. See our important explanation about this below.

Initial Jobless Claims did tick slightly higher to 353,000 in the latest week, but the number of people filing for unemployment for the first time still remains near post-pandemic lows. Overall, 12 million people are still receiving benefits throughout all programs, which is up 182,000 from the previous report. Economists and the Fed will be closely watching this data in the coming weeks, when extended benefits expire nationwide in early September.

Also of note, the second reading on second quarter GDP rose slightly to 6.5%, up from 6.4%. While this is a strong number, it is much lower than the initial projections of 9%.

Lastly, Fed Chair Jerome Powell delivered some important remarks at the Fed’s virtual Jackson Hole meeting. Read on for the details.

 

Existing Home Sales Remain Rock Steady

Existing Home Sales, which measure closings on existing homes, rose 2% from June to July, reaching an annual pace of 5.99 million units. Sales were also up 1.5% when compared to July of last year and are still at strong levels.

Inventory is starting to increase, albeit slowly. There were 1.32 million homes for sale at the end of July. While this is up 7% from June, it is still 12% lower than the same time last year.

The median home price was reported at $359,900, which is 18% higher than July of last year. Though the media might report this otherwise, it’s really important to understand that the median home price is not the same as appreciation. It simply means half the homes sold were above that price and half were below it.

First-time homebuyers accounted for 30% of sales, which is down from 31% in June. Cash buyers remained stable at 23% but this figure is still up big from just 16% last July. Investors purchased 15% of homes, up from 14% in the previous month.

What does this data suggest? Investors may be crowding out first-time homebuyers, as they are likely purchasing lower-priced homes that they can then rent out.

 

New Home Sales Nudge Higher

New Home Sales, which measure signed contracts on new homes, came in stronger than expectations. Sales rose 1% from June to July, reaching an annualized pace of 708,000. While this amount is down on a year-over-year basis given the spike in sales due to the pandemic last year, it’s not much lower than when sales were at a more normalized level pre-Covid.

Looking at inventory levels, there were 367,000 new homes for sale at the end of July. While this is still very tight, it is up 4% from June’s report and 7% from May, so certainly a move in the right direction.

The median home price was reported at $390,000, which is 18% higher than July of last year. As noted above, the median home price is not the same as appreciation but simply means half the homes sold were above that price and half were below it.

The increase in the median home price speaks to the difficulties builders are having with putting up lower-priced homes. Looking at the mix of sales, there were big increases in the number of sales on the higher end, which dragged the median home price higher.

 

Fed Talks Inflation and Tapering

Fed Chair Jerome Powell delivered remarks at the Fed’s virtual Jackson Hole meeting. In terms of the Fed’s dual mandate of price stability and maximum employment, he stated that “substantial further progress” has been met for inflation and that there has been clear progress toward maximum employment.

Powell also maintained his stance that inflation is temporary and found largely in a narrow group of goods and services impacted by the pandemic.

Powell noted that the Fed could begin tapering its ongoing purchases of Mortgage Backed Securities (MBS) and Treasures this year. Referencing the Fed’s July meeting, Powell said, “I was of the view, as were most participants, that if the economy evolved broadly as anticipated, it could be appropriate to start reducing the pace of asset purchases this year.”

He explained, “The intervening month has brought more progress in the form of a strong employment report for July, but also the further spread of the delta variant. We will be carefully assessing incoming data and the evolving risks.”

 

Inflation Remains Hot

Speaking of the Fed, their favored measure of inflation, Personal Consumption Expenditures (PCE), showed that headline inflation was up 0.4% in July, which was in line with expectations. However, on an annual basis, the index rose from 4% to 4.2% – the hottest reading in 21 years.

Core PCE, which strips out food and energy prices and is the Fed’s real focus, was up 0.3% in July. Year over year, the reading remained at 3.6% after the higher revision to the previous report, bringing it to the hottest reading in 20 years.

Rising inflation is always important to note since inflation erodes a Bond’s fixed rate of return. In other words, rising inflation can cause Bonds to worsen or lose value. This includes Mortgage Bonds, to which home loan rates are inversely tied. When Mortgage Bonds move lower, be it due to rising inflation or other reasons, home loan rates can move higher.

Though many factors influence the markets, inflation (and whether the rise is in fact transitory as the Fed maintains) remains crucial to monitor in the months ahead.

 

Initial Jobless Claims Tick Higher

The number of people filing for unemployment benefits for the first time rose slightly to 353,000 in the latest week, but this is still hovering near the post-pandemic low set in the previous report. California (+67K), Illinois (+22K), and Texas (+19K) reported the largest number of claims.

The number of people continuing to receive regular benefits moved marginally lower to 2.86 million while the number of people receiving extended benefits increased by 173,000.

Pandemic Unemployment Assistance Claims (which provide benefits to people who would not usually qualify) and Pandemic Emergency Claims (which extend benefits after regular benefits expire) were up by a combined 53,000.

All told, 12 million people are still receiving benefits throughout all programs, which is up 182,000 from the previous report. This data will be important to monitor in the coming weeks, when extended benefits expire nationwide in early September.

 

Family Hack of the Week

Planning a picnic or barbecue this Labor Day weekend? This recipe for Italian Pasta Salad from our friends at Delish makes the perfect side for either occasion.

Cook one 16-ounce package of fusilli pasta according to the package instructions. In a large bowl, toss together the pasta, 8 ounces of mozzarella balls (halved), 4 ounces salami (quartered), 2 cups of baby spinach, 1 cup of cherry tomatoes (halved), 1 cup artichoke hearts (chopped), and 1/2 cup pitted black olives (sliced).

Next make the dressing by adding 1/3 cup extra-virgin olive oil, 2 tablespoons red wine vinegar, 1 garlic clove (minced), 2 teaspoons Italian seasoning, 1 tablespoon chopped parsley, and a pinch of red pepper flakes to a jar. Secure with a lid then shake to combine. Season with salt and pepper to taste.

Pour dressing over pasta, toss to combine and serve. The dressing can also be made ahead of time for added flavor.

 

What to Look for This Week

Housing news kicks off the week Monday when Pending Home Sales for July are reported. We’ll also get an update on home price appreciation on Tuesday via June’s Case-Shiller Home Price Index and the Federal Housing Finance Agency (FHFA) House Price Index.

Tuesday also brings an update on regional manufacturing when the Chicago PMI for August is delivered, while the ISM Index will be reported on Wednesday.

Key labor sector reports begin on Wednesday when the ADP Employment Report will give us an update on private payrolls for August. The latest Jobless Claims data will be reported as usual on Thursday, while Friday brings the highly anticipated Bureau of Labor Statistics Jobs Report for August, which includes Non-farm Payrolls and the Unemployment Rate.

 

Technical Picture

After some initial volatility, Mortgage Bonds moved sharply higher following Fed Chair Jerome Powell’s dovish comments Friday morning. Mortgage Bonds ended the week battling with their 50-day Moving Average and if they’re able to break through, their next ceiling of resistance is at the 101.45 Fibonacci Level. The 10-year broke beneath its 50 and 200-day Moving Averages and has some room until support at the 25-day Moving Average.

 

Todd Abelson - Tucson Mortgages

Tucson Mortgages Home Loan News 8-23-2021

By Todd Abelson NMLS #180858 on .

Week of August 16, 2021 in Review

July’s Housing Starts reached their weakest level since April, while supply chain bottlenecks continue to impact builders. Initial Jobless Claims hit a post-pandemic low, while Fed chatter about tapering continues.

Housing Starts fell 7% in July, which was well short of expectations. More importantly, starts for single-family homes also dropped 4.5%. Building Permits, which are a good forward-looking indicator of construction, did rise 2.6% overall but permits for single-family homes declined. This lack of Housing Starts and Building Permits is a strong sign that tight supply will continue, which will be supportive of home prices.

Higher construction costs and supply shortages have impacted builder confidence, which fell 5 points to 75 in August per the National Association of Home Builders (NAHB) Housing Market Index. However, it’s important to note that any reading above 50 signals expansion and 75 is still a strong level. In addition, the late summer months are historically a bit slower when it comes to the housing sector due to seasonality issues and families not wanting to move at the start of the school year.

There was good news from the labor sector, as the number of people filing for unemployment benefits for the first time reached a post-pandemic low of 348,000 Initial Jobless Claims in the latest week. The number of continuing and pandemic-related claims also declined. There are now 11.7 million individuals who are still receiving benefits throughout all programs, which is down 312,000 from the previous report.

In other news, Retail Sales disappointed in July, falling by 1.1%, which was lower than the expected 0.2% decrease. Regional manufacturing via the Empire State Index and Philadelphia Fed Index also missed expectations in August, due in part to ongoing supply chain issues. However, last week’s 20-year Bond Auction was in line with expectations.

Lastly, chatter from the Fed continues regarding the timing of tapering their purchases of Mortgage Backed Securities and Treasuries, which have been ongoing to stabilize the markets. Read on for the scoop.

 

Housing Starts Drop to Weakest Level Since April

Housing Starts, which measure the start of construction on homes, fell 7% in July, which was well short of expectations. More importantly, starts for single-family homes also dropped 4.5%.

Building Permits, which are a good forward-looking indicator of construction, were up 2.6% overall. However, what we really need are permits for single-family homes, and they were down 1.7%.

Single-family homes authorized but not started were up nearly 1% in July and 56% year over year. This figure remains elevated and it reflects the delays due to supply bottlenecks, higher costs and labor issues.

The bottom line is the lack of Housing Starts and Building Permits means that tight supply will likely continue, which will be supportive of home prices.

On a related note, rents continue to rise per CoreLogic’s Single-Family Rent Index, which showed that rents were up 7.5% year over year in June. This is the fastest increase since 2005. High-priced rentals (which measure 125% or more of the median rent) were up almost 10%. Attached rentals were up 4.6%, while detached rentals (which have more space) were up 10.5%.

And speaking to the demand for homes, Redfin reported that the median days on the market for a home was 15 days in July, up slightly from 14 in June but still extremely strong. In addition, 60% of homes sold in bidding wars, which is still much higher than normal but this has cooled a bit from 66% in June. Redfin noted there was also an increase in supply, as listings increased 4% last month.

 

Builder Confidence Moves Lower But Still Strong

The National Association of Home Builders (NAHB) Housing Market Index, which measures builder confidence, fell 5 points to 75 in August.

Breaking down the components of the index, current sales conditions fell 5 points to 81, sales expectations for the next six months remained flat at 81, and buyer traffic declined 5 points to 60.

While the readings with the NAHB Housing Market Index have declined in recent months, it’s important to note that any reading above 50 signals expansion and 75 is still a strong level. In addition, the late summer months are historically a bit slower when it comes to the housing sector due to seasonality issues and families not wanting to move at the start of the school year.

Builders are also still dealing with elevated material costs due to supply bottlenecks. While lumber prices have come down, the aggregate residential material costs are up 13% from the beginning of the year.

NAHB chief economist, Robert Dietz, noted, “While the demographics and interest for home buying remain solid, higher costs and material access issues have resulted in lower levels of home building and even put a hold on some new home sales.” However, he does feel that “production bottlenecks should ease over the coming months and the market should return to more normal conditions.”

 

Initial Jobless Claims Reach Post-Pandemic Low

 The number of people filing for unemployment benefits for the first time fell to 348,000 in the latest week, as Initial Jobless Claims declined by nearly 30,000 from the previous report. California (+68K), Texas (+23K) and Illinois (+18K) reported the largest number of claims.

The number of people continuing to receive regular benefits declined as well, with Continuing Claims dropping by nearly 80,000 to 2.8 million.

Pandemic Unemployment Assistance Claims (which provide benefits to people who would not usually qualify) and Pandemic Emergency Claims (which extend benefits after regular benefits expire) also decreased by roughly 287,000 combined.

All in all, 11.7 million individuals are still receiving benefits throughout all programs, which is down 312,000 from the previous report. These declines seem to reflect the impact of states that have ended the extended benefits, and it’s likely these declines will continue once September comes and the extended benefits expire nationwide.

 

Taper Talk in Fed Minutes and Upcoming Meeting

The minutes from the Fed’s July 27-28 meeting were released and they showed that most participants judged it would be appropriate to start reducing their purchases of Mortgage Backed Securities (MBS) and Treasures this year if the economy were to evolve broadly as they anticipated. These purchases have been ongoing to help stabilize the markets.

The minutes noted that “substantial further progress” has been made on price stability and is also close to being satisfied on maximum employment. Some Fed members thought tapering should occur in the coming months, while others favored early 2022.

It’s important to keep in mind that these minutes are from the meeting that occurred in late July, before new inflation data and the July Jobs Report were released – and these reports showed continued inflation and robust job growth. Some of the opinions have since changed towards tapering sooner. We have seen some of the most dovish members, including Boston Fed President Eric Rosengren and Minneapolis Fed president Neel Kashkari, support tapering since the July meeting.

However, one factor that could delay tapering would be the development of the Delta variant’s impact on the economy.

This week’s Fed meeting at Jackson Hole, which begins on Thursday, could offer more clues on the Fed’s tapering timeline. It’s possible the Fed will wait to receive more data in the coming weeks and not announce a decision regarding tapering until their meeting on September 21-22.

Waiting until September will let them analyze another month of inflation data and the August Jobs Report that will be released on September 3. This timing will also let them review how the unemployment figures play out after the Labor Day expiration of extended benefits and how the economy performs in relation to the Delta variant.

Right now, 65% of economists believe the Fed will announce tapering in September. But remember, they have said many times that they are going to give plenty of advanced notice, meaning that even if they make an announcement in September, the actual tapering of their purchases may not happen until early 2022.

 

Family Hack of the Week

Plums are in season, and this refreshing recipe for Plum Swirl Ice Cream from our friends at PureWow is the perfect way to enjoy them – no ice cream maker required.

Heat 1 1/2 pounds of sliced and pitted plums and 1/2 cup of granulated sugar in a medium saucepan over low heat. Stir frequently to avoid scorching and cook for approximately 25 to 30 minutes, until the plums release their juices and break down completely. Transfer to a shallow baking dish to cool.

Whip 2 1/2 cups of cold heavy cream in the bowl of an electric mixer fitted with the whisk attachment. With the mixer running, slowly pour in one 14-ounce can sweetened condensed milk until combined.

Add a few dollops of the plum jam on the bottom of a 9-by-5-inch loaf pan. Add a layer of ice cream, using a silicone spatula to smooth it into an even layer. Repeat with dollops of the jam and layers of the ice cream until the pan is full.

Cover with a layer of parchment paper and place in the freezer to chill until scoopable, approximately 3 hours or overnight. And as an added bonus, this recipe should leave you with about 1 cup of extra plum jam, which can be stored in an airtight container in the refrigerator for up to a week.

 

What to Look for This Week

Housing news will once again make headlines, beginning Monday when July’s Existing Home Sales report is released. The data for New Home Sales in July follows Tuesday.

On Wednesday we’ll get an update on Durable Goods Orders for July while Thursday brings the second reading on second quarter GDP and the latest Jobless Claims figures.

Important inflation news ends the week when the Fed’s favorite measure, Personal Consumption Expenditures, is released for July, along with Personal Income and Spending.

And speaking of the Fed, their meeting at Jackson Hole begins on Thursday and the markets will be closely listening for commentary regarding the tapering of their purchases of Mortgage Backed Securities and Treasuries.

 

Technical Picture

Mortgage Bonds broke beneath support at the 50-day Moving Average as Stocks continued to rally on Friday. However, the 10-year ended last week below its 25-day Moving Average despite testing the level on Friday.

 

Todd Abelson - Tucson Mortgages

Tucson Mortgages Home Loan News 8-16-2021

By Todd Abelson NMLS #180858 on .

Week of August 9, 2021 in Review

Inflation remains elevated at both the consumer and wholesale levels, while Initial, Continuing and Pandemic Jobless Claims all showed nice declines.

Consumer inflation as measured by the Consumer Price Index (CPI) rose by 0.5% in July while the year over year reading remained at 5.4%, which is still the highest year over year increase in almost 13 years! Core CPI, which strips out volatile food and energy prices, rose 0.3%. Year over year, Core CPI did decrease from 4.5% to 4.3%, though it is coming off the hottest level in 29 years.

Wholesale inflation also moved higher per the Producer Price Index, which rose 1% in July and 7.8% on a year over year basis. The annual reading was up from 7.3% and much hotter than expectations. Core PPI was also hotter on an annual basis than economists had forecasted.

Inflation is critical to monitor because rising inflation can have a big impact on Mortgage Bonds and the home loan rates tied to them. See our important explanation about this below.

Initial Jobless Claims declined by 12,000 in the latest week, as the number of people filing for unemployment for the first time was reported at 375,000. The number of people continuing to receive regular benefits and pandemic-related benefits fell significantly as well. There are now 12 million people receiving benefits throughout all programs, which is a decrease of 920,000 from the previous report. This data does seem to reflect the impact of states that have already ended extended benefits.

On a related note, the JOLTS (Job Openings and Labor Turnover Survey) report showed that job openings were at a record high of 10 million in June while July’s National Federation of Independent Business (NFIB) Small Business Optimism survey showed that optimism moved lower due in part to the new COVID Delta variant, difficulty in filling positions, and higher prices.

However according to the NFIB data, compensation plans, which can help affordability in housing, are near record highs. Businesses have been passing those costs on to the consumer, with sales price expectations just off a 40-year high. This type of inflation may be stickier and not transitory.

The New York Fed also released its Survey of Consumer Expectations for July, showing that inflation expectations were unchanged at 4.8%. Participants also expect home prices to rise by 6% in the upcoming year, while rents are expected to increase by nearly 10%. A key takeaway is that while both rents and home values are increasing, rents can continue to rise each year while a mortgage payment will remain the same unless you have an Adjustable Rate Mortgage. And while taxes and insurance can rise modestly, this is typically miniscule compared to rental increases.

Lastly, investors were closely watching Wednesday’s 10-year Treasury Note Auction and Thursday’s 30-year Bond Auction, which ended up having differing results. Find out more below.

 

Consumer Inflation Remains Elevated

The Consumer Price Index (CPI), which measures inflation on the consumer level, rose by 0.5% in July, which was in line with expectations. The year over year reading remained at 5.4%, which is still the highest year over year increase in almost 13 years.

Core CPI, which strips out volatile food and energy prices, was up 0.3% though this was slightly lower than the 0.4% increase expected. On a year over year basis, Core CPI decreased from 4.5% to 4.3%, coming off the hottest level in 29 years.

Within the report, rents rose 0.2% in July, increasing by only 1.9% on a year over year basis. However, it’s important to note that the CPI report is not, at least for now, capturing the increases we are seeing in rents that are being reported elsewhere.

For reference, Apartment List showed that rents rose 2.5% in July and are up 11% just from January of this year. Plus, Zumper reported that rents rose 7% year over year in July for a one-bedroom and 9% for a two-bedroom, while single-family rental homes were up nearly 7% as well. We may see some catch up in future months from CPI regarding rents but remember their reporting of this data is dragged down by their methodology.

Rising inflation is always important to note since inflation erodes a Bond’s fixed rate of return. In other words, rising inflation can cause Bonds to worsen or lose value. This includes Mortgage Bonds, to which home loan rates are inversely tied. When Mortgage Bonds move lower, be it due to rising inflation or other reasons, home loan rates can move higher. Though many factors influence the markets, inflation remains crucial to monitor in the months ahead.

 

Wholesale Inflation Hotter Than Expectations

The Producer Price Index, which measures inflation on the wholesale level, rose 1% in July and 7.8% on a year over year basis. The annual reading was up from 7.3% and much hotter than expectations.

Core PPI, which again strips out volatile food and energy prices, rose 1% in July and 6.2% on a year over year basis. This was also much hotter than expectations and up from the 5.6% annual reading in the previous report.

Though the PPI report is important, it can sometimes be overlooked because it measures wholesale inflation, which isn’t always passed down to consumers. But with the latest numbers coming in so hot, will the Fed be inclined to more quickly taper its purchases of Mortgage Backed Securities and Treasures, which have been ongoing to help stabilize the markets?

Currently, 10 of the Federal Open Market Committee’s 18 members have now come out in favor of tapering, seven of whom are voting members. Whether this translates to actual votes in favor of tapering remains to be seen. We may get more clarity regarding what the Fed thinks about tapering and the timing for it at their Jackson Hole meeting on August 26-28.

 

Jobless Claims Continue to Decline

 The number of people filing for unemployment for the first time fell by 12,000, as Initial Jobless Claims were reported at 375,000 in the latest week. California (+68K), Texas (+30K) and Illinois (+21K) reported the largest number of claims.

The number of people continuing to receive regular benefits was down 114,000, with Continuing Claims totaling 2.87 million and remaining under 3 million for the second week in a row.

Pandemic Unemployment Assistance Claims (which provide benefits to people who would not usually qualify) and Pandemic Emergency Claims (which extend benefits after regular benefits expire) also decreased by 730,000 combined.

All told, 12 million individuals are still receiving benefits throughout all programs. This is a decrease of 920,000 from the previous report. It’s likely these figures will continue to improve once September comes and all of the extended benefits expire.

On a related note, the JOLTS (Job Openings and Labor Turnover Survey) report showed that job openings were at a record high of 10 million in June. Though the JOLTS report is for June while weekly claims are more real-time, it will be important to see if the number of job openings and jobless claims both decline in the coming months and especially come September once all states will be removing extra benefits. This could potentially alleviate some of the compensation pressures noted above that businesses are facing if so.

 

Auctions Have Mixed Results

Investors were closely watching Wednesday’s 10-year Treasury Note Auction and Thursday’s 30-year Bond Auction to see the level of demand. High demand, which is reflected in the purchasing of Bonds and Treasuries, can push prices higher and yields or rates lower.

Weak demand, on the other hand, can signal that investors think yields will continue to move higher, which can have a negative effect on rates.

Wednesday’s 10-year Treasury Note Auction was met with above average demand. The bid to cover of 2.65 was higher than the one-year average of 2.40. Direct and indirect bidders took 90.3% of the auction compared to 77.5% in the previous 12.

However, Thursday’s 30-year Bond Auction was met with below average demand. The bid to cover of 2.21 was below the one-year average of 2.30. Direct and indirect bidders took 81.7% of the auction compared to 79.6% in the previous 12.

 

Family Hack of the Week

Back to school season is here. These tips from our friends at Good Housekeeping will help you stay organized for the new year.

A shared calendar app can help you keep everyone’s schedules straight, while keeping track of key details like addresses, notes and directions. Consider also using a dry erase board for posting everyone’s big events for the week as well, which can be helpful at a glance during especially busy mornings.

Make mealtime easy by planning ahead for the week. A decorative chalkboard in your kitchen is a great way to list each night’s menu and you can invite your kids to post their ideas or requests as well. Noting when someone will be out for the evening will also help with shopping and planning.

Use an over the seat holder in your car to stash breakfast bars, snacks, tissues and other items that may come in handy in the drop-off line on days you’re running late. Other premade kits that may be helpful to store in your car include a tech kit for chargers and batteries, a first-aid kit with the basic essentials, and a school supply kit. And speaking of kits, save yourself any last-minute trips to the store during the year by keeping a school supply stash at home complete with markers, poster board, index cards and more.

 

What to Look for This Week

This week’s calendar contains key reports across a wide spectrum of the U.S. economy. We’ll get news regarding regional manufacturing in August, first on Monday with the Empire State Index, followed by the Philadelphia Fed Index on Thursday.

Tuesday brings the latest news on Retail Sales for July, as well as an update on builder confidence in August via the National Association of Home Builders Housing Market Index.

More housing news follows when July’s Housing Starts and Building Permits are reported on Wednesday. Plus, the minutes from the Fed’s July meeting will be released and there will be a 20-year Bond Auction, and both of these have the potential to move the markets.

On Thursday, look for the latest Jobless Claims figures when they are reported, as usual.

 

Technical Picture

Mortgage Bonds ended the week above their 50-day Moving Average, which will now act as support. The next ceiling is at the 101.45 Fibonacci level. The 10-year ended the week trading at 1.28% after declining sharply Friday. Yields have broken beneath their 200-day Moving Average at 1.30% and are testing their 25-day Moving Average.

 

Todd Abelson - Tucson Mortgages