Tucson Mortgages Home Loan News 4-5-2021

By Todd Abelson NMLS #180858 on .

Week of March 29, 2021 in Review

Last week may have brought April Fools’ Day, but thankfully the strong job and home appreciation reports were no joke!

Job creations rose sharply in March, as the Bureau of Labor Statistics reported 916,000 new jobs were created, which was even stronger than the 675,000 expected. There were also positive combined revisions to January’s and February’s figures, totaling an additional 156,000 jobs in those months. The Unemployment Rate did tick down from 6.2% to 6%, but the real unemployment rate is actually higher, as explained below.

The private sector also saw strong job gains in March, per the ADP Employment Report, which showed a gain of 517,000 jobs. This was in line with expectations and the best level of hiring in six months.

The latest weekly Jobless Claims report showed that the number of people filing for unemployment benefits for the first time increased in the latest week, though the number of people continuing to receive both regular and pandemic-related benefits did decline. However, the total number of people continuing to receive benefits throughout all programs remains so much higher than a year ago, underscoring that our recovery still has a way to go.

Over in the housing sector, Pending Home Sales, which measure signed contracts on existing homes, fell 10.6% from January to February. The decline was due in large part to inventory of available homes being 30% lower than it was in February of last year. Demand for homes remains strong and, quite simply, if there were more homes available there would have been more sales.

Low inventory has also helped home prices continue to show strong appreciation gains.  The Case-Shiller Home Price Index, which is considered the “gold standard” for appreciation, accelerated to a 15-year high in January, up 11.2% year over year on the national reading. The Federal Housing Finance Agency (FHFA) House Price Index, which measures home price appreciation on single-family homes with conforming loan amounts, also came in hot, with home prices up 1% from December to January and 12% compared to January of last year.

 

March Job Creations Much Greater Than Expected

The Bureau of Labor Statistics (BLS) reported that there were 916,000 jobs created in March, which was stronger than the 675,000 expected. The leisure and hospitality and construction sectors led the way on job gains. In addition, there were positive combined revisions to January’s and February’s figures, totaling an additional 156,000 jobs in those months.

Note 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 that there were 609,000 jobs created. We did see improvements in the Unemployment Rate, as it decreased from 6.2% to 6%. On the one hand, this decline was for the right reasons. While there were 609,000 job gains, the labor force increased by 347,000. Because there were so many more job gains than people joining the labor force, the unemployment rate moved lower.

However, it’s important to break down the numbers, as the true unemployment rate is actually higher than the headline figure. That’s because people who are not able to look for work due to pandemic reasons, and who are still unemployed, are not counted – and this number is at 3.7 million people. When we add this into the calculations, the real Unemployment Rate is 8.4%.

In addition, 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. Without this error, the headline Unemployment Rate would have been 0.4% higher or 6.4%, while the real Unemployment Rate counting those unable to look for work due to pandemic reasons would be closer to 8.75%.

The all in U6 Unemployment Rate, which includes total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, improved from 11.1% to 10.7%.

Average hourly earnings are up 4.2% year over year, which is down from 5.3% in the previous report. Average weekly earnings rose 6.7%, which is an increase from 6% in February’s report. Weekly earnings measure what people actually take home, so the increase represents some nice gains.

 

Private Sector Job Gains Reach 6-Month High

The ADP Employment Report, which measures private sector payrolls, showed that 517,000 jobs were created in March, which was in line with the strong job gains that were expected and the best level of hiring in six months! February’s report was also revised higher by 59,000 jobs, increasing the job gains in that month from 117,000 to 176,000.

The leisure and hospitality sector led the way in March with 169,000 new jobs, while the service sector added 437,000 new jobs in total.

There were also job gains across all sizes of businesses. Small businesses (1-49 employees) gained 174,000 jobs, mid-sized businesses (50-499 employees) gained 188,000 jobs, and large businesses (500 or more employees) gained 155,000 jobs. It was especially encouraging to see the gains among small businesses, which have been so heavily impacted by the pandemic.

 

Jobless Claims Still Elevated

The number of people filing for unemployment benefits increased by 61,000 in the latest week, as Initial Jobless Claims rose to 719,000. California (+105K), Texas (+84K) and Ohio (+54K) reported the largest number of claims.

Continuing Claims, which measure people continuing to receive benefits, did decline by 46,000 but they are still elevated at 3.8 million. Pandemic Unemployment Assistance Claims (which provide benefits to people who would not usually qualify) and Pandemic Emergency Claims (which extends benefits to people after regular benefits expire) also decreased by 500,000 and 700,000, respectively.

All in all, 18.2 million people are still receiving benefits throughout all programs, and while this is down 1.5 million from the previous week, it is still significantly higher than compared to the 2 million people receiving benefits in all program at this time last year.

 

Low Inventory Limits Pending Home Sales

Pending Home Sales, which measure signed contracts on existing homes, fell 10.6% from January to February and they were essentially flat compared to February of last year. The real story remains low inventory, which is down 30% year over year and the reason sales are lower.

Lawrence Yun, chief economist for the National Association of REALTORS®, explained, “The demand for a home purchase is widespread, multiple offers are prevalent, and days-on-market are swift but contracts are not clicking due to record-low inventory.”

Quite simply, if more homes were available, we would see more sales.

 

Home Price Appreciation Reaches 15-Year High

The Case-Shiller Home Price Index, which is considered the “gold standard” for appreciation, accelerated to a 15-year high in January, up 11.2% year over year on the national reading. This is an increase from December’s reading of 10.4%.

The 20-city index rose from 10.2% to 11.1% year over year, with almost all of the cities showing strong gains. Phoenix (+15.8%), Seattle (+14.3%), and San Diego (+14.2%) reported the highest annual gains among the 20 cities.

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. Note that 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.

It should be no surprise that the FHFA appreciation reading was even stronger than Case Shiller’s, as FHFA reported that home prices rose 1% in January and are up 12% year over year. This annual reading was even stronger than December’s annual reading of 11.5% appreciation.

 

Family Hack of the Week

Tax season is in full swing which, unfortunately, means tax scams are as well. These tips from the IRS will help you keep your identity safe all year long.

The IRS will not initiate contact with taxpayers by email to request personal or financial information. If you receive a suspicious IRS, Treasury or tax-related email, do not open any attachments, click on any links, or reply to the sender.

The IRS will also not leave pre-recorded, urgent or threatening messages for taxpayers or threaten to bring in the police to have them arrested or deport them. The IRS will not call to demand immediate payment with a prepaid debit card, gift card or wire transfer, nor will the IRS request checks be sent to third parties.

The IRS also does not demand payment without giving taxpayers the chance to question or appeal the amount owed.

The IRS reminds people that scammers can fake or spoof an IRS office phone number or the numbers of various local, state, federal or tribal government agencies. If you ever receive a suspicious phone call, the IRS advises that you hang up immediately without giving any personal information.

 

What to Look for This Week

The economic calendar is relatively quiet this week, with manufacturing news kicking things off on Monday when the ISM Index for March is released. Wednesday brings the minutes from Fed’s March Federal Open Market Committee meeting, while Thursday we will see the latest Jobless Claims data. Ending the week on Friday, we’ll get an update on wholesale inflation with the Producer Price Index for March.

 

Technical Picture

Mortgage Bonds have fallen beneath the 102.632 Fibonacci Level. It’s likely they would have moved even lower on Friday if the Stock market hadn’t been closed for Good Friday, as Stocks and Bonds often compete for the same investment dollar and strong job data is typically Stock friendly. There is more room to the downside until Mortgage Bonds reach the next floor at 102.281, so it will be important to keep a close eye on them as this week begins.

 

Todd Abelson - Tucson Mortgages

Tucson Mortgages Home Loan News 3-29-2021

By Todd Abelson NMLS #180858 on .

Week of March 22, 2021 in Review

Low temperatures and low inventory were a double whammy for housing in February, as sales of existing homes fell 6.6% while new home sales plunged 18.2% from January. However, sales of both new and existing homes were higher compared to February of last year. While bad weather certainly put a freeze on sales, the lack of supply was an even greater challenge, especially among existing homes with inventory almost 30% lower than February of last year.

Inflation was tame in February per the Fed’s favored measure, Personal Consumption Expenditures. However, inflation is expected to rise this spring – and that could impact both Mortgage Bonds and the home loan rates tied to them. Don’t miss the explanation about this below. And of immediate note, a large cargo ship is blocking the Suez Canal, which is impeding global trade and could cause some spikes in inflation.

Over in the labor sector, Initial Jobless Claims fell below 700,000 in the latest week for the first time since the pandemic began, while the number of people continuing to receive regular benefits also declined. Despite the rosy headlines, it’s important to take stock of the entire picture. Pandemic Emergency and Unemployment Assistance claims both increased in the latest week, as did the total number of people receiving benefits from all programs, which is now at 19 million. This is compared to just 2 million people in the comparable week from last year.

The final reading for fourth quarter 2020 Gross Domestic Product came in at 1.9% versus the 2% that was expected. This decline reflects the effects of the stimulus from early last year wearing off. Year-over-year growth was reported at 4.3%, above the 4.1% estimated. However, the Atlanta Fed did cut its estimate for the first quarter 2021 annualized rate from 5.6% to 5.4%.

Lastly, Thursday’s 7-Year Note Auction was met with weak demand, which prompted a selloff in Bonds. However, the auction was not as bad as the one in February which had a much larger negative impact on Mortgage Bonds.

 

The Lowdown on Low Inventory of Existing Homes

Existing Home Sales, which measure closings on existing homes, fell 6.6% from January to February. However, sales were up 9.1% year over year.

Low inventory remains a challenge across the country, as there were just 1.03 million homes for sale at the end of February. This equals a 2-months’ supply of homes, just above the record low of the 1.9-months’ supply that was available at the end of January. Inventory is almost 30% lower than it was in February of last year. With this stiff competition, properties sold in 20 days on average, which is another record low.

The median home price was $313,000, up almost 16% year over year. Note, this is not the same as appreciation. It simply means half the homes sold were above that price and half were below it. Sales on the low end were down 25%, while homes above $1 million were up 81%. This dragged the median home price higher.

Even with the stiff competition for lower-priced homes, first-time homebuyers accounted for 31% of sales in February while cash buyers increased from 20% to 22%. Investors purchased 17% of homes, up from 15%.

Lawrence Yun, chief economist for the National Association of REALTORS, said, “I still expect this year’s sales to be ahead of last year’s, and with more COVID-19 vaccinations being distributed and available to larger shares of the population, the nation is on the cusp of returning to a sense of normalcy. Many Americans have been saving money and there’s a strong possibility that once the country fully reopens, those reserves will be unleashed on the economy.”

 

Winter Weather Puts a Freeze on New Home Sales

New Home Sales, which measure signed contracts on new homes, were down 18.2% in February, which was much softer than expectations looking for a 6% drop. However, sales are still up 8.2% on a year over year basis.

What caused the sharp decline from January to February? Freezing weather around the country certainly played a role, as did low inventory, as there was just a 4.8 months’ supply of homes available for sale at the end of February. Quite simply, if there were more homes available, we would have seen more sales.

The median home price was reported at $349,400, up 5.3% from last year. Again, this is not the same as appreciation. It simply means half the homes sold were above that price and half were below it.

 

Inflation Remains Tame … For Now

Inflation rose 0.2% in February, which was lower than the 0.3% expected, per the Fed’s favored measure of inflation, Personal Consumption Expenditures (PCE). Year over year, the index increased from 1.4% to 1.6%.

The Fed’s real focus is Core PCE, which strips out volatile food and energy prices, and that was up 0.1% in February, as anticipated. On an annual basis, the Core rate decreased from 1.5% to 1.4%, just below expectations of 1.5%.

While inflation remains tame for now, we expect annual inflation to rise above 2% in May, June, and July as the readings for the more current months replace the older readings from 2020, where inflation was low due to the pandemic and economy shutting down.

This is significant because inflation is the arch enemy of Mortgage Bonds and home loan rates, which are tied to them. Inflation reduces the value of fixed investments, like Mortgage Bonds so rising inflation can cause Mortgage Bonds to worsen or move lower. Home loan rates are inversely tied to Mortgage Bonds, so when Bonds worsen home loan rates can rise. I will be closely monitoring this dynamic throughout the spring and summer.

Also of note within the report, Personal Income was down 7% in February after a 10% rise in January, while Personal Spending fell 1% after a rise of 3.4% over that same period. The increases in January correlate with December’s $900 billion stimulus package, with the declines in February showing the effects of that stimulus starting to wear off.

Historically, we usually see the effects of stimulus plans completely start to wear off after six months. With the most recent $1.9 trillion stimulus plan, the benefits will likely be gone by October…unless additional stimulus is passed such as the $3 trillion infrastructure plan that is being discussed.

 

Seeing the Whole Picture on Jobless Claims

The number of people filing for unemployment for the first time decreased by 97,000 as Initial Jobless Claims fell to 684,000 in the latest week. This was the first time the number of Initial Claims fell below 700,000 since the pandemic began. California (+96K), Texas (+80K) and Ohio (+69K) reported the largest number of claims.

Continuing Claims, which measures people who continue to receive benefits, also dropped by 264,000 to 3.9 million.

While these declines sound positive at first glance, it’s important to view them in context.

Pandemic Unemployment Assistance Claims, which provide benefits to people who would not usually qualify, increased by 120,000. Pandemic Emergency Claims, which extend claims after regular benefits expire, also increased by 735,000.

As a result, 19 million people are still receiving benefits throughout all programs, which is actually an increase of 734,000 from the previous week – and still significantly higher than the 2 million people who were receiving benefits through all programs in the comparable week last year. The bottom line is that we still have a long way to go before the labor sector reaches pre-pandemic levels of employment.

 

Family Hack of the Week

This year April 1 is more than just April Fool’s Day, it also marks opening day for Major League Baseball. If you’re not able to enjoy a hot dog at the stadium on the occasion, here are some tips from Good Housekeeping for grilling the perfect hot dog at home.

Heat part of your grill to medium. Add hot dogs over heated portion and turn continuously to get grill marks all around. Keep close watch on the hot dogs. Once they start to expand – but before they start sputtering – they’re done. Roll them onto the unheated portion of the grill, then toast the buns over the burners for about one minute.

Be sure to avoid high heat when cooking hot dogs, as that can result in hot dogs that are charred on the outside but cold and uncooked on the inside. High heat can also cause hot dogs to split and release their juices, making them tough to eat.

Once the hot dogs are cooked and buns toasted, top with your favorite condiments and enjoy opening day!

 

What to Look for This Week

Reports on the housing, manufacturing and labor sectors fill a busy week ahead!

We’ll get an update on home price appreciation when both the Case-Shiller Home Price Index and Federal Housing Finance Agency House Price Index for January are released on Tuesday. February’s Pending Home Sales follow on Wednesday.

Manufacturing news will also be released on Wednesday with March’s Chicago PMI while Thursday brings the ISM Index for March.

News on the labor sector also kicks off on Wednesday with the ADP Employment Report, which will give us an update on March’s private payrolls. The latest weekly Jobless Claims figures will be reported as usual on Thursday while Friday brings the highly anticipated Bureau of Labor Statistics Jobs Report for March, which includes Non-farm Payrolls and the Unemployment Rate.

 

Technical Picture

Mortgage Bonds are trading just above an important floor of support at 102.632. If this level holds, there is plenty of upside potential. The 10-year does have room to move higher until reaching 1.75%, so we have to be cautious.

 

Todd Abelson - Tucson Mortgages

Tucson Mortgages Home Loan News 3-22-2021

By Todd Abelson NMLS #180858 on .

Week of March 15, 2021 in Review

Housing, manufacturing and unemployment news all made headlines, as did the Fed meeting and its impact on the markets.

Despite rising lumber prices, homebuilders remain confident per the National Association of Home Builders Housing Market Index, which provides a real-time read on builder confidence. While the index fell 2 points in March to 82, any reading above 50 signals expansion, meaning builder sentiment remains well above that level and still near the highest levels on record.

Housing Starts and Building Permits (a sign of future construction) for single-family homes both declined from January to February, but this was likely due to inclement weather across the country. Single-family Permits are up 15% when compared to February of last year, which is a good sign that hope is on the horizon for buyers struggling with limited inventory.

There was also some good news from the manufacturing sector, as the Empire State Index (which measures the health of manufacturing in the New York region) and the Philadelphia Fed Index both came in above expectations in March – with the Philadelphia Fed Index more than doubling expectations. Meanwhile, Retail Sales did fall more than expected in February, but inclement weather likely also had an impact on sales and a rebound is anticipated as more people receive stimulus payments.

Unfortunately, however, the unemployment situation remains dire a year into the pandemic. The number of people filing for unemployment for the first time rose in the latest week to 770,000. And overall, 18 million people are still receiving benefits throughout all programs, compared to just 2 million this time last year.

Last but certainly not least, market volatility continues, impacting Mortgage Bonds and the home loan rates tied to them. While Tuesday’s 20-Year Bond Auction was met with above average demand, Mortgage Bonds sold off despite this strong auction, showing underlying weakness in the market. Plus, the Fed held its regularly scheduled meeting of the Federal Open Market Committee, with their Monetary Policy Statement released on Wednesday. More on what they said – and how the markets reacted – below.

 

Housing Starts Decline But Help Is On the Way

Housing Starts, which measure the start of construction on homes, fell 10.3% in February and 9.3% year over year. Starts on single-family homes were also down almost 9% from January to February and were pretty flat compared to February of last year. Bad weather across the US is the likely culprit for the decline.

Building Permits, which measure future construction, dropped nearly 11% from January to February but they were 17% higher year over year. Permits on single-family homes likewise fell 10% in February but they are up 15% year over year, signaling that help is on the way for the low inventory many buyers are facing.

Also of note, housing units that are authorized but not yet started for single-family homes are up 36% year over year.

 

Homebuilders Remain Confident Despite Rising Lumber Prices

The National Association of Home Builders Housing Market Index, which is a real-time read on builder confidence, dropped 2 points in March to 82, coming in slightly lower than expectations. However, any reading above 50 signals expansion, meaning builder sentiment remains well above that level and still near the highest levels on record. The main reason for the drop in confidence this month was costs, as rising lumber prices are adding approximately $24,000 to the cost of building a new home.

Breaking down the three components of the index, current sales conditions decreased by 3 points to 87, but given that they were coming off a flaming hot reading of 90, a pullback was expected. Future sales expectations increased by 3 points to 83, and buyer traffic remained stable at 72.

Remember that not long ago the reading for buyer traffic was below 50, so putting the numbers in perspective, future expectations and buyer traffic remain very strong even with the record low levels of inventory and rising rates we are seeing.

 

Unemployment Levels Remain Worrying

The number of people filing for unemployment benefits for the first time increased in the latest week, as Initial Jobless Claims reached 770,000. Ohio (+113K), California (+109K) and Illinois (+75K) reported the largest gains.

Continuing Claims, which measures people who continue to receive benefits, was little changed at 4.12 million.

Pandemic Unemployment Assistance Claims (which provides benefits to people who would not usually qualify) decreased by 773,000, while the Pandemic Emergency Claims (which extends claims after regular benefits expire), decreased by 640,000. These figures are volatile each week.

The bottom line, unfortunately, is that new claims are not improving and 18 million people are still receiving benefits throughout all programs, compared to just 2 million this time last year.

 

Fed Stays the Course

The Fed held their regularly-scheduled Federal Open Market Committee meeting and, despite the volatility in the markets, recent decline in Mortgage Bonds and forecasts for higher inflation, announced that they would not make any changes to their purchases of Mortgage-Backed Securities and Treasuries each month. The Fed noted that they will continue their current pace until seeing actual progress and could use the full extent of their tools should they need to.

The Fed was dovish on the economy, raising their forecasts for growth and inflation for 2021. They believe GDP will reach 6.5%, upgraded from 4.2%, while unemployment will drop to 4.5% by year’s end instead of 5%. They see inflation reaching 2.4%, with Core inflation (which strips out volatile food and energy prices) reaching 2.2%.

Why is higher inflation significant?

Remember, inflation is the arch enemy of Mortgage Bonds and home loan rates, which are tied to them. This is because inflation reduces the value of fixed investments, like Mortgage Bonds. Rising inflation (or even the fear of rising inflation) can cause Mortgage Bonds to worsen or move lower.

Home loan rates are inversely tied to Mortgage Bonds, so when Bonds worsen home loan rates can rise, which has been the dynamic we’ve seen in the markets recently.

Though many factors influence the markets, inflation news is something I will be closely monitoring this spring.

 

Home Hack of the Week

Spring is officially here! As the weather starts to warm, here are a few seasonal home maintenance items to cross off your list.

Conduct a visual inspection of your entire property so you can note any repairs that may be needed. Check your driveways and pathways for any cracks in need of repair and use binoculars to see if any shingles have come loose on your roof.

Make note if your gutters need clearing and make sure window screens and screen doors are free of holes or tears to keep bugs outside where they belong. And don’t forget to check your outside faucets, hoses and sprinklers for frost damage to ensure they will work properly.

Keep your yard safe for friends, family and pets by inspecting your fence or deck for any loose or warped boards. Remove any debris that may have become stuck and add protective stain based on the manufacturer’s recommendation. Check your patio furniture for any signs of rust or tears and wash outdoor cushions using the manufacturer’s recommended method.

And last but certainly not least, schedule a service for your air conditioner so you know it’s in working order before you really need it!

 

What to Look for This Week

Housing news kicks off the week on Monday when Existing Home Sales for February are reported. February’s New Home Sales follows on Tuesday.

On Wednesday, look for news on February’s Durable Goods Orders. Thursday brings the latest on fourth quarter 2020 Gross Domestic Product, plus Jobless Claims data.

Ending the week on Friday, we’ll get an update on the Fed’s favorite inflation measure when February’s Personal Consumption Expenditures is reported, along with Personal Income and Spending.

 

Technical Picture

Mortgage Bonds ended the week just beneath the important floor of support at 102.281. While this is not a convincing break lower yet, if one does occur the next floor of support is 101.727, which is almost 60bp lower. Given that Mortgage Bonds have been trending lower and rates trending higher, this is a critical juncture to monitor.

 

Todd Abelson - Tucson Mortgages

Tucson Mortgages Home Loan News 3-15-2021

By Todd Abelson NMLS #180858 on .

Week of March 8, 2021 in Review

Last week was filled with important news as key inflation reports were released, two auctions made headlines and more stimulus is on the way!

Consumer inflation remains tame for now, with the headline Consumer Price Index (CPI) increasing from 1.4% to 1.7% annually, as expected. Core CPI, which strips out volatile food and energy prices, fell from 1.4% to 1.3% year over year, which was slightly cooler than expected. However, inflation is expected to heat up in the coming months – which could impact both Mortgage Bonds and the home loan rates tied to them. Don’t miss the explanation below.

Inflation at the wholesale level has already started to rise, with the Producer Price Index (PPI) for February up 0.5% monthly and jumping from 1.7% to 2.8% year over year. Core PPI, which again strips out volatile food and energy prices, also moved higher on both a monthly and annual basis.

The National Federation of Independent Business released its Small Business Optimism Index, which increased 0.8 points in February to 95.8. Of significant note within the report, those looking to raise prices rose 8 points to 25% (the highest since August 2008), while positions not able to fill jumped 7 points to 40% (the highest since 1980). Both of these data points can lead to inflation.

Meanwhile, the latest Jobless Claims data showed that the number of people filing for unemployment for the first time declined by 42,000 in the latest week, as Initial Jobless Claims were reported at 712,000. Continuing Claims, which measure people who continue to receive benefits, also decreased by 193,000 to 4.144 million. While these declines appear like good news on the surface, there is more to the story as noted below.

Lastly, investors were closely watching the 10-year Treasury and 30-year Bond Auctions held on Wednesday and Thursday, respectively, while President Biden signed the $1.9 trillion relief plan into law. Read on for a breakdown of the critical details on these items.

 

Consumer Inflation Remains Tame … For Now

The Consumer Price Index (CPI), which measures inflation on the consumer level, rose by 0.4% in February while the year over year reading increased from 1.4% to 1.7%, as expected.

Core CPI, which strips out volatile food and energy prices, was up 0.1% in February but fell from 1.4% to 1.3% year over year, which was slightly cooler than expected.

The report also showed that rents are rising 2.0% across the country, which is down from 2.1% in the previous report. However, many markets are actually experiencing much higher rent gains, as the data is being weighed down by the pandemic’s impact on rent in larger cities like New York and San Francisco.

While consumer inflation is tame at the moment, it’s important to dig deeper and understand why inflation may rise in the coming months – and why that’s significant.

Higher inflation typically drives home loan rates higher. That’s because inflation is the arch enemy of interest rates, since it erodes the buying power of the fixed return that a mortgage holder receives.

As noted above, the current year over year rate of inflation, as measured by the Core Consumer Price Index, is at 1.3%. This inflation reading was just released for the period of March 2020 to February of 2021.

However, in the coming months, this rate is expected to rise significantly, as the readings for the more current months replace the older readings from 2020. It’s quite possible to see the rate of inflation rise towards 2.5%. It’s likely that this will influence higher interest rates.

While inflation may then cool off later this year, rest assured I will be keeping a close eye on the news to keep you informed of all the latest inflation data, and its impact on Mortgage Bonds and the home loan rates tied to them.

 

Wholesale Inflation Jumps in February

This potential for higher inflation has already started at the wholesale level, as the Producer Price Index (PPI) rose by 0.5% in February and jumped from 1.7% to 2.8% year over year.

Core PPI, which again strips out volatile food and energy prices, was up 0.2% for the month and increased from 2.0% to 2.5% year over year.

Part of the increase in the headline reading was due to the monthly rise in energy prices (+6%) and food prices (+1.3%). Transportation costs rose significantly as well.

We may see further increases in wholesale inflation as the readings for the more current months replace the readings from 2020.

 

Looking Past the Headlines on Jobless Claims

The number of people filing for unemployment for the first time declined by 42,000 in the latest week, as Initial Jobless Claims were reported at 712,000. However, there were revisions to the previous week that made this decline look bigger than it really was. Ohio (+127K), California (+106K) and Illinois (+62K) reported the largest number of claims.

Continuing Claims, which measure people who continue to receive benefits, also decreased by 193,000 to 4.144 million.

While this decline seems like good news on the surface, it’s important to dig deeper into the data. Pandemic Unemployment Assistance Claims, which provide benefits to people who would not usually qualify, increased by 1.1 million, while Pandemic Emergency Claims, which extends claims by 13 weeks after regular benefits expire, also increased by 1 million. Both of these numbers are at pandemic highs.

The total number of continued benefits in all programs is now at 20.1 million, an increase of 2.1 million from the previous week. There were just 2.1 million weekly claims filed for benefits in all programs in the comparable week in 2020.

The bottom line is that while the headline figures appear better and are near pandemic lows, much of the decline in Continuing Claims is due to the expiration of benefits and people moving into Pandemic Unemployment and Emergency Claims.

 

Auctions in the News

Investors were closely watching the 10-year Treasury and 30-year Bond Auctions that were held last week on Wednesday and Thursday, respectively. Demand, which is reflected in the purchasing of Bonds and Treasuries, can push prices higher and yields or rates lower. Weak demand can signal that investors think yields will continue to move higher, which can cause turbulence in the Bond market and have a negative effect on rates.

While the 10-year auction on Wednesday was mediocre, the market did not react negatively, probably due to some relief that it was not as bad as the 7-year auction that was held a few weeks ago. Thursday’s 30-year Bond auction was soft with a yield of 2.295%, a touch above the when-issued yield. However, one positive was that direct and indirect bidders bought 81% of the auction versus the 12-month average of 79%.

 

Update on Stimulus

President Biden signed the $1.9 trillion relief package into law, which includes direct payments of $1,400 to individuals who meet the income requirements. The additional $300 per week in unemployment benefits has also been extended until September 6.

Pandemic Unemployment and Emergency Claims that were set to expire March 14 have also been extended to September 6.

In addition, the package also waives federal taxes on an individual’s first $10,200 of unemployment benefits collected last year. Married couples who file a joint tax return wouldn’t be taxed on the first $20,400 of unemployment income. However, note that states may not waive the tax, as more than half currently levy a state income tax on unemployment benefits.

 

Family Hack of the Week

This delicious Irish Tea Cake from our friends at Allrecipes is not only easy to make, but your family will enjoy it for St. Patrick’s Day and any day of the year.

Preheat oven to 350 degrees Fahrenheit. Grease and flour a 9-inch round pan. Cream together 1/2 cup softened butter and 1 cup sugar in a medium bowl until light and fluffy. Beat in two eggs, one at a time, and mix until fully incorporated, then stir in 1 1/2 teaspoons vanilla.

Combine 1 3/4 cups of flour, 2 teaspoons of baking powder and 1/2 teaspoon of salt. Stir the flour mixture into the batter alternately with 1/2 cup of milk. If the batter is too stiff, add a tablespoon or two of milk. Spread the batter evenly into the prepared pan.

Bake for 30 to 35 minutes until a toothpick inserted into the center comes out clean. Cool in the pan on a wire rack, then turn out onto a serving plate. Dust with confectioners’ sugar right before serving and enjoy with a cup of coffee or tea.

 

What to Look for This Week

A full slate of reports across a wide spectrum of the economy are ahead this week, beginning with news on manufacturing in the New York region when March’s Empire State Index is reported on Monday.

On Tuesday we’ll get an update on Retail Sales for February. Plus, the National Association of Home Builders Housing Market Index, which is a real-time read on builder confidence, will also be reported on Tuesday.

Housing news continues Wednesday with February’s Housing Starts and Building Permits, while more manufacturing news follows Thursday with the Philadelphia Fed Index. The latest Jobless Claims figures will also be reported as usual on Thursday.

But perhaps the biggest and most important event will be the Fed’s 2-day meeting of the Federal Open Market Committee which starts on Tuesday, with their Monetary Policy Statement released on Wednesday. This always has the potential to move the markets and of note, there has been chatter that the Fed may start to perform Operation Twist (where they sell shorter term maturity holdings on their balance sheet and buy more longer maturity Bonds). They may also do something like the European Central Bank and say they are going to ramp up their buying of Mortgage Backed Securities and Treasuries when the see an interest rate they don’t like, which is a form of Yield Curve Control.

 

Technical Picture

Mortgage Bonds ended last week right at the 100.133 support level. This is an important threshold because if Bonds break beneath it convincingly, the next floor of support is 99.50. The 10-year is also trying to hang on at the 1.61% ceiling. If yields break to the upside, they will likely test 1.67%.

 

Todd Abelson - Tucson Mortgages

Tucson Mortgages Home Loan News 3-8-2021

By Todd Abelson NMLS #180858 on .

Week of March 1, 2021 in Review

While reports on the labor sector dominated the economic calendar, Fed Chair Jerome Powell’s remarks about inflation also made headlines.

There were 379,000 jobs created in February, per the Bureau of Labor Statistics, which was stronger than the 140,000 expected. In addition, there were positive combined revisions to December’s and January’s data, amounting to an additional 38,000 new jobs in those months. The Unemployment Rate did tick down a notch from 6.3% to 6.2% per the headline, but unfortunately the real unemployment rate is actually higher and closer to 10%, as explained below.

The ADP Employment Report for February also showed a gain of 117,000 jobs in the private sector, though this was fewer than expected and still a fraction of the job gains we need to be seeing. Meanwhile, another 745,000 people filed for unemployment in the latest week, up slightly from the previous week. While the number of people continuing to receive benefits did decline, that total remains at 4.3 million and the decline likely represents people whose benefits have expired versus any real improvement on the jobs front.

The bottom line is that there is still a long way to go before the unemployment situation returns to pre-pandemic levels.

The housing sector remains a cornerstone of our economic recovery, as home prices continue to appreciate nationwide. CoreLogic reported that home prices increased 1% from December to January and 10.0% compared to January of last year. Within the report, the hottest markets were Phoenix (+14.8%), San Diego (+11.0%) and Washington (+9.1%).

Lastly, Fed Chair Jerome Powell made some important remarks about inflation when he spoke at The Wall Street Journal’s Jobs Summit. Inflation news is always important to monitor, as it can impact Mortgage Bonds and home loan rates, which are tied to them. Read on to learn more about what he said, and why it matters.

 

February Job Creations Stronger Than Expected

The Bureau of Labor Statistics (BLS) reported that there were 379,000 jobs created in February, which was stronger than the 140,000 expected. In addition, there were positive combined revisions to December’s and January’s data, amounting to an additional 38,000 new jobs in those months.

Delving deeper into the numbers, 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 that there were 208,000 job creations, while the labor force increased by 50,000. The number of unemployed people decreased by 158,000. As a result, the unemployment rate fell slightly, from 6.3% to 6.2%.

It is important to note that there are 4.2 million people who have been unable to look for work due to pandemic reasons, and who are still unemployed, yet they have not been counted. When we add them into the calculation, the unemployment rate moves higher to 9.2%.

In addition, there has been a lingering misclassification error where people were classified as absent from work for other reasons and not marked as unemployed on temporary layoff when they should have been. Without this error, the headline unemployment rate would have been 0.5% higher or 6.7%, while the real unemployment rate counting those who are unable to look for work due to pandemic reasons would be closer to 10%.

The all in U6 Unemployment Rate, which includes total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, remained stable at 11.1%.

Average hourly earnings are up 5.3% year over year, while average weekly earnings rose 6%, which is down from 7.5%. Weekly earnings measure what people actually take home, so the increase represents some nice gains despite the decline from the previous report.

 

Private Payrolls Weaker Than Expected

The ADP Employment Report, which measures private sector payrolls, showed that there were 117,000 jobs created in February, which was weaker than the 165,000 job gains that were expected. However, January’s report was revised higher by 21,000 jobs, from 174,000 to 195,000 jobs created in that month.

The service sector accounted for all of the gains, led by trade, transportation and utilities, which added 48,000 jobs. The hospitality sector added just 26,000 jobs and is down 3.8 million jobs from when the pandemic began.

We did see job gains across all sizes of businesses. Small businesses (1-49 employees) gained 32,000 jobs, mid-sized businesses (50-499 employees) gained 57,000 jobs, and large businesses (500 or more employees) gained 28,000 jobs.

 

Jobless Claims Remain Elevated

We’re still not seeing much of an improvement in Jobless Claims at this stage of the recovery, unfortunately. Initial Jobless Claims, which measure people filing for unemployment benefits for the first time, showed that 745,000 claims were filed in the latest week, which was up slightly compared to the previous week.

Continuing Claims, which represent people who continue to receive benefits, decreased by 124,000 to 4.3 million. Pandemic Unemployment Assistance Claims, which gives individuals benefits who would not usually qualify, decreased by 191,000. Pandemic Emergency Claims, which extends claims by 13 weeks after regular benefits expire, also decreased by 600,000. Unfortunately, however, these decreases most likely represent people whose benefits have expired and not any real improvement in the employment situation.

The total number of continued benefits in all programs for the week ending February 13 was 18 million, a decrease of 1 million from the previous week. By comparison, there were just 2.1 million weekly claims filed for benefits in all programs in the comparable week in 2020.

 

Appreciation Shows Housing Remains Hot

CoreLogic released their Home Price Index report for January, which showed that home prices increased 1.0% from December to January and 10.0% on a year over year basis. This is a significant gain from the 9.2% year over year gain reported for December.

Within the report, the hottest markets were Phoenix (+14.8%), San Diego (+11.0%) and Washington (+9.1%).

CoreLogic forecasts that home prices will rise 0.5% in February. However, they have been forecasting minimal gains each month and yet the gains have been higher and closer to 1%. CoreLogic also predicts home prices will appreciate 3.3% in the year going forward. While this is better than the 2.9% forecast from their previous report, note that it is still lower than most forecasts out there.

 

Fed Believes Inflation Set to Rise

Fed Chair Jerome Powell spoke at The Wall Street Journal’s Jobs Summit and noted that Fed will be pretty tolerant of inflation. Powell also noted that inflation is set to increase, but this will likely be temporary.

Why are these comments significant?

Inflation is the arch enemy of fixed investments like Mortgage Bonds because it reduces their value. Home loan rates are inversely tied to Mortgage Bonds. Rising inflation (or even the fear or hint of rising inflation), can cause Bonds to worsen or move lower, which means home loan rates can rise.

Though many factors impact the markets, it’s always important to keep an eye on inflation headlines since they have the power to move the markets

 

Family Hack of the Week

Blueberry muffins are always a favorite, and what can be better than this recipe for Double Blueberry Muffins, courtesy of our friends at the Food Network.

Preheat oven to 375 degrees Fahrenheit. Grease a muffin tin or line the cups with paper liners. In a mixer fitted with a paddle attachment (or using a hand mixer), cream 1 stick of unsalted butter (softened at room temperature) until smooth. Add 1 cup of sugar and mix. Next add 2 eggs, 1 teaspoon of vanilla, 2 teaspoons of baking powder, and 1/4 teaspoon of salt and mix.

In a shallow bowl, mash 3/4 cup of blueberries with the back of a fork. Add to the batter and mix. With the mixer running at low speed, add 1 cup of flour, then 1/4 cup of milk, and mix. Repeat with another 1 cup of flour and 1/4 cup of milk. Fold in another 1 3/4 cups whole blueberries until well mixed.

In a separate small bowl, mix 2 tablespoons sugar with 1/4 teaspoon of cinnamon. Use an ice-cream scoop or large spoon to fill the muffin cups 3/4 full. Sprinkle the cinnamon-sugar over the muffins and bake until golden brown and the muffins rise, about 25 to 30 minutes.

Let cool in the pan at least 30 minutes before turning out. Enjoy for a weekend brunch or afternoon snack any day of the week!

 

What to Look for This Week

Two important inflation reports are ahead, and they will be especially crucial to monitor following Fed Chair Powell’s recent comments. On Wednesday, we’ll get an update on the Consumer Price Index for February while Friday brings news on wholesale inflation with February’s Producer Price Index.

Also of note, on Tuesday we’ll get an update on how confident small businesses were feeling in February with the National Federation of Independent Business Small Business Optimism Index. And as usual on Thursday, the latest jobless claims figures will be reported.

 

Technical Picture

Mortgage Bonds are trading in a wide range between support at 100.133 and overhead resistance at 100.863. We have to be on guard, as there can be big fluctuations within this wide range. The 10-year was stopped at 1.60%, which is a very important ceiling. If yields can remain beneath this level, there is significant room for improvement until reaching 1.37%.

Tucson Mortgages Home Loan News 3-1-2021

By Todd Abelson NMLS #180858 on .

Week of February 22, 2021 in Review

Initial Jobless Claims declined by 111,000 in the latest week, as another 730,000 people filed for unemployment benefits for the first time. Unfortunately, this decline is likely due to the inclement weather conditions across the US, and especially in Texas, and not to any real improvement in the labor sector. In fact, there were 19 million weekly claims filed for benefits in all programs for the week ending February 6, an increase of 700,000 from the previous week. By comparison, there were just 2.1 million weekly claims filed for benefits in all programs in the comparable week in 2020.

The housing sector continues to lead our economic recovery, as sales of new homes were up 4.3% in January, which was double market estimates. This is especially impressive given that inventory of new homes was down 6%. Pending Home Sales, which measure signed contracts on existing homes, did fall 2.8% in January but sales were still 13% higher than the same time last year. Again, given that inventory of existing homes was down 24% annually, the level of sales certainly speaks to the high demand for homes nationwide.

This high demand has helped home prices continue to appreciate. The Case-Shiller Home Price Index, which is considered the “gold standard” for appreciation, reported its biggest annual national gain in seven years, with prices up 10.4% in December. 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. And the FHFA data came in even stronger, with home prices up 11.4% year over year in December.

Fed Chair Jerome Powell spoke in front of Congress and noted, “The economy is a long way from our employment and inflation goals, and it is likely to take some time for substantial further progress to be achieved.” He also reiterated that the Fed is not fearful of inflation.

Speaking of inflation, the Fed’s favored inflation measure, Personal Consumption Expenditures, showed inflation remained tame in January. Read on to learn why rising inflation (or even the fear of it) can have such an impact on Mortgage Bonds and home loan rates, which are tied to them.

 

Looking Past the Headlines on Initial Jobless Claims

Another 730,000 people filed for unemployment benefits for the first time in the latest week, which was a decrease of 111,000. However, this drop is likely due to the weather conditions across the US, and especially the crisis in Texas last week, and needs to be taken with a grain of salt.

Continuing Claims, which measures people who continue to receive benefits, decreased by 101,000 to 4.4 million. Pandemic Unemployment Assistance Claims (which gives individuals benefits who would not usually qualify) decreased by 167,000, while Pandemic Emergency Claims (which extends claims by 13 weeks after regular benefits expire) increased by 1 million to the highest level since the pandemic began.

The total number of continued benefits in all programs for the week ending February 6 was 19 million, an increase of 700,000 from the previous week. By comparison, there were 2.1 million weekly claims filed for benefits in all programs in the comparable week in 2020.

The bottom line is that, despite the headline drop in Initial Jobless Claims, unfortunately the unemployment picture has not really improved because that drop was likely due to bad weather and power outages preventing people from filing. In addition, the total amount of people receiving benefits worsened and increased. We still have a long way to go to return to pre-pandemic levels of unemployment.

 

New Home Sales Beat Expectations

New Home Sales, which measure signed contracts on new homes, were up 4.3% in January, which was double market estimates. But that doesn’t tell the whole story. December’s sales figure was revised much higher and factoring in this revision, sales are up 10% in January. Sales are also up over 19.3% when compared to January of last year.

The strong level of sales is especially impressive, given that inventory is down 6% with just 307,000 new homes for sale at the end of January, which represents a 4-month supply at the current sales pace.

The median home price was reported at $346,400, up 5.3% year over year. Remember this is not the same as appreciation. It simply means half the homes sold were above this price and half were below it.

 

Low Inventory Impacts Pending Home Sales

Pending Home Sales, which measure signed contracts on existing homes, fell 2.8% in January. However, they are up 13% compared to January of last year. This is pretty amazing in the face of record-low inventory levels of existing homes, which are down 24% annually.

Lawrence Yun, Chief Economist for the National Association of REALTORS®, noted that, “Pending home sales fell in January because there are simply not enough homes to match the demand on the market.” But he added, “That said, there has been an increase in permits and requests to build new homes.”

 

Appreciation Shows Housing Remains Hot

The Case-Shiller Home Price Index, which is considered the “gold standard” for appreciation, reported its biggest national gain in seven years. There was a 10.4% annual gain in home prices nationwide in December, up from an already strong reading of 9.5% in November.

The 20-city index rose from 9.2% to 10.1% year over year, with all of the cities showing strong gains. Phoenix (+14.4%), Seattle (+13.6%), and San Diego (+13%) reported the highest annual gains among the 20 cities.

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. Note that 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.

As such, it should be no surprise that the FHFA House Price Index came in even stronger than the Case-Shiller Report. Home prices rose 1.1% from November to December and are up 11.4% year over year, higher than the 11.0% annual gain FHFA reported in November.

 

Inflation Tame in January

The Fed’s favored measure of inflation, Personal Consumption Expenditures (PCE), showed that headline inflation was up 0.3% in January, which was in line with expectations. Year over year, the index increased from 1.3% to 1.5%, as expected.

Core PCE, which strips out volatile food and energy prices and is the Fed’s real focus, was up 0.3% in January, which was hotter than the 0.1% rise anticipated. Year over year, Core PCE increased from 1.4% to 1.5%, which was slightly higher than market expectations of 1.4%.

Even with the Core rate coming in a bit hotter than expected, these levels show that inflation remains tame.

Why is tame inflation significant?

The massive stimulus plans have been causing fears of inflationary pressure. Even the hint or fear of inflation can cause Mortgage Bonds to worsen, which we’ve seen recently as they have fallen precipitously.

Remember, inflation is the arch enemy of Mortgage Bonds and home loan rates, which are tied to them. This is because inflation reduces the value of fixed investments, like Mortgage Bonds. Rising inflation (or even the fear of rising inflation) can cause Mortgage Bonds to worsen or move lower. Home loan rates are inversely tied to Mortgage Bonds, so when Bonds worsen home loan rates can rise, which has been the dynamic we’ve seen in the markets recently.

Though many factors influence the markets, it’s especially important to monitor all the latest inflation news and data and its impact on the markets.

 

Home Hack of the Week

Recent frigid temperatures across the country are an important reminder for all of us to double check our emergency kits in both our home and cars. Ready.gov provides this easy checklist.

For the basics, your kit should include batteries, flashlights, dust masks, whistle (to signal for help), moist towelettes, wrench or pliers, cell phone with chargers and a backup battery, first aid kit, one gallon of water per person per day for a minimum of three days, and a three-day supply of non-perishable food. Don’t forget a manual can opener!

Additional supplies that may be helpful include prescription medicines, glass and contact lens solution, infant formula, pet food and supplies, cash, important family documents (i.e. insurance and bank information), sleeping bags and blankets, extra clothes, fire extinguisher, matches, personal hygiene items, paper towels and plates, paper and pencil, and games and other activities for children.

And with the pandemic still ongoing, don’t forget to add masks, extra soap, hand sanitizer and disinfecting wipes.

Reminder to store your kit in a cool, dry place and make a note to check your kit twice a year so you can replace expired items as needed.

 

What to Look for This Week

Manufacturing news kicks off the week on Monday with the ISM Index for February. Then labor sector data will dominate the rest of the week, beginning Wednesday with the ADP Employment Report, which will give us an update on private payrolls for February. On Thursday, the latest weekly Jobless Claims figures will be reported as usual. Friday brings the highly anticipated Bureau of Labor Statistics Jobs Report for February, which includes Non-farm Payrolls and the Unemployment Rate.

 

Technical Picture

Mortgage Bonds were able to climb back above the 100.133 Fibonacci Level after tame inflation data. Mortgage Bonds may have found a bottom, as the candle pattern that formed after a big downtrend is a bullish engulfing pattern and portends higher Mortgage Bond prices ahead. In addition, Bonds have been oversold and now it appears there is a positive Stochastic crossover, which is also a good sign for Bond prices. The 10-year held at 1.60% and is remaining below 1.50%.

Todd Abelson - Tucson Mortgages

Tucson Mortgages Home Loan News 2-22-2021

By Todd Abelson NMLS #180858 on .

Week of February 15th, 2021 in Review

The pandemic’s grip on unemployment remains tight, unfortunately, as another 861,000 people filed for unemployment benefits for the first time in the latest week. There were also upward revisions of 55,000 initial claims to the previous week. The total number of continued benefits in all programs for the week ending January 30 was 18.3 million, versus just 2.1 million weekly claims in the comparable week in 2020.

Housing remains a bright spot in our economy, as record low inventory and high demand for homes continue to spark sales. Existing Home Sales, which measures closings on existing homes, were up 0.6% from December to January and nearly 24% compared to January of last year.

Meanwhile, builder confidence also remains near record highs despite rising lumber prices thanks to the high demand for homes. The National Association of Home Builders Housing Market Index, which is a real-time read on builder confidence rose 1 point to 84 in February. Any reading over 50 on this index that ranges from 1 to 100 signals expansion.

There was a bit of a slowdown in construction in January, however, as Housing Starts (which measure the start of construction on homes) were down 6% from December, with starts on single-family homes falling 12.2%. On the positive side, Building Permits (which are a sign of future construction) were up 10.4% from December to January. Permits for single-family homes also moved higher, rising 3.8% from December and nearly 30% compared to January of last year.

Wholesale inflation was also in the news, and it was hotter than expected in January, as the Producer Price Index rose by 1.3% – three times more than market expectations. And speaking of inflation, there was some important news from the manufacturing sector and what it might mean for inflation – and home loan rates – as detailed below.

Lastly, investors were closely watching Wednesday’s 20-year Bond Auction, which ended up having weak demand. Read on to learn more about why this matters.

 

Initial Jobless Claims Move in Wrong Direction

Another 861,000 people filed for unemployment benefits for the first time in the latest week, up 13,000 from the previous week’s revised total that also added 55,000 claims. Ohio (+140K), California (+137K) and New York (+59K) reported the largest gains.

Continuing Claims, which measure people continuing to receive benefits, decreased by 64,000 to 4.5 million. Pandemic Unemployment Assistance Claims (which gives individuals benefits who would not usually qualify) and Pandemic Emergency Claims (which extends claims by 13 weeks after regular benefits expire) dropped by 258,000 and 718,000, respectively.

The total number of continued benefits in all programs for the week ending January 30 was 18.3 million, a decrease of 1.3 million from the previous week. By comparison, there were just 2.1 million weekly claims filed for benefits in all programs in the comparable week in 2020.

The bottom line is that the unemployment picture is not getting any better overall, and actually worsened in terms of new claims in the latest week.

 

Record Low Housing Inventory Remains

Existing Home Sales, which measures closings on existing homes, were up 0.6% in January, which was stronger than the slight drop expected. Sales are up nearly 24% compared to January of last year.

This is especially impressive, as there were only 1.04 million homes for sale at the end of January, which equates to a record low of just a 1.9 months’ supply. Inventory dropped from the 1.07 million homes available at the end of December and it is also 26% lower year over year. Given the stiff competition and record-low inventory, it’s understandable that homes were only on the market for 21 days on average.

The median home price was $303,900, up 14% year over year. Note, this is not the same as appreciation. It simply means half the homes sold were above that price and half were below it. Sales on the low end were down 15%, while sales on homes above $1 million were up 77%. This dragged the median home price higher.

First-time homebuyers increased from 31% in December to 33% in January, even with the stiff competition for homes on the lower end, while cash buyers remained stable at 19%.

 

High Demand Keeps Home Builders Confident

Builder confidence remains strong, due in part to the high demand for houses, per the National Association of Home Builders Housing Market Index. This real-time read on builder confidence rose 1 point to 84 in February, which was a bit stronger than expectations.

Any reading above 50 on this index that runs from 1 to 100 signals expansion. Builder sentiment remains well above that level and also near the highest levels on record.

Breaking down the three components of the index, current sales conditions was stable at 90, future sales expectations fell 3 points to 80, and buyer traffic rose 4 points to 72.

 

Housing Starts Reverse Course in January

After a strong showing in December, Housing Starts (which measure the start of construction on homes) were down 6% in January and they were also 2.3% lower when compared to January of last year. Starts on single-family homes, which are in such high demand from buyers, fell 12.2% from December to January but they were up 17.5% year over year. Inclement weather across the country likely played a role in the monthly declines.

On a positive side, Building Permits (which are a sign of future construction) were up 10.4% from December to January and 22.5% year over year. Permits for single-family homes also moved higher, rising 3.8% from December and nearly 30% compared to January of last year. Hopefully building will continue to expand as we head into the warmer months, to help with the record low levels of homes that are available for sale.

 

Wholesale Inflation Comes in Hot

The Producer Price Index (PPI), which measures wholesale inflation, rose by 1.3% in January, which was three times more than market expectations of 0.4%. On a year over year basis, headline PPI increased from 0.8% to 1.7%.

Core PPI, which strips out volatile food and energy prices, was up 1.2% for the month and increased from 1.2% to 2.0% year over year.

While this is a volatile report and there were some factors that contributed to the rise (for e.g., brokerage fees were up 9.4% and energy prices were much higher), inflation is always something we need to monitor because it reduces the value of fixed investments like Mortgage Bonds. And since home loan rates are inversely tied to Mortgage Bonds, when Bonds worsen or move lower, home loan rates can rise. Though many factors influence the markets, hints of inflation are crucial to keep an eye on.

 

Manufacturing Hinting at Inflation Risk?

The Empire State Index, which measures the health of the manufacturing sector in the New York region, was reported at 12.1 in February, up from 3.5 in January and twice the estimate. Prices received rose 8 pts to 23.4, which is the highest since May 2011 and shows some inflationary pressures.

We know that inflation on the goods side of the economy is occurring due to supply chain issues related to the pandemic, but the services sector is keeping inflation in check for now. However, once the COVID-19 vaccine distribution is more widespread and more businesses and activities open and resume, we could see services inflation return. But at the same time supply chain issues may be resolved, bringing down inflation on goods.

The bottom line is that we will need to closely monitor for any inflation risk later in the year, as rising inflation could impact both Mortgage Bonds and the home loan rates tied to them, as explained above.

 

Weak Demand for 20-Year Bond Auction

All eyes were on Wednesday’s 20-year Bond Auction, with investors looking 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.

And last week’s auction had very weak demand, with the bid to cover (which measures demand) of 2.15, well below the average since the 20-year auctions began last May.

 

Home Hack of the Week

Mason jars are always handy to have around because of the multitude of ways they can help with organizing, recipes and more. Here are just a few ways you can make the most of your Mason jars, courtesy of our friends at Real Simple.

For organizing: Store paper or binder clips, rubber bands and pens in separate jars for a stylish way to have easy access to supplies on your desktop. Mason jars are also a great option for storing crayons and other art and craft supplies, or even sewing items.

For the kitchen: Use Mason jars to preserve fresh basil. Simply trim the ends of the basil and keep on your counter in a Mason jar filled with water. Or, use a Mason jar for a quick and healthy breakfast on the go by layering yogurt, fruit, granola, pumpkin seeds, and maple syrup.

For gifting: Mason jars are a great way to swap or give cookies with flair. Stack your cookies on alternating layers of colorful waxed paper and tie a ribbon around the jar for a perfect presentation.

 

What to Look for This Week

Housing news will once again make headlines, beginning on Tuesday with news on appreciation via the S&P Case-Shiller Home Price Index and the Federal Housing Finance Agency House Price Index for December. Data on January’s New Home Sales and Pending Home Sales follows on Wednesday and Thursday, respectively.

Also on Thursday, we’ll get an update on Gross Domestic Product for the 4th quarter of 2020, Durable Goods Orders for January and the latest weekly Jobless Claims figures.

Ending the week on Friday, the Fed’s favored inflation measure, Personal Consumption Expenditures, will be released along with Personal Income and Spending for January.

 

Technical Picture

After testing support and bouncing higher, Mortgage Bonds are trading in a wide range between two Fibonacci levels, with resistance at 102.047 and support at 101.597. The 10-year came very close to testing resistance at the 38.2% Fibonacci level before moving lower.

 

Todd Abelson - Tucson Mortgages

Tucson Mortgages Home Loan News 2-16-2021

By Todd Abelson NMLS #180858 on .

Week of February 8th, 2021 in Review

The economic calendar may have been quiet, but the reports that were released continue to show the impact of the pandemic on our economy. Plus, two important auctions made headlines.

Another 793,000 people filed for unemployment benefits for the first time in the latest week. Though this was a decline of 19,000, there were upward revisions to the prior week’s data which added 33,000 claims, unfortunately. Continuing Claims, Pandemic Unemployment Assistance Claims, and Pandemic Emergency Claims all remain in the millions. The total number of continued benefits in all programs for the week ending January 23 was 20 million, versus just 2.2 million weekly claims filed for benefits in all programs in the comparable week in 2020.

Small businesses are certainly feeling the pressure as well, which has had an impact on confidence. The National Federation of Independent Business (NFIB) Small Business Optimism Index dropped 0.9 points in December to 95, which is a 9-month low. The Index is now at the lowest level since May, right in the heat of the pandemic. In addition, owners expecting better business conditions over the next six months also reached its lowest level in over seven years, as that reading fell seven points to a net negative 23%.

Consumer inflation remains tame per the latest Consumer Price Index (CPI) report, with Core CPI (which strips out volatile food and energy prices) flat in January and down from 1.6% to 1.4% year over year. Both of these readings were below expectations. Inflation is important to monitor when it comes to Mortgage Bonds and home loan rates, which are tied to them.

Last but certainly not least, all eyes were on the 10-year Treasury and 30-year Bond Auctions on Wednesday and Thursday, respectively. More on their significance below.

 

Jobless Claims Still Staggeringly High

The number of people filing for unemployment benefits for the first time fell by 19,000 in the latest week, as Initial Jobless Claims totaled 793,000. However, there were revisions to the prior week’s data, which added 33,000 claims.

 

Continuing Claims, which measure people continuing to receive benefits, decreased by 145,000 to 4.5 million.

Pandemic Unemployment Assistance Claims, which provide benefits to people who would not usually qualify, and Pandemic Emergency Claims, which extend claims by 13 weeks after regular benefits expire, increased by 1.5 million and 1.2 million respectively.

The total number of continued benefits in all programs for the week ending January 23 was 20 million, an increase of 2.6 million from the previous week. By comparison, there were 2.2 million weekly claims filed for benefits in all programs in the comparable week in 2020.

The bottom line is the unemployment situation remains dire and this was reiterated in remarks by Fed Chair Jerome Powell last week. Powell cited the misclassification errors that have plagued the Labor Department’s reporting since the pandemic began last March and noted that without these errors the unemployment rate would be closer to 10%. Powell also made it clear that the Fed is willing to sacrifice increasing debt to help the economy and that now is not the time to stop their purchases of Mortgage Backed Securities and Treasuries, which have helped stabilize the economy.

 

Consumer Inflation Remains Tame

Consumer inflation rose by 0.3% in January per the latest Consumer Price Index (CPI) report. The year over year reading remained stable at 1.4%, which was less than the 1.5% expected.

Core CPI, which strips out volatile food and energy prices, was flat in January and fell from 1.6% to 1.4% year over year. Both the monthly and yearly figures were 0.2% beneath expectations and show that inflation is really nowhere to be seen.

Why is tame inflation noteworthy?

Remember 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 move higher. Though many factors influence the markets, keeping an eye on inflation is always important.

Also of note, the CPI report showed that rents are rising 2.1% across the US, which is down from 2.3% in the previous report. However, the slowdown is really only happening in big cities like New York, San Francisco and Boston where, according to RealPage, rents are down 16%, 22% and 9% respectively. Of the 150 large metro areas they study, rent gains were seen in 119 markets, including Phoenix, Memphis, Detroit, and Cleveland.

 

All Eyes on Auctions

Investors were closely watching the 10-year Treasury and 30-year Bond Auctions that were held last week on Wednesday and Thursday, respectively. With 10-year yields near their highest level since March and 30-year yields at the highest level since February, investors were looking to see if there would be more demand for Treasuries and Bonds at auction.

Why is this significant?

Demand, which is reflected in the purchasing of Bonds and Treasuries, can push prices higher and yields or rates lower. Weak demand can signal that investors think yields will continue to move higher, which can have a negative effect on rates.

While the 10-year Note Auction had below average demand, there was strong foreign demand (which is shown by direct and indirect bidders taking down 80% of the auction vs the 12-month average of 75%). As a result, it did not have much of an impact on Mortgage Bond prices, but yields did move a little lower on the 10-year after the release.

The 30-year Bond Auction was also met with below average demand, which caused Mortgage Bonds to move a bit lower afterwards.

 

Home Hack of the Week

With dining out decreasing over the last year, your dishwasher has likely been working overtime. If you’ve been noticing residue on your dishes as you unload them, these simple dishwasher maintenance steps from This Old House can help them sparkle again.

Remove the racks and scrub with mild detergent to clean any soap scum buildup. Soak the silverware holder as well. Use white vinegar to wipe out any detergent fragments in the dispenser, and to wipe off any residue on the sides, bottom and top of your dishwasher.

Check the sprayer arm for any clogs and use a toothpick or cotton swab to remove any food particles blocking the holes. Also, make sure the nozzle where the arm screws in is free of any buildup. And check the drain beneath the lower rack to make sure there aren’t any stuck particles.

Lastly, place a bowl of white vinegar on the lower rack and run the dishwasher to remove any remaining residue. You can also sprinkle baking soda on the bottom of the dishwasher and run a cycle to help with any stains or odors.

 

What to Look for This Week

After the market closures Monday for the Presidents Day holiday, the rest of the week is filled with key reports on housing, manufacturing and more.

Kicking off the week on Tuesday, we’ll get an update on manufacturing in the New York region for February with the Empire State Index, while the Philadelphia Fed Index follows Thursday.

On Wednesday we’ll get a real-time read on builder confidence with the National Association of Home Builders Housing Market Index. Thursday brings data on Housing Starts and Building Permits for January, with January’s Existing Home Sales being reported on Friday.

In addition, we’ll get an update on how retailers fared in January when the latest Retail Sales figures are reported on Tuesday, while Wednesday brings news on wholesale inflation with the Producer Price Index and the minutes from the Fed’s January 26-27 meeting. And on Thursday, the latest Jobless Claims figures remain critical to monitor when they’re reported at their usual time.

 

Technical Picture

The Fed continues to provide stability to the markets with its ongoing purchases of Mortgage Backed Securities. Mortgage Bonds accelerated their losses after breaking beneath the 200-day Moving Average and almost touched right on the next floor of support at 102.497, which did hold the last time it was tested on January 12th. The 10-year broke above 1.19% and has room to move higher until testing 1.25%.

 

Todd Abelson - Tucson Mortgages

Tucson Mortgages Home Loan News 2-8-2021

By Todd Abelson NMLS #180858 on .

Week of February 1st, 2021 in Review

The latest employment reports show that the pandemic continues to take its toll on families and businesses around the country, as we are still down 10 million jobs compared to before the pandemic began.

The closely watched Bureau of Labor Statistics report showed that there were 49,000 job gains in January, which was in line with market expectations. The Unemployment Rate did decrease from 6.7% to 6.3% and while that sounds like great news, there is much more to that story, as explained below. The ADP Employment Report for November showed a gain of 174,000 jobs in the private sector, higher than expected, though just a fraction of the job gains we need to be seeing.

The latest Weekly Jobless Claims report showed that the number of people filing for unemployment benefits for the first time did decrease in the latest week, as did the number of people continuing to receive benefits. However, these figures remain so much higher than a year ago, underscoring that our recovery still has a long way to go.

Despite the employment struggles many people are facing, the housing market remains a bright spot in our economic recovery as home prices continue to show strong appreciation gains. Home prices increased 1% from November to December and 9.2% compared to December 2019, per CoreLogic’s Home Price Index report. Within the report, the hottest markets were Phoenix (+13.7%), San Diego (+10.4%) and Washington (+8.8%).

 

Looking Deeper Into the Jobs Report Headlines

The Bureau of Labor Statistics reported that there were just 49,000 jobs created in January, which was in line with expectations. However, there were negative revisions to the data for both November and December, amounting to a loss of an additional 159,000 jobs in those months.

Looking more closely at the numbers, 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, which showed that there were 201,000 job creations, while the labor force decreased by 406,000. In addition, the number of unemployed people decreased by 586,000 but for the wrong reasons, unfortunately, as more people are leaving the labor force.

The Unemployment Rate improved from 6.7% to 6.3%, which is a sizable move lower. While this sounds like good news on the surface, it’s important to dig deeper, as you may be wondering how the unemployment rate is 6.3% when we are still 10 million jobs lower compared to where our economy was before the pandemic.

The reason is that people who are unable to look for work due to pandemic reasons, who are still unemployed, are not counted. That number equates to 4.7 million people. When you add them back into the calculations, the real unemployment number is 9.3%.

In addition, there has been a lingering misclassification error where people were classified as absent from work for other reasons and not marked as unemployed on temporary layoff when they should have been. Without this error, the headline unemployment rate would have been 0.6% higher or 6.9%, while the real unemployment rate counting those who are unable to look for work due to pandemic reasons would be at 9.9%.

The all in U6 Unemployment Rate, which includes total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, decreased from 11.7% to 11.1%.

Average hourly earnings increased from 5.1% to 5.4% year over year. Average weekly earnings, which we focus on more, rose 6.4% to 7.5%. Weekly earnings measure what people actually take home and this latest data shows that this level of income can support much greater levels of appreciation than we are currently seeing without homes being unaffordable. People don’t use their entire income for their mortgage payment, so the weekly earnings figure does not have to rise at the same pace as appreciation.

 

Private Payrolls Rise in January

The ADP Employment Report, which measures private sector payrolls, showed that 174,000 jobs were created in January, which was stronger than the 49,000 job gains that were expected. December’s report was also revised higher by 45,000 jobs, decreasing the job losses in that month from 123,000 to 78,000 losses.

Breaking down the numbers, there were job gains across all sizes of businesses. Small businesses (1-49 employees) gained 51,000 jobs, mid-sized businesses (50-499 employees) gained 84,000 jobs, and large businesses (500 or more employees) gained 39,000 jobs.

While January’s job gains are certainly a step in the right direction, we need to make a much bigger dent in regaining the millions of jobs that have been lost throughout the pandemic.

 

Jobless Claims Remain Elevated

Initial Jobless Claims remain extremely elevated, unfortunately, as another 779,000 people filed for unemployment benefits for the first time in the latest week. This was a slight improvement, however, with a decline of 33,000 claims from the previous week.

Continuing Claims, which measures people who continue to receive benefits, also decreased by 193,000 to 4.6 million. Note that Continuing Claims data runs a week behind Initial Jobless Claims.

Pandemic Unemployment Assistance Claims, which provide benefits to people who would not usually qualify, and Pandemic Emergency Claims, which extend claims by 13 weeks after regular benefits expire, also improved slightly. However, the number of people receiving these benefits remains in the millions, at 7.2 million and 3.6 million, respectively.

The total number of continued benefits in all programs for the week ending January 16 was 17.8 million, a decrease of 486,405 from the previous week. But putting this into perspective, there were just 2.1 million weekly claims filed for benefits in all programs in the comparable week in 2020.

 

Strong Home Price Appreciation Continues

The latest CoreLogic Home Price Index report showed that home prices increased 1.0% from November to December and 9.2% on a year over year basis. This annual increase is a significant gain from the 8.2% year over year gain reported for November and the highest annual home price gain for this index since February 2014.

Within the report, the hottest markets were Phoenix (+13.7%), San Diego (+10.4%) and Washington (+8.8%).

CoreLogic forecasts that home prices will rise 0.2% in January and 2.9% in the year going forward, which is better than the 2.5% annual forecast in the previous report (though still much lower than most forecasts). Remember, not that long ago they were expecting a 6.6% decline in home prices.

 

Family Hack of the Week

Everyone loves pancakes, and on Valentine’s Day who can say no to heart-shaped ones! Surprise your family with this extra-special and delicious breakfast treat, courtesy of Martha Stewart.

Heat a griddle pan over medium-high heat or preheat a griddle to 375 degrees Fahrenheit. Whisk 1 cup all-purpose flour, 2 tablespoons sugar, 2 teaspoons baking powder, and 1/2 teaspoon salt in a medium bowl. Lightly beat 1 egg and add it to the bowl, along with 1 cup whole milk and 2 tablespoons unsalted, melted butter. Whisk to combine so that the batter has small to medium lumps.

Preheat oven to 175 degrees Fahrenheit. Test the griddle or pan by sprinkling with a few drops of water. If water bounces and spatters, it is hot enough. Use a paper towel to brush 1/2 teaspoon of butter onto the griddle, wiping off the excess.

Add batter to a pastry bag fitted with a 1/4-inch plain round tip, twisting the end of the bag and securing it with a rubber band. Working in batches, pipe heart shapes onto the heated griddle, drawing a “V” of batter in the center of the hearts to fill them. When pancakes have bubbles on top and are slightly dry around the edges, flip over (approximately 2 minutes). Cook until golden on the bottom, about 1 additional minute.

Repeat with the remaining batter, using 1/2 teaspoon butter on the griddle for each batch. Keep finished pancakes on a heat-proof plate in the oven until ready to serve with your favorite syrup.

 

What to Look for This Week

This week’s calendar is relatively quiet with just a handful of reports scheduled throughout the week. On Tuesday, we’ll get an update on how confident small businesses were feeling in January with the National Federation of Independent Business Small Business Optimism Index.

Wednesday brings news on consumer inflation with January’s Consumer Price Index. And on Thursday, the latest jobless claims figures will be reported, as usual.

 

Technical Picture

The Fed continues to provide stability to the markets with its ongoing purchases of Mortgage Backed Securities. Mortgage Bonds have been clinging to the 103.053 Fibonacci level, which is above strong support at their 200-day Moving Average. Meanwhile, the 10-Year is right at a solid ceiling that has held the last few times it was tested and should prevent yields from moving higher.

Todd Abelson - Tucson Mortgages

Tucson Mortgages Home Loan News 2-1-2021

By Todd Abelson NMLS #180858 on .

Week of January 25th, 2021 in Review

Jobless claims remain at elevated levels, unfortunately, as another 847,000 people filed for unemployment benefits for the first time during the week ending January 23. Meanwhile, 4.7 million people continue to receive benefits. There was a sliver of good news, however, as the recent extension of pandemic benefits has kicked in for many families across the country who are relying on this assistance.

The housing market remains red hot nationwide, as home prices continue to appreciate. The Case-Shiller Home Price Index reported a 9.5% annual gain in home prices nationwide in November, up from an already strong reading of 8.4% in October. The Federal Housing Finance Agency (FHFA) House Price Index, which measures home price appreciation on single-family homes with conforming loan amounts, showed that home prices were up 11% annually in November. Again, this was even higher than the 10.2% annual reading for October.

Meanwhile, sales of new homes notched up 1.6% from November to December. Though this was a bit below expectations, sales are still up over 15% year over year, which is especially impressive given the inventory challenges that have persisted around the country. Pending Home Sales were essentially flat in December, though they equaled the highest December reading ever, which again speaks to the high demand for homes.

In other news, the first look at GDP for the first quarter of 2020 came in at 4%, which was lower than expectations of 4.2%. For all of 2020 GDP declined 3.5%, marking the worst year since at least the end of World War II. Meanwhile, the Fed’s favorite inflation measure, Personal Consumption Expenditures, showed that inflation was hotter than expected in December but still tame overall.

Speaking of the Fed, they held the first Federal Open Market Committee meeting of the year. While the Monetary Policy Statement didn’t really contain many surprises, of note the Fed said they will continue to buy at least $120 billion of Mortgage Backed Securities and Treasuries per month, which has helped stabilize the markets. The Fed also said that economic growth has “moderated in recent months” and that the pace of the recovery depends on the path of the virus and the vaccine distribution.

 

Important Jobless Benefit Extensions Kick In

Initial Jobless Claims, which measures people filing for unemployment benefits for the first time, equaled 847,000 in the latest week, though this was a decline of 67,000 from the previous week.

The number of people continuing to receive benefits also declined by 203,000, though this remains extremely elevated at 4.7 million.

Pandemic Unemployment Assistance Claims, which provide benefits to people who would not usually qualify, increased by 1.6 million after falling by 1.7 million in the previous week. This is likely due to the extension of benefits seen in the recent stimulus legislation, where people are receiving this much-needed assistance again after falling off for a time.

Similarly, Pandemic Emergency Claims, which extend claims by 13 weeks after regular benefits expire, increased by 836,000 after falling in the previous report. Again, this likely reflects people once more receiving this help due to the extension.

 

December’s Home Sales Impressive Given Inventory Challenges

New Home Sales, which measure signed contracts on new homes, were up 1.6% from November to December. Though this was slightly lower than expectations, sales are still up over 15% year over year, which is especially impressive given that supply has been so much lower than demand. In fact, homes that have been sold but not started are up 33% year over year, which speaks to the high demand.

Though there was some good news in that regard, as inventory went from being down 13% annually to down 6%, which is likely due to some of the new supply we have seen in recent Housing Starts reports.

The median home price was reported at $355,900, up 8% year over year. Remember, this figure is not the same as appreciation. It simply means that half the homes sold were above that price and half were below it.

Pending Home Sales, which measure signed contracts on existing homes, were essentially flat in December, ticking down 0.3% from November. But they reached the highest December reading ever and given that normally there is a slowdown in the housing market around the holidays, this is another sign of the high demand for housing. In addition, sales were up 21.4% annually, which again is amazing in the face of record low inventory levels that are down 23% over that same period.

 

Home Price Appreciation Remains Red Hot

The Case-Shiller Home Price Index, which is considered the “gold standard” for appreciation, showed that there was a 9.5% annual gain in home prices nationwide in November. This was up from an already strong reading of 8.4% in October.

The 20-city Index rose at the quickest pace in 6 years, rising from 7.9% to 9.1% year over year, with all of the cities showing strong gains. Phoenix (+13.8%), Seattle (+12.7%) and San Diego (+12.3%) reported the highest annual gains among the 20 cities.

The Federal Housing Finance Agency also released their House Price Index, which measures home price appreciation on single-family homes with conforming loan amounts. Note that 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.

As such, it should be no surprise that the report was even stronger than Case-Shiller’s.  Home prices rose 1% in November and are up 11% compared to November of 2019, which is much higher than the 10.2% annual reading in the previous report.

 

Inflation Hotter Than Expected But Still Tame

The Fed’s favored inflation measure, Personal Consumption Expenditures (PCE), showed that inflation was up 0.4% from November to December, which was hotter than expectations of 0.3%. Year over year, inflation increased from 1.1% to 1.3%, as expected.

Core PCE, which strips out volatile food and energy prices and is the Fed’s real focus, was up 0.3% in December. Again, this was hotter than the 0.1% rise anticipated. On an annual basis, Core PCE increased from 1.4% to 1.5%; market expectations were for a 1.3% reading.

Even with the slightly hotter readings, inflation is still at very tame levels. Why does tame inflation matter?

Inflation reduces the value of fixed investments, like Mortgage Bonds, meaning rising inflation can cause Bonds to worsen or move lower. Home loan rates are inversely tied to Mortgage Bonds, so when Bonds worsen, home loan rates can rise. Though many factors influence the markets, tame inflation can benefit Mortgage Bonds and help home loan rates remain low.

 

Family Hack of the Week

The Super Bowl is this Sunday and this easy guacamole recipe from Delish is the perfect gameday (or any day) treat!

Cut open three avocados and remove the pits. In a large bowl, combine them with the juice of two limes, 1/4 cup freshly chopped cilantro, 1/2 of a finely chopped small white onion, 1 small minced jalapeno and 1/2 teaspoon of Kosher salt.

If you like some spice in your guacamole, keep the seeds in the jalapeno. Otherwise remove the seeds before adding it to the bowl.

Stir, slowly turning the bowl while running a fork through the avocados so they stay chunky. Add additional salt if needed, garnish with cilantro, and enjoy with your favorite chips and hopefully an exciting game!

 

What to Look for This Week

Manufacturing news kicks off the week on Monday when the ISM Index for January is reported.

Then, reports from the labor sector dominate the rest of the week. On Wednesday, January’s ADP Employment Report will give us the latest data on private payrolls while the latest weekly Jobless Claims figures will be released as usual on Thursday.

Ending the week on Friday, the highly anticipated Bureau of Labor Statistics Jobs Report for January will be released, which includes Non-farm Payrolls and the Unemployment Rate.

 

Technical Picture

The Fed continues to provide stability to the markets with its ongoing purchases of Mortgage Backed Securities. Mortgage Bonds are trading in a range between a ceiling of resistance at their 25-day and 100-day Moving Averages and a floor of support at the 103.053 Fibonacci level.

 

Todd Abelson - Tucson Mortgages