Tucson Mortgages Home Loan News 7-19-2021

By Todd Abelson NMLS #180858 on .

Week of July 12, 2021 in Review

Inflation at both the consumer and wholesale levels came in much hotter than expected, and Fed Chair Jerome Powell made some important comments about this. Plus, Initial and Continuing Jobless Claims reached post-pandemic lows.

Consumer inflation as measured by the Consumer Price Index (CPI) rose by 0.9% in June while the year over year reading increased from 5% to 5.4% – the highest annual increase in almost 13 years! Core CPI, which strips out volatile food and energy prices, almost doubled expectations as it was up 0.9% in June while year over year Core CPI saw the highest increase in 29 years! However, there are several important nuances to this report, especially regarding rent prices, as detailed below.

Wholesale inflation was also much hotter than expected, per the Producer Price Index (PPI), which rose 1% in June and 7.3% on a year over year basis (up from 6.6%). Core PPI also rose more than expected.

Inflation is critical to monitor because rising inflation can have a big impact on Mortgage Bonds and the home loan rates tied to them. And one of the biggest questions at the moment is whether the factors impacting inflation are transitory. Fed Chair Powell made important remarks on this very point last week, which we delve into as well.

Initial Jobless Claims declined by 26,000 in the latest week, as the number of people filing for unemployment benefits fell to 360,000, which is a post-pandemic low. The number of people continuing to receive regular benefits also came in at a post-pandemic low of 3.2 million, while pandemic-related benefits declined as well. A total of 13.8 million people are still receiving benefits throughout all programs, which is down 334,000 from the previous week. This data does seem to reflect the impact of states that have already ended extended benefits.

Retailers had something to celebrate as sales rose by 0.6% in June, which was better than the expected 0.4% decrease. However, May’s figure was revised lower from a loss of 1.3% to a loss of 1.7%. And optimism is growing among small businesses, per the National Federation of Independent Business Optimism Index, which rose to 102.5 in June, the first time it was over 100 since last November.

Lastly, investors were closely watching Monday’s 10-year Treasury Note Auction and Tuesday’s 30-year Bond Auction, which ended up having differing results. Find out how the markets reacted.

 

Inflation Much Hotter Than Expected

The Consumer Price Index (CPI), which measures inflation on the consumer level, rose by 0.9% in June, which was much hotter than the 0.5% increase that was expected. The year over year reading increased from 5% to 5.4%, which was the highest year over year increase in almost 13 years!

Core CPI, which strips out volatile food and energy prices, was also up 0.9% in June, almost double expectations. On a year over year basis, Core CPI increased from 3.8% to 4.5%, which is the highest year over year increase in 29 years!

Within the report, rents rose 0.2% in June, increasing by only 1.9% on a year over year basis. Owners’ equivalent rent rose 0.3% in June and 2.3% year over year. But there are several important things to understand about this data, which is based on a survey that asks homeowners, “If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities?”

Understandably, this is very subjective and many people would be guessing how much their home would rent for. This is the way the CPI tries to account for the change in home prices – and this component makes up 24% of the CPI report!

This data regarding rent is significantly lagging other rental indexes that have shown 5%+ increases in rental prices. In other words, an argument can be made that even though consumer inflation is hot, it could actually be hotter by 1% because this component of the index is so flawed.

However, on the other side of the coin, this type of inflation is not felt by everyone, as people only experience housing or rental inflation when they purchase or start a new lease agreement.

Wholesale inflation was also much hotter than expected, per the Producer Price Index (PPI), which rose 1% in June and 7.3% on a year over year basis (up from 6.6%). Core PPI, which again strips out food and energy prices, rose 1% in June and 5.6% on a year over year basis. This annual reading was also much hotter than expectations and up from 4.8%.

 

Is the Fed Blinded to Inflation?

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

One of the biggest questions right now is whether or not some of the factors influencing inflation are going to be transitory. Last week, Fed Chair Jerome Powell testified in front of Congress and in his prepared remarks, he said that the Fed will alter monetary policy only if inflation is materially and persistently on a higher path. However, he did state during the Q&A session that inflation was hotter than the Fed expected and that they expect hot inflation to continue until moderating in the medium term.

And of note, Treasury Secretary Janet Yellen said that she expects several more months of hot inflation, echoing his thoughts.

One thing that Powell may be looking at is the breakdown of the inflation data within the CPI report, as 10% of the components made up the majority of the rise. For example, items like cars and computers that need chips, leisure and hospitality, and airline tickets all rose 5% last month. When we look at the other 90% of the components, they only rose 0.2% from May to June and 2.1% year over year. The Fed seems to be banking on these being transitory bottlenecks.

Keeping an eye on inflation is always important and remains especially critical in the coming months, to see if these factors are indeed transitory. And watching to see what actions the Fed does – or doesn’t – take to alleviate inflation will be crucial as well.

Powell also reiterated that the Fed will be giving lots of notice before tapering their purchases of Mortgage Backed Securities (MBS) and Treasuries, which have been ongoing to help stabilize the markets. The Fed’s upcoming meetings should give further clarity regarding this timing. Given Powell’s comments, they may not be on pace to begin tapering until 2022..

 

Initial and Continuing Jobless Claims Reach Post-Pandemic Lows

The number of people filing for unemployment for the first time fell by 26,000 in the latest week, as Initial Jobless Claims reached 360,000. California (+58K), New York (+33K) and Texas (+32K) reported the largest number of claims.

The number of people continuing to receive regular benefits also decreased by 126,000 to 3.2 million.

Pandemic Unemployment Assistance Claims (which provide benefits to people who would not usually qualify) and Pandemic Emergency Claims (which extend benefits after regular benefits expire) fell as well, by 334,000 combined.

All told, 13.8 million people are still receiving benefits throughout all programs, which is down 334,000 from the previous week. We have seen this number decline by roughly 800,000 over the past two weeks. Although this data is lagging (due to the time it takes people to find employment, and then for the reporting to occur), it would appear that we are seeing the impact from some of the states that cut extra benefits ahead of the Labor Day expiration.

A Note Regarding Housing Inventory

According to a new report from the National Association of Realtors, construction of long-term housing fell 5.5 million units short of historical levels over the past 30 years. To address the issue, the report shows that over 2 million housing units would need to be added per year.

While construction has picked up, even if building were to continue at the current pace, it would still take more than 20 years to close the 5.5-million-unit housing gap. This is further proof that inventory levels will remain tight for the foreseeable future, and this week’s upcoming reports on Housing Starts, Building Permits and Existing Home Sales will provide important news on construction and inventory as well.

 

Auctions Have Mixed Results

All eyes were on Monday’s 10-year Treasury Note Auction and Tuesday’s 30-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.

Monday’s 10-year Treasury Note Auction was met with above average demand. The bid to cover of 2.39 was just under the one-year average of 2.42. Direct and indirect bidders took 81% of the auction compared to 77.5% of the auction in the previous 12. Mortgage Bonds improved on the news, while Treasury Yields fell from their intraday highs.

However, Tuesday’s 30-year Bond Auction was met with below average demand. The bid to cover of 2.19 was below the one-year average of 2.33. Direct and indirect bidders took 77.7% of the auction compared to 80% in the previous 12. Mortgage Bonds reacted negatively to the news.

 

Family Hack of the Week

Is a summer paint project on your list of to do’s? These quick prep tips courtesy of our friends at Real Simple will help ensure a smooth finish.

First, patch any holes with spackle, and once that dries sand it lightly until smooth. Be sure to use a damp cloth to wipe away any dust or debris before you start painting. Wipe down all of your walls, baseboards and ceiling corners as well to ensure you have fully clean and dust-free surfaces.

Painter’s tape is crucial for clean lines along the trim, molding, floor and any surfaces you don’t want paint on. Try to remove the painter’s tape while the paint is still tacky, which can help avoid pulling off the paint once it’s dried.

Don’t skip the primer, as it can help hide unevenness and imperfections as well as help paint adhere to the walls. Also, if you have any gaps between the wall and trim, consider caulking before applying new paint.

Tarps are crucial for keeping floors and any furniture you can’t remove from the room safe from paint splatters. And before you start painting, make sure you have all your supplies handy, including brushes, rollers and trays, stirrers, a can opener or screwdriver, painter’s tape, and rags.

 

What to Look for This Week

Housing news highlights the week ahead, beginning Monday with July’s National Association of Home Builders Housing Market Index, which is a near real-time read on builder confidence.

June’s Housing Starts and Building Permits follow on Tuesday, with Existing Home Sales for June being released on Thursday.

Also on Thursday, the latest weekly Jobless Claims data will be reported, while Wednesday’s 20-year Bond Auction has the potential to move the markets.

 

Technical Picture

Mortgage Bonds continue to trade in the middle of a wide range between support at the 50-day Moving Average and overhead resistance at 103.782. The 10-year ended last week trading at 1.30% after testing support at 1.29% on Thursday.

 

Todd Abelson - Tucson Mortgages

Tucson Mortgages Home Loan News 7-12-2021

By Todd Abelson NMLS #180858 on .

Week of July 5, 2021 in Review

After the Independence Day fireworks on Sunday, the rest of the week was quiet with just a handful of economic reports to note.

There was news from the housing sector, with more evidence that home prices continue to appreciate nationwide. CoreLogic reported that home prices increased 2.3% from April to May and 15.4% compared to May of last year. Within the report, the hottest markets were Phoenix (+24%), San Diego (+19%) and Denver (+16%).

While the number of people filing for unemployment for the first time rose slightly in the latest week, per the latest Initial Jobless Claims data, there were significant declines in the number of people receiving continuing and pandemic extended benefits. This could be a result of the 22 states that have ended extra benefits thus far. All in all, 14.2 million individuals are still receiving benefits throughout all programs, which is down 450,000 from the previous week.

On a related note, the JOLTS (Job Openings and Labor Turnover Survey) report showed that there were 9.2 million job openings in May, which is a record high. Meanwhile, the National Federation of Independent Business released its June Small Business Jobs Report, which noted that 46% of small business owners reported job openings they could not fill last month. In addition, per the NFIB’s report, this struggle to find qualified workers has caused compensation to rise, as a net 39% (seasonally adjusted) of owners raised compensation, which is a record high.

Lastly, the minutes from the Fed’s June meeting were released and they showed that members noted that risks to inflation projections were tilted to the upside and that the process of reopening the economy has likely been uneven across different sectors.

The minutes also showed that there was disagreement between members over the process of tapering the Fed’s purchases of Mortgage Backed Securities (MBS) and Treasuries, which have been ongoing to help stabilize the markets. Read on to learn more about the differing opinions.

 

Home Price Appreciation Continues

CoreLogic released their Home Price Index report for May, showing that home prices increased 2.3% from April. Prices also rose 15.4% on a year over year basis, which is up from the 13% annual gain reported for April.

Within the report, the hottest markets once again were Phoenix (+24%), San Diego (+19%) and Denver (16%).

CoreLogic forecasts that home prices will rise 0.8% in June and 3.4% in the year ahead. However, it’s important to note that CoreLogic has consistently under forecast both monthly and annual appreciation while then slowly revising their numbers higher. For example, just looking at the latest report, CoreLogic had forecasted 1.1% appreciation for May – and yet they reported 2.3%. In addition, they previously forecasted home prices would be down 6.6%…while we are up 15.4%. It is likely appreciation will be higher than what they have forecasted moving ahead, which is consistent with other forecasts out there.

 

Significant Declines in Continuing and Pandemic Jobless Claims

Initial Jobless Claims moved in the wrong direction in the latest week, as the number of people filing for unemployment for the first time rose slightly to 373,000. California (+59K), Pennsylvania (+31K) and New York (+25K) reported the largest number of claims.

However, the number of people continuing to receive regular benefits decreased by 145,000 to 3.3 million.

Pandemic Unemployment Assistance Claims (which provide benefits to people who would not usually qualify) and Pandemic Emergency Claims (which extend benefits after regular benefits expire) fell by 465,000 combined.

While there was not much of a change in Initial Jobless Claims, the significant declines in the number of continuing and extended benefits could be a result of the 22 states that have ended extra benefits thus far.

All in all, 14.2 million individuals are still receiving benefits throughout all programs, which is down 450,000 from the previous week.

On a related note, the JOLTS report showed that there were 9.2 million job openings in May, which is a record high. Though the JOLTS report is for May while weekly claims are more real-time, it will be important to see if the number of job openings declines in the coming months and especially come September once all states will be removing extra benefits.

 

Compensation Rising At a Record Level

The National Federation of Independent Business released its June Small Business Jobs Report, which noted that 46% of small business owners reported job openings they could not fill last month. This is down two points from May but still well above the 48-year historical average of 22%.

This struggle to find qualified workers has caused compensation to rise at a record level. A net 39% (seasonally adjusted) of owners raised compensation, which is up five points and a record high. In addition, a net 26% plan to raise compensation in the next three months, which is up four points.

 

Fed Members Debate Taper Timing

The minutes from the Fed’s June 15-16 meeting were released and they showed that there was disagreement between members over the process of tapering the Fed’s purchases of Mortgage Backed Securities (MBS) and Treasuries, which have been ongoing to help stabilize the markets.

Some members saw benefits to reducing the pace of MBS purchases in light of pressures in the housing market, whereas others felt both MBS and Treasuries should be reduced simultaneously. Fed officials noted that ‘substantial further progress’ toward their maximum employment and price stability goals has not yet been met, which remains a determining factor in their decision.

The Fed said that they would provide notice well in advance of an announcement to reduce purchases. This means, for instance, if they are considering tapering their purchases near the end of the year, they would have to announce this at their July 27-28 meeting in a few weeks, their meeting in Jackson Hole at the end of August, or their September 21-22 meeting. It’s likely we will get more clues at the meeting this month and estimate a taper plan announcement in August or September.

And of note, members also said that risks to inflation projections were tilted to the upside. This is significant because inflation reduces the value of fixed investments like Mortgage Bonds, to which home loan rates are inversely tied. In other words, rising inflation can cause Mortgage Bonds to worsen or move lower and home loan rates to rise. Though many factors impact the markets, inflation is always important to monitor.

 

Family Hack of the Week

Summer means its watermelon season. This light and refreshing Watermelon and Mint Agua Fresca recipe from Epicurious is the perfect and flavorful way to cool off on a hot day.

Combine 1/4 cup each of packed fresh mint leaves, sugar and water in a small pot. Bring to a boil and stir until the sugar dissolves.

Pour mixture into a heatproof container and chill uncovered until cool (approximately 30 minutes).

Strain the mint syrup mixture into a blender and discard the mint leaves. Add 5 cups of seedless, chopped watermelon and 1/4 cup fresh lime juice and blend until smooth. Strain into a pitcher using a fine mesh sieve; discard the solids.

Add 2 cups of water and stir well to combine. Garnish with mint and enjoy!

 

What to Look for This Week

Inflation will once again make headlines, beginning Tuesday when the Consumer Price Index for June will be reported. We’ll also get an update on wholesale inflation on Wednesday when June’s Producer Price Index is released.

Tuesday also brings an update on how small businesses are feeling with the National Federation of Independent Business Small Business Optimism Index.

On Thursday, the latest weekly Jobless Claims data will be reported as usual, along with regional manufacturing news for July via the Empire State Index and Philadelphia Fed Index.

Ending the week on Friday, June’s Retail Sales report will be released.

There are also two important auctions to note, with the 10-year Note auction coming first on Monday, followed by the 30-year Bond auction on Tuesday.

 

Technical Picture

Mortgage Bonds were pushed lower from overhead resistance and are now in a wide range between the 103.782 ceiling and support at the 50-day Moving Average. The upward trendline is still intact but if this is broken, Bonds will likely move lower to the 50-day Moving Average. The 10-year bounced higher off 1.29% and ended last week trading at 1.36%.

 

Todd Abelson - Tucson Mortgages

 

Tucson Mortgages Home Loan News 7-6-2021

By Todd Abelson NMLS #180858 on .

Week of June 28, 2021 in Review

There were plenty of fireworks ahead of the Independence Day holiday, as key labor and housing reports showed strong job creations and sizzling home appreciation.

The highly anticipated Jobs Report from the Bureau of Labor Statistics (BLS) showed that there were 850,000 jobs created in June. This was stronger than expectations of 700,000 new jobs, and there were also slight positive revisions to April and May in the amount of 15,000 more jobs in those months combined. However, the Unemployment Rate actually ticked up from 5.8% to 5.9%, which has to do with the two different surveys within the report. Read on for more details regarding this.

Private sector job creations also beat expectations in June, as the ADP Employment Report showed a gain of 692,000 jobs, which was almost 100,000 more jobs than expected. However, May’s report was revised lower by nearly that same amount. Job gains were seen across all sizes of businesses, while leisure and hospitality jobs again led the way with 332,000 new jobs in that sector.

Initial Jobless Claims once again hit their lowest level since the pandemic began, dropping 51,000 in the latest week to 364,000. All in all, 14.7 million individuals are still receiving benefits throughout all programs, which is down 180,000 from the previous week. In addition, 22 states have opted out of additional state unemployment benefits, and these states are seeing people return to work at a better than 2-to-1 margin. However, real challenges remain for many families, especially parents who have lost access to important after-school programs and other childcare options.

Hot home prices shared headlines with the record-high temperatures across much of the country. Home prices rose 14.6% year over year in April, per the Case-Shiller Home Price Index. This is a 30-year high and even stronger than the 13.2% annual appreciation reported in March. The Federal Housing Finance Agency (FHFA), which measures home price appreciation on single-family homes with conforming loan amounts, also came in strong, with home prices up 1.8% from March to April and 15.7% year over year.

Despite low inventory and soaring appreciation, demand for homes remains strong around the country. Pending Home Sales, which measure signed contracts on existing homes, increased by 8% in May, which was well above the 1% decline expected. Year over year, Pending Home Sales are up 13%.

Lastly, over in the manufacturing sector, the ISM Index did decline to 60.6 in June, with labor challenges remaining a key hurdle to growth. However, any reading above 50 indicates expansion. In regional news, the Chicago PMI also fell in June, though the readings this spring have been strong overall.

 

June Job Creations Beat Expectations Yet Unemployment Rate Increases

The Bureau of Labor Statistics (BLS) reported that there were 850,000 jobs created in June, which was stronger than expectations of 700,000 new jobs. In addition, there were slight positive revisions to April and May in the amount of 15,000 more jobs in those months combined.

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 there were 18,000 job losses while the labor force increased by 151,000. The number of unemployed people also increased by 168,000, causing the Unemployment Rate to rise from 5.8% to 5.9%.

June’s data is a perfect example of how the Jobs Report can be a tale of two reports, where we can see disparity in job creations between both surveys.

In addition, it’s important to further analyze these 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 that number equates to 1.6 million people. When we add this into the calculations, along with the 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), the real Unemployment Rate is around 7%.

Wages were on the rise, as average hourly earnings were up 0.3% in June after rising 0.5% and 0.7% in May and April, respectively. Year over year, these figures were up by 3.6%.

Average weekly earnings, which we focus on more because it measures what people actually take home, were basically unchanged after rising 0.5% and 1% in the previous two months. Average weekly earnings were unchanged due to the drop in hours, likely due to the manufacturing sector where there are not enough parts to keep people working. Year over year weekly earnings are up 4%, but if you extrapolate the last 3 months’ numbers over the course of the year, weekly earnings would increase by 6%.

And of note, leisure and hospitality wages increased by 1% month over month after rising more than 1% in May as businesses in those sectors ponied up to try to get much needed staff to return to work.

 

June Private Payrolls Higher Than Expected

The ADP Employment Report, which measures private sector payrolls, showed that there were 692,000 jobs created in June, which was almost 100,000 more jobs than expected. However, May’s report was revised lower by nearly that same amount, bringing the total number of jobs created in May from 978,000 down to 886,000.

Leisure and hospitality again led the way with 332,000 new jobs, while education/healthcare and trade/transportation/utilities added 123,000 and 62,000 jobs respectively. In total, the service-providing sector added 624,000 new jobs. The goods-producing sector added 68,000 jobs, with manufacturing adding 19,000 and construction adding 47,000.

Job gains were present across all sizes of businesses. Small businesses (1-49 employees) gained 215,000 jobs, mid-sized businesses (50-499 employees) gained 236,000 jobs, and large businesses (500 or more employees) gained 240,000 jobs.

After losing almost 20 million jobs during the pandemic, we have recovered back almost 13 million. However, there are still 7 million jobs that are unrecovered while there are 9.3 million job openings.

 

Initial Jobless Claims Tick Lower But Remain Elevated

The number of people filing for unemployment benefits fell by 51,000 in the latest week, as Initial Jobless Claims were reported at 364,000, which is a post-pandemic low. California (+57K), Pennsylvania (+26K) and Illinois (+20K) reported the largest number of claims.

However, the number of people continuing to receive regular benefits increased by 56,000 to 3.5 million.

Pandemic Unemployment Assistance Claims (which provide benefits to individuals who would not usually qualify) and Pandemic Emergency Claims (which extend benefits after regular benefits expire) fell by 28,000 combined.

All in all, 14.7 million individuals are still receiving benefits throughout all programs, which is down 180,000 from the previous week. In addition, 22 states have opted out of additional state unemployment benefits, and these states are seeing people return to work at a better than 2-to-1 margin.

Extended benefits are supposed to fully expire after Labor Day and assuming they’re not extended again, we will likely see claims drop further. But the situation does remain complicated, especially for many families who need schools and childcare to fully reopen.

 

Pending Home Sales Soar Above Expectations

Pending Home Sales, which measure signed contracts on existing homes, increased by 8% in May, which was well above the 1% decline expected. Year over year, Pending Home Sales are up 13%.

Buyers are still lining up at a feverish pace, according to the National Association of Realtors chief economist, Lawrence Yun, who said, “While these hurdles have contributed to pricing out some would-be buyers, the record-high aggregate wealth in the country from the elevated stock market and rising home prices are evidently providing funds for home purchases.”

 

Appreciation Hits 30-Year High

The Case-Shiller Home Price Index, which is considered the “gold standard” for appreciation, showed home prices rose 14.6% year over year in April. This is a 30-year high and even stronger than the already hot 13.3% annual appreciation reported in March.

The 20-city index rose from 13.4% to 14.9% year over year, with almost all the cities showing strong gains. Phoenix (+22.3%), San Diego (+21.6%), and Seattle (+20.2%) continued to report 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. 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.

That’s why it’s not really a surprise that the data was even stronger than what Case Shiller reported. Home prices rose 1.8% in April and they were up a staggering 15.7% year over year, which is higher than the 14.1% annual appreciation reported for March.

 

Family Hack of the Week

A camping adventure isn’t complete without a new campfire recipe to try. And this recipe from our friends at Taste of Home for Blueberry Cinnamon Campfire Bread is the perfect breakfast to enjoy.

Prepare your campfire for low heat and then arrange a loaf of sliced cinnamon raisin bread on greased, doubled heavy-duty foil. Bring up the sides of the foil, leaving the top open. Whisk 6 large eggs, a cup of milk, 2 tablespoons maple syrup and 1 teaspoon vanilla extract and pour over the bread. Sprinkle with 1/2 cup toasted pecans and 1 cup of fresh blueberries.

Fold the edges of the foil over, crimp to seal, and place on a grill grate over the campfire until the egg mixture is cooked through, approximately 30-40 minutes. Remove from heat and let stand for 10 minutes.

Sprinkle with an additional cup of blueberries, serve with additional maple syrup and enjoy!

 

What to Look for This Week

After the market closures Monday in honor of the Independence Day holiday, the rest of this week’s calendar is relatively quiet. The main highlights will come on Tuesday via the ISM Services Index for June, on Wednesday when the minutes from the Fed’s latest meeting are released, and on Thursday when the latest Jobless Claims data will be reported as usual.

 

Technical Picture

Mortgage Bonds are tangled in a web of resistance levels, formed by the 25-day, 100-day, and 50-day Moving Averages, while the 10-year is battling with support at 1.44%.

 

Todd Abelson - Tucson Mortgages

Tucson Mortgages Home Loan News 6-28-2021

By Todd Abelson NMLS #180858 on .

Week of June 21, 2021 in Review

Inflation once again made headlines, as the latest Personal Consumption Expenditures report showed that it continues to rise. Several Fed members also made important comments about inflation, while home sales were hindered by low inventory.

The Fed’s favored measure of inflation, Personal Consumption Expenditures (PCE), showed that headline inflation was up 0.4% in May, while year over year PCE increased from 3.6% to 3.9%. While this annual reading was the hottest in 13 years, it was beneath expectations of above 4%. Core PCE, which strips out volatile food and energy prices and is the Fed’s real focus, was also on the rise. Rising inflation is crucial to monitor when it comes to Mortgage Bonds and the home loan rates tied to them. Don’t miss the important explanation below.

Low inventory continues to hinder home sales, with sales of existing homes dropping 0.9% in May. There were 1.23 million homes for sale at the end of May, which is up 7% from April but down almost 21% year over year. The low level of homes helped them sell quickly, with homes only on the market for 17 days on average.

Sales of new homes were also down 6% from April to May, again in large part due to low inventory. Factoring in the revisions to April’s sales, the decline was actually much worse at 12%. The median home price for both new and existing homes moved higher in May, but it’s important to note that this is not the same as appreciation, despite what the media may report. Read on for important details about this.

Initial Jobless Claims ticked lower by 7,000 in the latest week, but the number of people filing for benefits for the first time remains elevated at 411,000. The number of people continuing to receive regular benefits fell by 144,000 to 3.4 million while 14.8 million individuals are still receiving benefits throughout all programs.

Also of note, last week’s 7-year Note Auction was met with above average demand. The bid to cover of 2.36 was above the one-year average of 2.34. Direct and indirect bidders took 81.3% of the auction compared to 77.5% in the previous 12. And the third estimate of first quarter Gross Domestic Product (GDP) showed a gain of 6.4% on an annualized basis, which was in line with expectations.

 

Inflation Hot But Below Expectations

The Fed’s favored measure of inflation, Personal Consumption Expenditures (PCE), showed that headline inflation was up 0.4% in May, which was beneath estimates of 0.6%. Year over year, the index increased from 3.6% to 3.9%, and while this is the hottest reading in 13 years, it was also beneath expectations of above 4%.

Core PCE, which strips out volatile food and energy prices and is the Fed’s real focus, was up 0.5% for the month. Year over year, Core PCE increased from 3.1% to 3.4%. These figures were as expected.

This rise in inflation has been expected because the readings for the more current months are replacing the readings from 2020 when much of the economy was shut down due to the pandemic. Even still, rising inflation is significant because inflation reduces the value of fixed investments. This includes Mortgage Bonds, to which home loan rates are inversely tied. In other words, rising inflation can cause Mortgage Bonds to worsen or move lower and home loan rates to rise. Though many factors impact the markets, I will continue to monitor the data regarding inflation this summer.

Of note within the PCE report, personal income was down 2%, which was slightly better than expectations, while personal spending was unchanged and lighter than estimates of 0.4%.

With respect to income, the most important component is wages/salaries for private industries. They rose 0.8% after two straight months of 1.1% gains, and they are also up by almost 16% year over year. Private sector employees make up a large portion of the homeownership rate, and with private sector wages growing at such a rapid pace, this does bode well for affordability even with the appreciation levels we’ve seen.

 

Fed’s Inflation Chatter

Several Fed members made headlines last week with comments about inflation. New York Fed President John Williams noted that he thinks most of the inflation we are seeing is due to the economy opening back up and a lack of supply, which he thinks will come back on line as people get back to work.

Fed Chair Jerome Powell also said that recent price gains mostly reflected temporary supply bottlenecks. He explained that the sharp drop in prices last spring at the onset of the pandemic makes inflation figures look much larger now compared with a year ago. This supports his stance that most of the inflation will be transitory. He did acknowledge that the effects of inflation “have been larger than we expected and they may turn out to be more persistent than we expected.”

Atlanta Fed President Raphael Bostic and Fed Governor Michelle Bowman also said they believe recent price increases will prove temporary, but they also feel it may take longer than anticipated for them to fade. In an interview with NPR, Bostic redefined for us his thoughts on transitory, saying that inflation may last six to nine months rather than the two to three months they expected initially.

 

Low Inventory Hinders May’s Existing Home Sales

Existing Home Sales, which measure closings on existing homes, were down 0.9% in May. However, on an annual basis, they are up nearly 45% compared to May of 2020, which makes sense as the pandemic and shutdowns were in full swing this time last year.

Inventory remains a huge challenge for buyers, though it did improve from April to May. There were 1.23 million homes for sale at the end of May, which is up 7% from April but down almost 21% year over year. The low level of homes helped them sell quickly, with homes only on the market for 17 days on average.

The median home price was reported at $350,300, which is a record high and up 24% year over year. Note that despite what the media is reporting, the median home price is not the same as appreciation. It simply means half the homes sold were above that price and half were below it, and the rise is due to the amount of higher-end homes that are selling.

Sales on the low end were down, while sales of homes between $500,000 to $750,000 were up 122%, homes between $750,000 to $1 million were up 178%, and homes above $1 million were up 245%. Real appreciation is around 13%, and while that is still a high number, it is well beneath the 24% rise in the median home price.

And speaking to affordability, first-time homebuyers have remained at 31% for three out of the last four months, which is a decent level considering the stiff competition for homes on the lower end and the lack of inventory. Also of note, cash buyers decreased from 25% to 23% while investors purchased 17% of homes, which remained stable from April’s report.

 

New Home Sales Also Decline In May

New Home Sales, which measure signed contracts on new homes, were down 6% from April to May. Factoring in the revisions to April’s sales, this figure is actually worse, totaling a 12% decline in May.

Inventory again remains a challenge, as there were only 330,000 new homes for sale at the end of May. This represents a 5.1 months’ supply of homes.

The median home price was reported at $374,400, which is up 18% from last year. Again, the median price is not the same as appreciation. Builders are not building many lower-priced homes as there is not enough profit margin due to the costs and shortage of lumber and other materials. As a result, the median home price is being dragged higher.

 

Initial Jobless Claims Tick Lower But Remain Elevated

The number of people filing for unemployment benefits decreased by 7,000 in the latest week, as Initial Jobless Claims fell to 411,000. While any decline is positive, these claims are still more elevated than we’d hope for at this stage in our recovery. California (+65K), Pennsylvania (+44K), and Illinois (+24K) reported the largest number of claims.

The number of people continuing to receive regular benefits also fell by 144,000 to 3.4 million. While this is a pandemic low, it is also still elevated.

Pandemic Unemployment Assistance Claims (which provide benefits to people who would not usually qualify) and Pandemic Emergency Claims (which extend benefits after regular benefits expire) increased by 68,000 combined.

All in all, 14.8 million individuals are still receiving benefits throughout all programs, which is near unchanged from the previous week.

 

Family Hack of the Week

Stay cool and impress your friends and family this fourth of July weekend with this recipe from the Food Network for Red, White and Blue Ice Pops. It’s easy to make and both healthy and delicious.

Place six 3 or 4-ounce ice pop molds in the freezer for 30 minutes. Add 2 cups of hulled and chopped strawberries, 1 tablespoon of coconut cream and 1 tablespoon of honey to a blender and puree until smooth. Pour into a liquid measuring cup and set aside.

Rinse the blender, then add 1/2 cup unsweetened coconut milk, 1 tablespoon coconut cream and 1 tablespoon of lime juice. Puree until smooth.

Evenly divide the strawberry puree between the ice pop molds, filling them about 1/3 each, and then layer the coconut milk over the strawberry puree. Freeze for 30 minutes.

Rinse the blender and then add 2 cups of blueberries, and 1 tablespoon each of coconut cream, honey and lime juice. Puree until smooth. Remove the frozen pop molds from the freezer, add the blueberry puree and insert the pop mold stick.

Freeze until set, at least 4 hours or overnight. Let sit at room temperature for 5 minutes before unmolding and serving.

 

What to Look for This Week

Reports from the housing, manufacturing and labor sectors will dominate the headlines this week. Housing news comes first on Tuesday, as we’ll get an update on home price appreciation in April from the Case-Shiller Home Price Index and the Federal Housing Finance Agency House Price Index. Pending Home Sales for May follows on Wednesday.

Wednesday also kicks off the first of the week’s jobs reports, when the ADP Employment Report for June will give us an update on private payrolls. There will also be regional manufacturing news when the Chicago PMI for June is reported.

Thursday brings the latest weekly Jobless Claims data, as usual, plus an update on manufacturing with the ISM Index for June.

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

 

Technical Picture

Mortgage Bonds continue to trade in a wide range between support at 102.734 and overhead resistance at the 25-day Moving Average. We have to be on guard when Bonds are trading in such a wide range. Prices are susceptible to whipsaws and big price movements because support is substantially lower.

 

Todd Abelson - Tucson Mortgages

Tucson Mortgages Home Loan News 6-21-2021

By Todd Abelson NMLS #180858 on .

Week of June 14, 2021 in Review

Inflation made headlines, as the Fed raised their inflation forecasts while annual wholesale inflation hit one of the hottest levels ever. Plus, higher costs and labor issues are impacting construction of new homes while Initial Jobless Claims increased in the latest week.

Wholesale inflation was hotter than expected in May, as the Producer Price Index (PPI) rose 0.8%. Year over year, PPI rose from 6.2% to 6.6% – one of the hottest readings ever! One of the main reasons for rising producer inflation is the shortage of labor. The employment situation remains challenging for many families relying on schools or childcare to open fully, and the availability of extended benefits has also impacted the labor force.

Inflation was certainly on the minds of Fed members at their latest Federal Open Market Committee meeting last week. Though the Fed kept their wording the same regarding inflation, noting that “inflation has risen, largely reflecting transitory factors,” they did significantly raise their inflation forecasts. The Fed also left their benchmark Fed Funds Rate and current pace of Mortgage Backed Securities (MBS) and Treasury purchases unchanged, as they will continue to purchase at least $120 billion in MBS and Treasuries for now.

Read on to learn why rising inflation matters to Mortgage Bonds – and the home loan rates tied to them.

In housing news, Housing Starts ticked up 3.6% in May, with starts on single-family homes up 4.2%. However, Building Permits, which are a good forward-looking indicator of construction, did tick lower last month. Single-family homes authorized but not started are up nearly 53% year over year, which points to delays due to higher costs and labor issues.

Builders actually cited costs and shortages of materials as the reason for the decline in builder sentiment in June. The National Association of Home Builders Housing Market Index, which measures builder confidence, decreased by 2 points from May’s revised figure of 83 to 81 in June. However, it’s important to note that 81 is still an extremely strong level of confidence, as any reading above 50 signals expansion.

Initial Jobless Claims moved in the wrong direction in the latest week, with the number of people filing for unemployment for the first time rising by 37,000 to 412,000. The number of people continuing to receive regular benefits was unchanged at 3.5 million while 14.8 million individuals are still receiving benefits throughout all programs.

Lastly, regional manufacturing reports for both the New York and Philadelphia regions missed expectations in June, as the Empire State Index was reported at 17.4 and the Philadelphia Fed Index was reported at 30.7. However, any reading above zero indicates expansion. Retail Sales also came in below expectations in May, decreasing by 1.3% versus the expected 0.5% decrease. However, sales for April were revised sharply higher from no change to a gain of 0.9% and May’s decrease likely reflects consumers shifting some of their spending to travel and other summer plans.

 

Wholesale Inflation Reading One of the Hottest Ever

The Producer Price Index (PPI), which measures wholesale inflation, rose 0.8% in May, which was hotter than the 0.6% expected. Year over year, PPI rose from 6.2% to 6.6% – one of the hottest readings ever!

Core PPI, which strips out volatile food and energy prices, rose 0.7% month over month and increased from 4.1% to 4.8% year over year.

One of the main reasons for producer inflation is the shortage of labor. The employment situation remains challenging for many families relying on schools or childcare to open fully and the availability of extended benefits has also impacted the labor force. Capacity utilization of factories is running at 75%, which means they have capacity to produce more but can’t because they can’t find enough workers, and this is causing prices to move higher.

Inflation is running very hot in both the Producer and Consumer reports and the Fed last week significantly raised their inflation forecasts, which caused the Bond market to sell off. The Fed now sees inflation averaging 3.4% in 2021, up from their original estimate of 2.4%. They do believe that inflation will fall back to 2.1% next year.

Why does high inflation matter?

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. While many factors influence the markets, I will be keeping a close eye on all the latest inflation data, and its impact on Mortgage Bonds and the home loan rates tied to them.

 

Rising Costs, Shortages of Materials and Labor Impact Construction

Housing Starts, which measure the start of construction on homes, were up 3.6% in May. While any increase is good news given the high demand for homes around the country, the reading was slightly beneath expectations. More importantly, however, Housing Starts on single-family homes were up 4.2%.

Building Permits, which are a good forward-looking indicator of construction, did fall 3% in May. Permits for single-family homes were also down 1.6%.

Single-family homes authorized but not started are up nearly 53% year over year, which points to delays due to higher costs and labor issues.

Builders actually cited “higher costs and declining availability for softwood lumber and other building materials” as the reason for the decline in builder sentiment in June. The National Association of Home Builders Housing Market Index, which measures builder confidence, decreased by 2 points from May’s revised figure of 83 to 81 in June.

All three components of the index declined by two points as well. Current sales conditions fell to 86, sales expectations for the next six months came in at 79, and buyer traffic ticked down to 71.

While the readings with the NAHB Housing Market Index have declined in recent months, it’s important to note that 81 is still an extremely strong level of confidence and is in the 98th percentile of readings dating back to 1985. For point of reference, any reading above 50 signals expansion.

Despite the scarcity of both labor and building materials, the high demand for homes continues to spur confidence among builders.

 

A Note About Rents

Recent reports show that rents are on the rise. Zillow reported that single-family rents were up 2.3% in May alone, due in large part to the lack of inventory. CoreLogic said that rents rose 5.3% year over year, which is the largest gain in nearly 15 years.

Rents for single-family detached homes (not townhomes) were up an even stronger 7.9% compared with a year ago, likely because individuals are seeking more outdoor space. Nearly half of millennials surveyed by CoreLogic and 64% of Baby Boomers said they “strongly prefer” to live in a single, stand-alone home.

 

Initial Jobless Claims Rise In Latest Week

Initial Jobless Claims moved in the wrong direction in the latest week, as the number of people filing for unemployment for the first time rose by 37,000 to 412,000. California (+68K), Pennsylvania (+29K) and Illinois (+28K) reported the largest number of claims.

The number of people continuing to receive regular benefits was unchanged at 3.5 million.

Pandemic Unemployment Assistance Claims (which provide benefits to people who would not usually qualify) and Pandemic Emergency Claims (which extend benefits after regular benefits expire) decreased by roughly 325,000 combined.

All in all, 14.8 million individuals are still receiving benefits throughout all programs, which is down 560,000 from the previous week.

 

Family Hack of the Week

If a trip to the beach is on your list of must-do’s this summer, these packing tips from Parents.com are helpful for kids and adults alike.

Use your phone to set a timer for sunscreen, so you make sure you reapply before it’s too late.

Leave water bottles filled with frozen water in your car for the end of the day. They’ll be cool and they’ll save you the cost of buying expensive bottled water at the beach or boardwalk.

Bring a mesh bag to carry towels, beach wraps and other items you’re planning to bring, as the sand can sift right through. You’ll keep the car clean-up to a minimum and track less sand into your house or hotel once your return.

Lastly, be sure to include these must have’s on your packing list: Multiple sunscreens in case of any spills; water bottles; sealable plastic bags for sunscreen, food, and phones; beach hats and cover-ups; small bills for the ice cream truck or boardwalk; antibacterial lotion and wipes; and a mini first-aid kit.

 

What to Look for This Week

More housing news is on deck this week, with May’s Existing Home Sales data being reported on Tuesday and New Home Sales on Wednesday.

Thursday brings the latest weekly Jobless Claims, as well as May’s Durable Goods Orders and the final reading on first quarter Gross Domestic Product.

Friday brings crucial inflation news for May when the Fed’s favored inflation report, Personal Consumption Expenditures, is released along with Personal Income and Spending.

 

Technical Picture

After an initial move to the downside on Friday following comments from St. Louis Fed President, James Bullard, Mortgage Bonds rallied higher and broke back above the 103.055 Fibonacci level. The 10-year, after battling resistance at 1.50%, moved lower and is testing support at the 1.445 Fibonacci level. A break beneath this level could mean lower yields and further improvement for Mortgage Bonds.

Todd Abelson - Tucson Mortgages

Tucson Mortgages Home Loan News 6-14-2021

By Todd Abelson NMLS #180858 on .

Week of June 7, 2021 in Review

Consumer inflation was on the rise in May, while small business owners also expressed labor and inflation fears. Plus, two important auctions were in the news.

Consumer inflation rose by 0.6% in May per the Consumer Price Index (CPI) report. On an annual basis, CPI increased from 4.2% to 5%, which was the highest year over year increase in almost 13 years! Core CPI, which strips out volatile food and energy prices, also made headlines, as it was up 0.7% in May while the year over year reading increased from 3.0% to 3.8%. The Core CPI annual reading was the highest annual increase in 29 years!

Rising inflation is crucial to monitor because it can have a big impact on Mortgage Bonds and the home loan rates tied to them. Be sure to read the important explanation below.

Inflation and labor concerns were also on the minds of small business owners last month, per the National Federation of Independent Business Small Business Optimism Index. Businesses expecting higher selling prices rose 4 points to 40%, which is the highest level in 40 years! In addition, a record-high 48% of small business owners reported unfilled job openings in May, up from 44% in April.

We did see a small improvement in Initial Jobless Claims in the latest week, as the number of people filing for unemployment benefits for the first time decreased by 9,000 to 376,000. The number of people continuing to receive regular benefits is at 3.5 million while 15.35 million people are still receiving benefits throughout all programs. We likely won’t see meaningful changes in this data until after September, when the extended benefits expire. Even still, the situation could continue to prove challenging for many families that are relying on schools or childcare to open fully.

Lastly, investors were closely watching the 10-year Treasury and 30-year Bond auctions that were held last week on Wednesday and Thursday, respectively. Find out more about the results below.

 

Red Hot Consumer Inflation

The Consumer Price Index (CPI), which measures inflation on the consumer level, rose by 0.6% in May. The year over year reading increased from 4.2% to 5%, which was the highest year over year increase in almost 13 years!

Core CPI, which strips out food and energy prices, was up 0.7% in May. On a year over year basis, Core CPI increased from 3.0% to 3.8%, which is the highest year over year increase in 29 years!

Within the report, we saw that rents rose 0.1% in May, increasing by 2% on a year over year basis. A rise in rent prices will likely lag but could contribute more to service inflation in the coming months.

Remember that part of the reason for the increase in the annual comparisons is that readings for the more current months are replacing the readings from 2020 when much of the economy was shut down due to the pandemic. For example, the -0.1% reading of Core CPI from May 2020 has now been replaced with a 0.7% reading from May of this year.

Even though this rise in inflation in May was expected, the big question is whether or not some of the factors influencing inflation are going to be transitory. 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.

 

Businesses Express Labor and Inflation Fears

Inflation was also on the minds of small business owners last month, per the National Federation of Independent Business Small Business Optimism Index. Businesses expecting higher selling prices rose 4 points to 40%, which is the highest level in 40 years!

Labor was also a big concern, as a record-high 48% of small business owners reported unfilled job openings in May, up from 44% in April. In addition, the quality of labor ranked as businesses’ “single most important problem,” with 57% of respondents saying they had few or no qualified applicants for open jobs, up from 54% in April.

If production costs are rising and businesses can’t find workers to fill positions, they have to pay workers more and raise prices. These reports only point to higher inflation to come.

On a related noted, the Labor Department’s JOLTS report, which tracks the monthly change in job openings, was reported at a record 9.3 million in April, which is an increase of 1 million from March. Only 7% of new job postings were filled.

 

Initial Jobless Claims Remain Under 400,000

The number of people filing for unemployment benefits for the first time decreased by 9,000 in the latest week, as Initial Jobless Claims totaled 376,000. Though this wasn’t much of an improvement from the previous week, it was a move in the right direction. California (+53K), Illinois (+31K) and Georgia (+21K) reported the largest number of claims.

The number of people continuing to receive regular benefits decreased by 258,000, with   Continuing Claims coming in at 3.5 million. We likely won’t see meaningful changes in this data until after September, when the extended benefits expire. Even still, many people who have children and rely on schools or childcare opening may still face challenges.

Pandemic Unemployment Assistance Claims (which provide benefits to people who would not usually qualify) and Pandemic Emergency Claims (which extend benefits after regular benefits expire) decreased by roughly 83,000 combined.

All in all, 15.35 million people are still receiving benefits throughout all programs, which is down 95,000 from the previous week.

 

Update 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, to see if there would be more demand for Treasuries and Bonds at auction.

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.

The 10-Year Treasury Note Auction was met with above average demand, which helped Mortgage Bonds move higher afterwards. The bid to cover of 2.58 was above the one-year average of 2.40. Direct and indirect bidders took 84.2% of the auction compared to 76.2% in the previous 12.

Thursday’s 30-year Bond Auction was met with average demand. The bid to cover of 2.29 was just below the one-year average of 2.33. Direct and indirect bidders took 82% of the auction compared to 79.5% in the previous 12.

 

Family Hack of the Week

Father’s Day is this Sunday, June 20. Here are a few ways to spend the day together, no matter the weather outside.

If sun is in the forecast, plan a family hike and picnic to one of dad’s favorite spots or a new place he’s always wanted to visit. A day at the beach or lake is another great choice, and you can fish or rent jet skis based on his preferences. Or consider a backyard party to grill up all of dad’s favorites and plan a tournament of lawn games, such as horseshoes or croquet.

If the weather is looking more like rain, plan a day of indoor fun. Start by cooking dad all of his favorites for breakfast or brunch in bed. Follow that with a movie marathon or make it a family game day complete with boardgames galore. And if the weather clears up, you can always move the games or movie marathon outside!

 

What to Look for This Week

This week’s busy economic calendar brings more news on inflation, along with key housing reports.

On Tuesday, we’ll get an update on wholesale inflation when May’s Producer Price Index is reported. Plus, we’ll see how retailers fared in May with the latest Retail Sales data and how manufacturing in the New York region is doing with June’s Empire State Index.

Housing news also begins on Tuesday with an update on how builders are feeling this month via the National Association of Home Builders Housing Market Index. More housing news follows Wednesday when the data for May’s Housing Starts and Building Permits is reported.

On Thursday, weekly Jobless Claims will be reported as usual along with more regional manufacturing news from the Philadelphia Fed Index.

The Fed will also be holding their two-day meeting beginning Tuesday, with their Monetary Policy Statement releasing on Wednesday. This always has the potential to move the markets, especially if there are comments about inflation or their ongoing asset purchases.

 

Technical Picture

Mortgage Bonds are testing the 25-day Moving Average, which is now acting as a ceiling of resistance, after breaking beneath it. If they remain below it, the next level of support is at the 50-day Moving Average. The 10-year is sitting in the middle of a wide range between overhead resistance at the 100-day Moving Average and support at the 1.373 Fibonacci Level.

Todd Abelson - Tucson Mortgages

 

Tucson Mortgages Home Loan News 6-7-2021

By Todd Abelson NMLS #180858 on .

Week of May 31, 2021 in Review

Despite some ongoing challenges in the labor sector, May proved to be a strong month for job creations. Home prices also soared in April, while Fed members made headlines last week.

The highly anticipated Jobs Report from the Bureau of Labor Statistics (BLS) showed that 559,000 jobs were created in May. Though this was slightly beneath estimates and weaker than ADP’s report for private sector payrolls, it was still a strong number overall. There were also slight positive revisions to March’s and April’s figures, totaling an additional 27,000 more jobs in those months combined. Hourly and weekly earnings both rose, while the Unemployment Rate fell – though the real Unemployment Rate is higher than the headline figure, as explained below.

Private sector job creations soared in May, as the ADP Employment Report showed a gain of 978,000 jobs, which was much higher than the 600,000 new jobs expected. Job gains were seen across all sizes of businesses. However, April’s report was revised lower, bringing the total number of jobs created in that month from 742,000 down to 654,000.

Initial Jobless Claims once again hit their lowest level since the pandemic began, finally falling below 400,000, as 385,000 claims were filed in the latest week. All in all, 15.4 million people are still receiving benefits throughout all programs, which is down 366,000 from the previous week. These improvements are certainly a step in the right direction, but real challenges remain for many families, especially parents who have lost access to important after-school programs and other childcare options.

Home prices continue to appreciate nationwide, per CoreLogic’s Home Price Index report, which showed that home prices increased 2.1% from March to April. Prices also rose 13% year over year, which is up from the 11.3% annual gain reported for March. Tight inventory remains a key reason for the appreciation we’re seeing.

Lastly, several Fed members made headlines with their comments about the Fed’s ongoing asset purchases. Read on for the scoop – and for how Mortgage Bonds responded.

 

May Job Creations Strong But Slightly Below Estimates

The Bureau of Labor Statistics (BLS) reported that there were 559,000 jobs created in May. Though this was slightly beneath estimates and weaker than the ADP report, it was still a strong number. In addition, there were slight positive revisions to March and April in the amount of 27,000 more jobs in those months combined.

Putting these numbers in perspective, however, we are still 7.6 million jobs below where we were pre-pandemic.

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 there were 444,000 jobs created. On a positive note, the Unemployment Rate decreased from 6.1% to 5.8%. While there were 444,000 job creations, the labor force decreased by 53,000. The number of unemployed people also decreased by 496,000, causing the unemployment rate to drop.

However, it’s important to further analyze these 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 that number equates to 2.5 million people. When we add this into the calculations, the real Unemployment Rate is 7.2%.

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 0.3% higher or 6.1%, while the real Unemployment Rate counting those unable to look for work due to pandemic reasons would be closer to 7.5%.

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 10.4% to 10.2%.

Wages were on the rise, as average hourly earnings were up 0.5% in May after rising 0.7% in April. Average weekly earnings, which we focus on more because it measures what people actually take home, rose 0.5% in May after rising 1% in April. If we extrapolate the last three month’s numbers over the course of the year, weekly earnings would show an increase of close to 7.5%.

And of note, leisure and hospitality wages increased by 1.3% in May, as businesses in those sectors raised wages in the hopes of attracting much needed help.

 

Private Payrolls Much Higher Than Expected

 The ADP Employment Report, which measures private sector payrolls, showed that there were 978,000 jobs created in May, which was higher than the 600,000 new expected. However, April’s report was revised lower, bringing the total number of jobs created in April from 742,000 down to 654,000.

Leisure and hospitality again led the way with 440,000 new jobs. In total, the service-providing sector added 850,000 new jobs. The goods-producing sector added 128,000 jobs, with manufacturing adding 52,000 and construction adding 65,000.

Job gains were present across all sizes of businesses. Small businesses (1-49 employees) gained 333,000 jobs, mid-sized businesses (50-499 employees) gained 338,000 jobs, and large businesses (500 or more employees) gained 308,000 jobs.

 

Initial Jobless Claims Fall Below 400,000

The number of people filing for unemployment benefits for the first time decreased by 20,000 in the latest week, as Initial Jobless Claims totaled 385,000. This is the lowest number since the pandemic began and finally under 400,000. California (+75K), Pennsylvania (+31K) and Georgia (+24K) reported the largest number of claims.

However, the number of people continuing to receive regular benefits did increase by 169,000 to 3.77 million.

Pandemic Unemployment Assistance Claims (which provide benefits to people who would not usually qualify) and Pandemic Emergency Claims (which extends benefits after regular benefits expire) decreased by roughly 45,000 people combined.

All in all, 15.4 million people are still receiving benefits throughout all programs, which is down 366,000 from the previous week. While it’s nice to see the improvements we’re seeing, real challenges remain for many families, especially parents who have lost access to important after-school programs and other childcare options. As the economy and more schools continue to re-open, and as extended unemployment benefits expire, hopefully further improvements in unemployment will follow.

 

Home Prices Feeling the Heat

CoreLogic released their Home Price Index report for April, showing that home prices increased 2.1% from March. Prices also rose 13% year over year, which is up from the 11.3% annual gain reported for March.

Within the report, the hottest markets once again were Phoenix (+21%), San Diego (+16%) and Denver (14%).

CoreLogic forecasts that home prices will rise 1.1% in May, which is the same level they forecasted for April. On an annual basis, they’re predicting that home prices will rise 2.8% in the year going forward. This is surprising considering they’re forecasting a 1.1% rise in the next month alone and their figures are still lower than most forecasts out there.

Also of note, CoreLogic says that Baby Boomers are staying in their homes for a median of 13 years, which is 50% longer than the previous generation. This is another factor impacting inventory along with the high labor and material costs builders are facing.

 

Fed Keeping On With Purchases

Last Thursday, New York Fed President John Williams made headlines when he said that he felt the economy has improved and is on a good trajectory, but that we are still a ways off from reaching the “substantial further progress” that would be needed to adjust the Fed’s purchases of Mortgage Bonds and Treasuries. And, as we noted above, we likely won’t see meaningful improvement in the labor sector until after schools and childcare facilities open back up fully and until after extended benefits expire.

While other Fed members have expressed differing opinions, Williams is one of the Fed’s most powerful members. As a result, Mortgage Bonds responded positively on Friday to his comments from Thursday that the Fed is still a way off from tapering their purchases.

 

Family Hack of the Week

Looking for some unique budget and family-friendly activities for the summer ahead? These five ideas from our friends at Woman’s Day provide fun for the whole family.

Plan an evening of stargazing in the backyard. There are plenty of apps that can help you navigate the stars and you can bring out some blankets, pillows and snacks to stay comfortable all evening.

Host a potluck or barbecue to see friends and family you may finally be able to visit with. Set a menu with a mix of family favorites and new dishes to try, and plenty of time for catching up.

Day hikes are a great way to visit nearby areas you may not often frequent. Depending on the terrain, consider bringing a picnic you can share along the way.

An herb garden can not only save you money at the store, but it’s a great way for your kids to learn more about cooking and recipes. Each family member can even take turns picking a special recipe utilizing the herbs you plant.

Stage a play in your backyard or act out scenes from your favorite movies. You could even enjoy a meal based on the play or movie you choose for an added treat.

 

What to Look for This Week

This week’s economic calendar is relatively quiet, but there are several reports to note. On Tuesday, we’ll get a read on how small businesses are feeling with the National Federation of Independent Business Small Business Optimism Index for May.

Inflation will be back in the headlines on Thursday with the release of the Consumer Price Index for May. Plus, the latest jobless claims will be reported as usual.

There are also two important auctions that could impact the markets. First up is Wednesday’s 10-year Note auction, followed by the 30-year Bond auction on Thursday.

 

Technical Picture

Mortgage Bonds broke above their 25-day Moving Average on Friday but closed beneath it. They remain near the ceiling at their 25-day Moving Average with a floor of support at their 50-day Moving Average below. The 10-year ended last week trading at around 1.56% after bouncing off its 50-day Moving Average and falling beneath the 1.60 Fibonacci level following the Jobs Report.

 

Todd Abelson - Tucson Mortgages

Tucson Mortgages Home Loan News 6-1-2021

By Todd Abelson NMLS #180858 on .

Week of May 24, 2021 in Review

Consumer inflation and home prices are on the rise, while low inventory continues to impact homebuyers. Plus, there was good news from the labor sector, as Initial Jobless Claims reach their lowest level since the pandemic began.

The Fed’s favored measure of inflation, Personal Consumption Expenditures (PCE), showed that headline inflation was up 0.6% in April, while year over year PCE increased from 2.4% to 3.6% – the hottest reading in 13 years! Core PCE, which strips out volatile food and energy prices and is the Fed’s real focus, was also on the rise. Read on to find out why rising inflation is so important to monitor when it comes to Mortgage Bonds and the home loan rates tied to them.

High demand and low inventory continue to impact home sales, as sales of new homes fell nearly 6% from March to April, with just a 4.4 months’ supply of new homes available for sale at the end of April. Meanwhile, Pending Home Sales, which measure signed contracts on existing homes, also declined 4.4% in April. Once again, this was due to a lack of inventory as demand for existing homes remains high around the country.

This dynamic of high demand and low inventory has also helped home prices continue to appreciate. Home prices rose 13.2% year over year in March, per the Case-Shiller Home Price Index. This is a 15-year high and even stronger than the 12% annual appreciation in the previous report. The Federal Housing Finance Agency (FHFA), which measures home price appreciation on single-family homes with conforming loan amounts, also came in strong, with home prices up 1.4% from February to March and 13.9% year over year.

Over in the labor sector, Initial Jobless Claims fell 38,000 as another 406,000 people filed for unemployment benefits for the first time in the latest week. All told, 15.8 million people are still receiving benefits throughout all programs, which is a decline of 175,000 from the previous week. Upcoming reports in June should allow us to evaluate the impact of states that are no longer participating in the extended benefits program.

The second reading on first quarter GDP came in at 6.4%, which was just slightly below estimates and unchanged from the advanced reading. It makes sense that we are seeing a high level of GDP after the recent stimulus package.

Lastly, Thursday’s 7-Year Note Auction was met with above average demand. The bid to cover of 2.41 was above the one-year average of 2.35. Direct and indirect bidders took 80.3% of the auction, compared to 77.2% in the previous 12.

 

Inflation Hits Hottest Reading in 13 Years

The Fed’s favored measure of inflation, Personal Consumption Expenditures (PCE), showed that headline inflation was up 0.6% in April, which was in line with estimates. Year over year the index increased from 2.4% to 3.6%, which is the hottest reading in 13 years!

Core PCE, which strips out volatile food and energy prices and is the Fed’s real focus, was up 0.7%, which was higher than the consensus of a 0.6% increase. Year over year, Core PCE increased from 1.9% to 3.1%.

Part of the reason for the increase in the annual comparisons is that readings for the more current months are replacing the readings from 2020 when much of the economy was shut down due to the pandemic.

Even though the increase in inflation has been expected this spring, rising inflation is still important to monitor because inflation reduces the value of fixed investments. This includes Mortgage Bonds, to which home loan rates are inversely tied. In other words, rising inflation can cause Mortgage Bonds to worsen or move lower and home loan rates to rise.

Though many factors impact the markets, inflation data is especially crucial to monitor because of this dynamic, and I will be keeping a close eye on May’s inflation numbers when they are reported in June. For example, if May shows just a 0.4% reading, it will replace a 0.1% reading from May of last year, and cause year over year Core PCE to reach roughly 3.4%!

Also of note within the report, Personal Income fell 13% in April after jumping 21% in March, which was right after the latest stimulus checks were dispersed. Personal Spending started to level off in April, ticking up 0.5% after rising 4.7% in March. The savings rate declined to 14.9% after jumping 28% in March. These figures all make sense, as many people both spent and saved more in March after they received the stimulus payments.

 

New and Pending Home Sales Drop in April

 New Home Sales, which measure signed contracts on new homes, were down nearly 6% in April. However, this comes after a nice bounce higher in March, so if we smooth out the numbers, sales in April were up about 1% from February.

Looking at inventory levels, there were only 316,000 new homes for sale at the end of April, which represents a 4.4 months’ supply of homes.

The median home price was reported at $372,000, which is up 11% from March and 20% from April of last year. While these are huge numbers, remember the median price is not the same as appreciation. It simply means half the homes sold were above that price and half were below it. Builders are not building many lower-priced homes and as a result, the median home price is being dragged higher.

Pending Home Sales, which measure signed contracts on existing homes, also declined in April, falling 4.4% from March. This is all due to a lack of inventory because the demand to buy homes is there. Pending Sales are up 51% compared to April of last year, but that figure is skewed because the lockdowns from the pandemic last spring greatly limited people going out and signing contracts.

Home Prices Heating Up

The Case-Shiller Home Price Index, which is considered the “gold standard” for appreciation, showed home prices rose 13.2% year over year in March. This is a 15-year high and even stronger than the 12% annual appreciation in the previous report!

The 20-city index rose from 12% to 13.3% year over year, with almost all the cities showing strong gains. Phoenix (+20%), San Diego (+19%), and Seattle (+18%) continued to report 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.

Therefore, it should be no surprise that the data was even stronger than what Case Shiller reported. Home prices rose 1.4% from February to March and they were up 13.9% year over year, which is higher than the 12.3% annual appreciation in the previous report.

 

Initial Jobless Claims Reach Lowest Level Since Pandemic Began

 The number of people filing for unemployment for the first time fell 38,000 in the latest week, as there were 406,000 Initial Jobless Claims filed. This is the lowest level of initial claims since the pandemic began last year.

Continuing Claims, which measure people who continue to receive regular benefits, also decreased by 96,000 to 3.64 million. June’s reporting will be important to monitor, as we should be able to gauge the impact of some states backing out of the extended benefits program.

Pandemic Unemployment Assistance Claims (which provide benefits to people who would not usually qualify) and Pandemic Emergency Claims (which extend benefits after regular benefits expire) decreased by roughly 40,000 claims combined.

All in all, 15.8 million people are still receiving benefits throughout all programs, which is a decline of 175,000 from the previous week.

 

Family Hack of the Week

Next Monday, June 7 is National Chocolate Ice Cream Day. Celebrate the occasion early this week with this easy-to-make recipe for homemade chocolate ice cream courtesy of our friends at the Food Network.

In a large bowl, whisk together a 14-ounce can of sweetened condensed milk, 1/2 cup unsweetened cocoa powder, 1 teaspoon pure vanilla extract, and a pinch of fine salt. The mixture will become thick. Set aside.

Whip 2 cups heavy cream with a mixer on medium-high until firm peaks form (approximately 2 minutes). Fold about 1 cup of the whipped cream into the cocoa mixture using a rubber spatula. Then, fold the cocoa mixture into the remaining whipped cream until well blended.

Pour into a chilled 9x5x3 inch metal loaf pan, cover and freeze until the mixture is solid and can be easily scooped (approximately 5 hours).

Enjoy with your favorite toppings, sundae style, or simply on its own!

 

What to Look for This Week

After Monday’s market closures in honor of Memorial Day, the economic calendar picks up with some key reports.

There will be an update on manufacturing when the ISM Index for May is released on Tuesday. The ISM Services Index follows Thursday.

But the main headliner will be reports from the labor sector, beginning with the ADP Employment Report, which will release Thursday instead of the usual Wednesday and will give us an update on private payrolls for May. The latest weekly Jobless Claims figures will also be delivered as usual on Thursday. Ending the week on Friday we will see the highly anticipated Bureau of Labor Statistics Jobs Report for May, which includes Non-farm Payrolls and the Unemployment Rate.

 

Technical Picture

Mortgage Bonds have broken back above their 25-day Moving Average, which will now act as a floor of support. The next ceiling of resistance is the 103.752 Fibonacci level and then the 100-day Moving Average nearby after that. The 10-year has fallen back beneath 1.60% and there is room for yields to continue to the downside until reaching 1.487%.

 

Todd Abelson - Tucson Mortgages

Tucson Mortgages Home Loan News 5-24-2021

By Todd Abelson NMLS #180858 on .

Week of May 17, 2021 in Review

Housing news dominated the headlines, as the latest data on sales, construction and builder confidence was reported. Plus, the minutes from the Fed’s latest meeting were released – and the markets responded!

Sales of existing homes fell for the third month in a row, dropping 2.7% from March to April. The continued theme remains high demand and near record-low inventory, with just a 2.4 months’ supply of homes available for sale at the end of April.

On the new home side of things, construction in April didn’t add as much of a boost to inventory as hoped. Housing Starts, which measure the start of construction on homes, were down 9.5% while Starts on single-family homes fell 13% from March to April. Building Permits, which are a good forward-looking indicator, did tick up 0.3% in April, though Permits for single-family homes were down 3.8%. Yet the numbers may be even worse than the headline data shows, as explained below.

Builder confidence remains high this month, even in the face of rising lumber prices and labor shortages, due in large part to the high demand for homes we’re seeing. The National Association of Home Builders Housing Market Index, which is a real-time read on builder confidence, held steady at 83 in May. Any reading over 50 indicates that more builders see conditions as good versus poor.

Initial Jobless Claims declined by 34,000 in the latest week, as 444,000 people filed for unemployment benefits for the first time. However, 15.9 million people are still receiving benefits throughout all programs, and though this is down 887,000 from the previous week, we still have a way to go before we reach pre-pandemic levels of unemployment.

Last, the minutes from the Fed’s April 27-28 Federal Open Market Committee meeting were released on Wednesday. These always have the power to move the markets – and last week was no exception. Find out more about what happened below.

 

Existing Home Sales Fall for Third Straight Month

Existing Home Sales, which measure closings on existing homes, were down 2.7% in April. However, on an annual basis, sales are up 19% compared to April 2019 (a typical market) and 33% versus April of 2020 (when the pandemic and shutdowns were in full swing).

Inventory remains the biggest challenge for buyers, as there were just 1.16 million homes for sale at the end of April. This is down over 20.5% year over year, and reflects just a 2.4 months’ supply, which remains near a record low. This low level of inventory helped homes sell quickly, as homes were only on the market for 17 days on average.

The median home price was $341,600, which is a record high and up 19% 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. And sales on the low end were down, while homes between $750,000 and $1 million were up 146% and homes above $1 million were up 212%. This dragged the median home price higher.

First-time home buyers decreased from 32% to 31%, which is still a decent level considering the stiff competition for homes on the lower end and the lack of inventory. And of note, cash buyers increased from 23% to 25%.

 

Housing Starts Stymied This Spring

Housing Starts, which measure the start of construction on homes, were down 9.5% in April, which was much weaker than expectations. Even more urgently, single-family Starts, which are in such high demand around the country, fell 13%.

Building Permits, which are a good forward-looking indicator, were up 0.3% in April, while Permits for single-family homes were down 3.8%.

For both Housing Starts and Building Permits, we can throw out the year over year numbers due to the complete halt in construction this time last year.

Builders are delaying Housing Starts due to higher commodity prices like lumber. In fact, 15% of homebuilders are laying concrete and then not building houses. And while this counts as a Housing Start in terms of the reporting, we are not actually getting a house for much-needed supply. Unfortunately, this means the numbers are likely worse than we are seeing. In fact, Housing Completions were down 4.5%, which makes sense based on this information. Additionally, the lack of labor is a huge issue.

 

Builders Remain Confident Despite Rising Lumber Costs

Builder confidence remained unchanged as May’s reading matched the 83 that was reported in April, per the National Association of Home Builders Housing Market Index. Low inventory, low home loan rates and strong demand for housing are contributing to builders’ positive sentiment. Any reading over 50 indicates that more builders view conditions as good rather than poor.

Of the three components of the index, current sales conditions was unchanged at 88, sales expectations for the next six months rose one point to 81, and buyer traffic ticked down one to 73.

NAHB Chief Economist Robert Dietz said, “Low interest rates are supporting housing affordability in a market where the cost of most materials is rising.” Yet he also cautioned that “home buyers should expect rising prices throughout 2021 as the cost of materials, land and labor continue to rise.”

 

Initial Jobless Claims Decline in Latest Week

The number of people filing for unemployment for the first time decreased by 34,000 in the latest week, as 444,000 Initial Jobless Claims were filed. While it’s nice to see this figure decline, it is still double the amount that was typical before the pandemic began. The previous week’s Initial Jobless Claims was revised higher by 5,000 claims, from 473,000 to 478,000. California (+71K), Texas (+26K) and Georgia (+25K) reported the largest number of claims.

Continuing Claims, which measures people continuing to receive regular benefits, increased by 111,000 to 3.75 million.

Pandemic Unemployment Assistance Claims (which provides benefits to people who would not usually qualify) and Pandemic Emergency Claims (which extends benefits after regular benefits expire) decreased by more than 829,000 combined claims.

All in all, 15.9 million people are still receiving benefits throughout all programs, which is down 887,000 from the previous week.

 

Fed Minutes Move Markets

The minutes from the Fed’s latest Federal Open Market Committee meeting were released on Wednesday and these always have the power to move the markets, especially if something mentioned may be seen as inflationary.

Last week, the minutes showed that a number of participants said that supply chain bottlenecks and input shortages may not be resolved quickly and, if so, these factors could put upward pressure on prices beyond this year.

In addition, the minutes also said that, “A number of participants suggested that if the economy continued to make rapid progress toward the Committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases.”

Also adding to volatility last Wednesday, the 20-Year Treasury Auction was met with below-average demand. The bid to cover of 2.24 was below the one-year average of 2.39. Direct and indirect bidders took 76.3% of the auction compared to 76.1% in the previous 12. Remember, weak demand can signal that investors think yields will continue to move higher, which can have a negative effect on rates.

 

Family Hack of the Week

If you’re planning a barbecue or two over the upcoming holiday weekend, don’t just put your grill to work for dinner! This recipe for Honey Glazed Grilled Pineapple from our friends at the Food Network makes for a delicious and refreshing dessert the whole family will love.

In a baking dish, mix together 1/4 cup honey, juice of 2 limes, and 1/2 teaspoon cinnamon. Slice 1/2 pineapple into 3/4-inch rings with the core removed. Add the pineapple slices into the honey mixture and marinate for 2 hours, turning occasionally.

Preheat a grill to medium heat. Place the pineapple slices onto the heated grill and grill on both sides until the honey glaze caramelizes and grill marks form (approximately 2 minutes per side).

Top the pineapple slices with a scoop of your favorite ice cream, drizzle with the remaining honey syrup on top and enjoy!

 

What to Look for This Week

More housing news is ahead, starting Tuesday with April’s New Home Sales data and the Case-Shiller Home Price Index and Federal Housing Finance Agency House Price Index, both of which will give us an update on home price appreciation in March. Pending Home Sales for April follows on Thursday.

Also on Thursday, weekly Jobless Claims will be reported as usual, along with the second reading of first Quarter GDP and April Durable Goods Orders.

Ending the week on Friday ahead of the holiday weekend, we’ll get important news on inflation via April’s Personal Consumption Expenditures, along with Personal Income and Personal Spending.

 

Technical Picture

Mortgage Bonds continue to trade in the middle of a wide range between support at the 50-day Moving Average and a ceiling of resistance at the 25-day Moving Average.

On the flip side, the 10-Year is being squeezed in a narrow range between support at the 25-day Moving Average and a ceiling at the 50-day Moving Average.

Todd Abelson - Tucson Mortgages

Tucson Mortgages Home Loan News 5-17-2021

By Todd Abelson NMLS #180858 on .

Week of May 10, 2021 in Review

Last week brought a double whammy when it comes to inflation, as the reports for April showed it is blisteringly hot!

Consumer inflation as measured by the Consumer Price Index (CPI) rose by 0.8% in April while the year over year reading increased from 2.6% to 4.2%. Not only was this a much larger jump than expected, it was the highest annual increase in 13 years! Core CPI, which strips out volatile food and energy prices, also made headlines as it was up 0.9% in April – the highest month over month increase in 39 years!

Wholesale inflation also came in red hot, doubling expectations, as the Producer Price Index (PPI) rose 0.6% in April. Year over year, PPI rose from 4.2% to 6.2%, which is one of the hottest readings ever! Core PPI also rose more than expected.

Inflation is critical to monitor because rising inflation can have a big impact on Mortgage Bonds and the home loan rates tied to them. Don’t miss the important explanation below.

And speaking of inflation, the April National Federation of Independent Business Small Business Optimism Index showed that many companies were raising wages as a result of not being able to fill positions. Additionally, selling prices increased to the highest level in 40 years. This is just one of many contributing factors to the red-hot inflation readings we’re seeing.

There was some good news regarding Initial Jobless Claims, as the number of people filing for unemployment for the first time fell by 34,000 in the latest week to 473,000. While the number of people continuing to receive regular benefits also declined, the number of people receiving pandemic-related benefits rose sharply. All in all, 16.9 million people are still receiving benefits throughout all programs, which is an increase of 700,000 people from the previous week.

After jumping 10% in March (almost 11% with the revision), Retail Sales were flat in April. Taking out autos, gasoline, and building materials, sales were actually down 1.5%. This makes sense as the jump in March followed the latest stimulus package, and sales in April reflect an understandable pull back.

Lastly, Wednesday’s 10-year Note and Thursday’s 30-year Bond auctions also made headlines. Find out more about them below.

 

Consumer Inflation Blisteringly Hot

The Consumer Price Index (CPI), which measures inflation on the consumer level, rose by 0.8% in April. The year over year reading increased from 2.6% to 4.2%, which was a much larger jump than expected and the highest year over year increase in 13 years.

Core CPI, which strips out volatile food and energy prices, was up 0.9% in April, which is the highest month over month increase in 39 years! On a year over year basis Core CPI increased from 1.6% to 3.0%.

Within the report, it showed that rents are rising 2.0% across the US, which is up from 1.8% in the previous report.

And if we look even deeper into the numbers, while the 0.9% jump in Core CPI was big for the month of April, it was actually somewhat concentrated among airline fares (+10.2%), sporting events (+10.1%), used cars (+10%), hotels (+8.8%), and personal computers (+5.1%).

All of these were record highs and only represent 7% of the overall US economy. Many of these increases are explainable due to the shortage in semiconductor chips and the economy opening back up. The remaining 93% of the US economy was only up 0.3%, which is why some economists are arguing that the rise in inflation will be transient.

In addition, part of the reason for the increase in the annual comparisons is that readings for the more current months are replacing the readings from 2020 when much of the economy was shut down due to the pandemic. That’s why inflation is expected to move higher still when May’s readings are reported in June, as next month a -0.1% reading of the Core CPI from May 2020 will be replaced with data from May of this year.

Why is rising inflation significant?

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.

 

Wholesale Inflation Doubly Hot

The Producer Price Index (PPI), which measures wholesale inflation, rose 0.6% in April, which was twice as much as expected. Year over year, PPI rose from 4.2% to 6.2%, which is one of the hottest readings ever!

Core PPI, which again strips out volatile food and energy prices, rose 0.7% month over month and increased from 3.1% to 4.1% year over year.

Of note within the report, we saw price increases in things that affect housing. Steel was up 18%, furnishings wholesale was up 3.1%, flooring increased 3%, and household appliances rose 0.6%.

 

Initial Jobless Claims Fall in Latest Week

The number of people filing for benefits for the first time decreased by 34,000 from the previous revised report of 507,000 claims, as Initial Jobless Claims were reported at 473,000. This was just below expectations of 475,000 new claims.

Continuing Claims, which are filed by people who continue to receive regular benefits, fell by 45,000 to 3.66 million.

Pandemic Unemployment Assistance Claims (which provide benefits to people who would not usually qualify for them) and Pandemic Emergency Claims (which extends benefits after regular benefits expire) increased by more than 700,000 combined claims.

Despite the improvement in Initial Jobless Claims, all in all there are still 16.9 million people receiving benefits throughout all programs. This represents an increase of 700,000 people from the previous week.

 

Update on Auctions

Investors were closely monitoring the 10-year Note and 30-Year Bond auctions held on Wednesday and Thursday, respectively, 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.

While the 10-year Note auction showed strong demand, with the yield 1.684 versus a one-year average of 0.98 and direct and indirect bidders taking in 80.5% versus a one-year average of 76.1%, the hot inflation headlines had more of an impact on the markets Wednesday.

Thursday’s 30-year Bond auction was met with below-average demand. The bid to cover of 2.22 was below the one-year average of 2.33. Direct and indirect bidders took 80% of the auction compared to 79.4% in the previous 12 months. However, Mortgage Bonds did not react to the weak auction.

 

Family Hack of the Week

National Pizza Party Day is this Friday, May 21. Making your own pizzas from scratch can be a fun activity for the whole family to enjoy together. These recipes from the Food Network can help.

For the dough, combine 3 1/2 cups bread flour, 1 teaspoon sugar, 1 envelope instant dry yeast and 2 teaspoons Kosher salt in the bowl of a stand mixer. While the mixer is running, add 1 1/2 cups water (lukewarm, approximately 110 degrees Fahrenheit) and 2 tablespoons of olive oil.

Beat until the dough forms into a ball. If the dough is sticky, add 1 tablespoon at a time of flour until the dough comes together in a solid ball. If the dough is dry, add 1 tablespoon at a time of water. Scrape the dough onto a lightly floured surface and gently knead into a smooth, firm ball.

Grease a large bowl with 2 teaspoons olive oil, add the dough, and cover the bowl with plastic wrap. Place in a warm area to let it double in size (approximately 1 hour). Turn the dough out onto a lightly floured surface and divide it into 2 equal pieces. Cover each with a clean kitchen towel or plastic wrap and let them rest for 10 minutes.

For the sauce, heat 2 tablespoons olive oil in a medium saucepan over medium-high heat. Add 1/2 teaspoon dried oregano, 3 cloves minced garlic and 1 pinch of red pepper flakes. Stir until the garlic is golden brown, 1 to 2 minutes. Add one 32-ounce can crushed tomatoes, 1 sprig of fresh basil and 1/2 teaspoon salt and bring to a simmer. Reduce the heat to medium and simmer, stirring occasionally until the sauce thickens, approximately 5 to 10 minutes. Remove the basil.

Once the sauce reaches room temperature, roll out the dough and top with sauce, a healthy layer of mozzarella cheese and your family’s favorite toppings. You can also divide the dough into mini-pizzas to make a variety of favorite combinations.

 

What to Look for This Week

Reports on housing and manufacturing will highlight those sectors in the week ahead.

Housing news begins Monday with the National Association of Home Builders Housing Market Index for May, which will give us a real-time read on builder confidence. On Tuesday, we’ll get an update on Housing Starts and Building Permits for April, while Friday brings the data on April’s Existing Home Sales.

Manufacturing news will also be reported Monday with May’s Empire State Index, which gives us an update on the New York region. May’s Philadelphia Fed Index follows on Thursday.

Also of note, the minutes from the Fed’s April meeting will be released on Wednesday while the latest Jobless Claims figures will be reported on Thursday, as usual.

 

Technical Picture

Mortgage Bonds are in the middle of a wide range between support at the 50-day Moving Average and overhead resistance at the 25-day Moving Average. Bonds are susceptible to large price swings when they are in a wide range like this, so it’s important to be on guard.

The 10-year is trading at 1.63%, testing the 50-day Moving Average. Yields have several floors beneath present levels, which will make it hard to see an improvement lower. Conversely, there is room to the upside until the highs from two days ago at 1.70%, followed by 1.76%.

 

Todd Abelson - Tucson Mortgages