Tucson Mortgages Home Loan News 11-2-2020

By Todd Abelson NMLS #180858 on .

Week of October 26th, 2020 in Review

Both Initial and Continuing Jobless Claims declined during the week ending October 24, with first-time filers falling 40,000 to 751,000 while people continuing to receive benefits dropped 700,000 to 7.6 million. Though these declines are certainly a positive development, the caveat remains the number of people receiving Pandemic Emergency Unemployment Compensation, as explained below.

Low inventory impacted New Homes Sales in September, which did decline slightly from August. However the report, which measures signed contracts on new homes, showed that sales are up 32.1% compared to September of last year as the ongoing pandemic has buyers continuing to look for more space. Pending Home Sales, which measures signed contracts on existing homes, were down 2.2% from August to September, also due in part to low inventory.

This high demand and low supply of homes has helped homes prices continue to appreciate, as both the Case-Shiller and Federal Housing Finance Agency reported strong home price gains in August.

In other economic news, Personal Income, Personal Spending and Durable Goods Orders (which reflects new orders placed with domestic manufacturers for delivery of factory hard goods) all came in better than expected in September, while the first look at third quarter GDP came in up 33.1%. This was slightly higher than expectations of 32% and a nice improvement from the final second quarter figure of -31.4%.

One important thing to note, however, is that the 33.1% gain in the third quarter does not erase the -31.4% drop in the second quarter. GDP would have to increase almost 46% to make back what was lost. In addition, the report showed that the biggest contributor to GDP was consumer spending, which has been aided by stimulus. If we don’t see another stimulus package, the economy in the fourth quarter could suffer.

Lastly, there was news on inflation as the Fed’s favorite inflation measure, Personal Consumption Expenditures, was released for September. Find out if consumer inflation is on the rise – and why that matters – below.

The Caveat to the Decline in Jobless Claims

Another 751,000 people filed for unemployment benefits for the first time during the week ending October 24, which is 40,000 fewer people than during the previous week. California (+159K), New York (+55K) and Massachusetts (+54K) reported the largest increases.

Continuing Claims, which measures people who continue to receive benefits, also improved by 700,000 to 7.6 million.

While the decline in Continuing Claims is a step in the right direction, it is important to remember that people can apply for Pandemic Emergency Unemployment Compensation (PEUC) when they run out of regular benefits. PEUC extends people’s benefits for another 13 weeks.

In the latest week, the number of PEUC filers increased by almost 400,000 people, so unfortunately the drop in Continuing Claims is not quite as positive as the headline implies. In addition, it’s unclear from the decline in Continuing Claims if people are in fact going back to work or if they’re running out of benefits.

Low Inventory Impacts New and Pending Home Sales

New Home Sales, which measures signed contracts on new homes, came in at 959,000 in September, which was down 3.5% from August and slightly lower than the small increase expected. However, sales are now up 32.1% compared to September of last year.

The median new home price increased year over year to $326,800. This means that half of the homes sold were above and half below that price and, as a result, more higher-priced homes sold in September.

Inventory remains very tight, as there were only 284,000 homes for sale at the end of September, which equals a 3.6-months’ supply. Typically, 6 months is considered normal.

Pending Home Sales, which measures signed contracts on existing homes, were down 2.2% from August to September. This was less than the 3% gain that was expected. However, sales are still up 20.5% when compared to September of last year, which is especially impressive considering that the supply of existing homes is down almost 20% in that same period.

The monthly decline was not due to a lack of demand but a lack of supply. Quite simply, if there were more homes on the market, there would be more sales.

Home Prices Continued to Appreciate in August

The Case-Shiller Home Price Index, which is considered the “gold standard” for appreciation, reported a 5.7% annual gain in home prices in August nationwide. This was significantly higher than the 4.8% annual appreciation reading that was reported for July.

The 20-city Index showed a 5.2% annual gain, also up from July’s reading of 4.1%. Nearly all of the cities saw strong gains, with Phoenix (+9.9%), Seattle (+8.5%) and San Diego (+7.6%) leading the charge.

Putting these figures in context, someone buying a $300,000 home that gains 5% in appreciation would benefit by just over $17,000 in just one year on appreciation alone. Plus, the equity gain with amortization would be even greater.

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. Home prices rose 1.5% from July to August and are up 8.0% when compared to August of last year, which is even stronger than the 6.5% annual appreciation reported in July.

Looking Past the Inflation Headlines

The Fed’s favored measure of inflation, Personal Consumption Expenditures (PCE), showed that headline inflation increased 0.2% from August to September and remained stable at 1.4% year over year.

Core PCE, which strips out volatile food and energy prices and is the Fed’s real focus, also increased 0.2% in September. Year over year, Core PCE rose from 1.4% to 1.5%, however the previous reading was actually revised lower from 1.6% to 1.4%.

While inflation looks tame, it is important to take a deeper look at the numbers. The previous 5 month-over-month readings show that core inflation is up 1.4%. The current year-over-year reading of 1.5% is being weighed down by some negative and very low readings previously. When those numbers are replaced, we could see inflation start to tick higher quickly.

Why is this important?

Rising inflation can cause home loan rates to move higher. Home loan rates are tied to a type of Bond called Mortgage Backed Securities and as inflation erodes a Bond’s fixed return, the only way to compensate investors is with a higher rate. So, the possibility of rising inflation is always something we need to monitor.

It’s also worth mentioning that PCE is a poor measure of inflation because it has a low weighting towards housing and out of pocket medical expenses, both of which are very important to consumers. Real inflation is likely higher than what is reflected in this latest report.

Family Hack of the Week

Fall is a perfect time for baking, and chocolate chip cookies are always a crowd pleaser. Try this classic recipe with walnuts or pecans to kick it up a notch.

Preheat oven to 375 degrees Fahrenheit. In a medium bowl, stir 2 1/4 cups flour, 1 teaspoon baking soda, 1/2 teaspoon salt and 1 tablespoon of cinnamon and set aside. Using an electric mixer, beat 1 cup butter, 3/4 cup sugar and 3/4 cup packed brown sugar on medium until creamy. Add 2 teaspoons vanilla extract and 2 eggs, one at a time. Mix on low until incorporated. Do not overmix.

Gradually blend dry ingredients into creamed ingredients. Stir in chocolate chips and 1 1/4 cups of chopped walnuts or pecans.

Place parchment paper onto ungreased baking sheet. Form dough into balls (using 2 tablespoons’ worth at a time) and drop onto baking sheet. Bake for approximately 18 to 20 minutes or until golden brown. Let cool on a cooling rack for 5 minutes and enjoy.

What to Look for This Week

While Tuesday’s election is likely to dominate headlines throughout the week, there are also some key economic reports to look for.

Manufacturing news kicks off the week on Monday with the ISM Index.

Then the labor sector highlights the economic calendar in the second half of the week. On Wednesday, look for the latest on private payrolls with October’s ADP Employment Report. The latest weekly Initial Jobless Claims will be released as usual on Thursday. Ending the week on Friday, the highly anticipated Bureau of Labor Statistics Jobs Report for October will be released, which includes Non-farm Payrolls and the Unemployment Rate.

The Fed also will be holding its regularly scheduled two-day meeting of the Federal Open Market Committee, with this week’s meeting starting on Wednesday due to the election on Tuesday.

Technical Picture

The Fed’s ongoing purchases of Mortgage Backed Securities continues to provide stability to the markets. Mortgage Bonds are battling with their 25-day and 50-day Moving Averages, which are important thresholds. If these levels are broken convincingly, there is room for Bonds to move lower until reaching their 100-day Moving Average. The 10-year was also at an important level, testing its 200-day Moving Average, and did break above it.

 

Todd Abelson - Tucson Mortgages

Tucson Mortgages Home Loan News 10-26-2020

By Todd Abelson NMLS #180858 on .

Week of October 19th, 2020 in Review

Another 787,000 people filed for unemployment benefits for the first time during the week ending October 17, which was a nice decline from the previous week. Continuing Claims, which measure people continuing to receive benefits, also declined by 1 million to 8.4 million, the lowest level since March! These headline figures are certainly positive, but there is a caveat to them as detailed below.

There was more evidence that the housing sector remains the cornerstone of our economic recovery, as the National Association of Home Builders (NAHB) Housing Market Index, which is a real-time read on builder confidence, set another record high this month. All three components of the index, which includes readings on current sales conditions, sales expectations in the next six months and buyer traffic, signaled expansion.

Meanwhile, both Housing Starts and Building Permits rose from August to September. Of particular importance, both Starts and Permits for single-family homes, which is the area where building is really needed due to high demand, both increased.

Existing Home Sales were also strong in September, up 9.4% from August and up nearly 21% when compared to September of last year. Note that this report measures closings and likely represents buyers who were shopping for homes in June and July. Low inventory remains the biggest challenge, as there were only 1.47 million homes for sale in September, which equates to just a 2.7 months’ supply. Typically, a 6-month supply is considered normal.

Lawrence Yun, Chief Economist for the National Association of REALTORs, noted, “There is no shortage of hopeful, potential buyers, but inventory is historically low. To their credit, we have seen some homebuilders move to ramp up supply, but a need for even more production still exists.”

Reading Beneath the Headlines on Jobless Claims

Initial Jobless Claims fell below 800,000 for the week ending October 17, as 787,000 people filed for unemployment benefits for the first time. This marks a nice improvement from the previous week. California did report after two weeks of not providing figures, which adds to the positive nature of the decline in initial claims. California (+158K), New York (+56K) and Texas (+51K) reported the largest gains.

Continuing Claims, which measure people continuing to receive benefits, also improved by 1 million to 8.4 million people, marking the lowest level since March.

Looking past the headlines, one important thing to remember is that people can apply for Pandemic Emergency Unemployment Compensation (PEUC) after the 26 weeks of regular benefits expire, which extends their benefits for another 13 weeks. That figure increased by more than 500,000. So, while the report is an improvement, it needs to be dissected with the increase in pandemic unemployment assistance in mind.

Builder Confidence Reaches Another Record High

The National Association of Home Builders (NAHB) Housing Market Index rose from 83 to 85 in October, marking the second month in a row that it has set a record high. This report is a near real-time read on builder confidence, and any reading above 50 on this index that goes from 1 to 100 signals expansion.

All three components of the index were positive, with current sales conditions rising 2 points to 90, sales expectations in the next six months up 3 points to 88, and buyer traffic remaining unchanged at 74.

It’s important to note that builders have said that they are being challenged by a lack of land, labor, and seriously spiking material costs.

“Traffic remains high and record-low interest rates are keeping demand strong as the concept of ‘home’ has taken on renewed importance for work, study and other purposes in the Covid era,” said NAHB Chairman Chuck Fowke. “However, it is becoming increasingly challenging to build affordable homes as shortages of lots, labor, lumber and other key building materials are lengthening construction times.”

Digging Deeper Into Housing Starts

Housing Starts, which measure the start of construction on homes, were up 1.9% from August to September and 11.1% when compared to September of last year. While this monthly reading was a bit lower than expectations, it’s important to look more closely at the numbers.

Starts on single-family homes, which is the area where building is really needed due to the high demand, were up 8.5% from August and a whopping 22.3% versus last September.

The headline figure was brought down by starts on multi-family units, which declined 14.7%. All in all, this was a very strong report.

Building Permits, which are a good future indicator of Housing Starts, were up 5.2% from August and 8.1% on an annual basis. Permits for single-family homes once again were even stronger, up 7.8% from August and 24.3% from September of last year.

Interestingly, new homes that were sold but not started yet are up 69%, which shows how strong the demand has been. September’s increase in both Housing Starts and Building Permits will help to meet some of this demand, but there is so much more demand than supply right now that many more homes are needed. The imbalance will continue to support home prices.

September Existing Home Sales Soar

Existing Home Sales came in strong in September, up 9.4% from August. This report measures closings, which means it likely represents buyers who were shopping for homes in June and July. Sales were also up nearly 21% when compared to September of last year, which is the highest pace since 2006 – when there were more than twice as many homes for sale. This certainly speaks to the strength of the current housing market.

Inventory remains tight, as there were only 1.47 million units for sale in September, down 19.2% compared to September of last year. This equates to just a 2.7 months’ supply, marking a record low, whereas a 6-months’ supply is considered indicative of a healthy housing market. Quite simply, if there were more homes for sale, sales would be even higher.

The median home price was reported at $311,800, up almost 15% year over year. Note that this doesn’t mean homes are not affordable. It just means the middle-priced home that sold was $311,800, with half the homes selling below and half above that price. In September, a greater number of higher-priced homes sold and as a result, the median home price moved higher.

Inventory remained tightest among lower-priced homes, which is why not as many were sold. This impacted first-time buyers, which dropped from 33% to 31% of buyers in September. On average, homes were only on the market for 21 days, which is an all-time low.

Family Hack of the Week

Halloween may look a bit different this year, but that doesn’t mean your family can’t have some spooky fun. Here are just a few ways you could celebrate.

With Halloween falling on a Saturday, consider a family hike or visit to a pumpkin patch or apple farm for some daytime fun. There are sure to be some delicious baked goods to pick up while you’re there.

If the weather is less cooperative for outdoor activities, bake and decorate some spooky looking pumpkin or ghost-shaped cookies. Or build a haunted gingerbread house.

Scary movies are always fun on Halloween. Settle in at night with a family-friendly favorite like Casper or save some scarier options like the classic Halloween for the adults later on.

What to Look for This Week

The last week of October brings a full slate of economic news, beginning Monday with September’s New Home Sales. The Case-Shiller Home Price Index for August follows on Tuesday and September’s Pending Home Sales will be reported Thursday.

Also on Tuesday, we’ll get the latest on Durable Goods Orders when September’s reading is reported while third quarter Gross Domestic Product will be released Thursday.

The latest weekly Initial Jobless Claims remain critical to monitor when that data is released on Thursday. Ending the week on Friday, we’ll get a read on September inflation when Personal Consumption Expenditures (the Fed’s favorite inflation measure) is released, along with Personal Income and Spending.

Technical Picture

The Fed continues to provide stability to the markets with its ongoing purchases of Mortgage Backed Securities. Mortgage Bonds are sitting on a dual level of support at the 100-day Moving Average and a trendline that goes back several months. If this level is broken there is significant downside risk. The 10-year is also being pushed against its ceiling at the 200-day Moving Average.

Todd Abelson - Tucson Mortgages

Tucson Mortgages Home Loan News 10-19-2020

By Todd Abelson NMLS #180858 on .

Week of October 12th, 2020 in Review

The number of people filing for unemployment rose by 53,000 in the latest week, as Initial Jobless Claims totaled 898,000 during the week ending October 10. Continuing Claims, which measures the number of people continuing to receive benefits, totaled 10 million, marking a decrease of 1.2 million. It’s important to note that California, which makes up 20% to 25% of claims, did not report for the second week in a row due to an internal review. So once again the caveat to this data is that the number of claims filed could have been much better…or much worse.

Wholesale inflation was on the rise in September, per the latest Producer Price Index report. The monthly Headline reading came in double market expectations while the Core reading, which strips out volatile food and energy prices, also rose. While the level of inflation is still relatively low, the key takeaway is that the pace of increase is sharp, partly due to the big rise in shipping costs we have seen.

Meanwhile, inflation at the consumer level remains relatively tame per September’s Consumer Price Index. But if inflation continues to rise at the wholesale level, higher producer costs could be passed down to consumers, causing inflation to rise. More about why rising inflation is important to monitor below.

Despite the ongoing impact of the pandemic, small businesses felt confident last month as the National Federation of Independent Business (NFIB) Small Business Optimism Index rose 3.8 points in September to 104.0, which is the best level since February and historically high. Of particular note, those expecting higher selling prices jumped by 12 points to 13, which is the highest since January. This again could point to future inflation.

There was mixed news from the manufacturing sector, as the Empire State Index, which shows the health of manufacturing in the New York region, was reported at 10.5 for October, which was below expectations of 14.5. The Philadelphia region fared better, as the Philadelphia Fed Index was reported at 32.3 for October, above expectations of 14.5.

Lastly, Retail Sales delivered some positive news as they were strong in September, up 1.9% and beating expectations of 0.7%. Removing auto sales, Retail Sales increased by 1.5%, which was also better than estimates. Sales of clothing and accessories led the gains, rising by 11%, while sporting goods, music and books also rose 5.7%.

 

Jobless Claims Report Brought Mixed News

Another 898,000 people filed for unemployment for the first time during the week ending October 10, which is an increase of 53,000 from the previous week. The elevated levels of first-time filers remains a major concern for our economic recovery. However, the number of people continuing to receive benefits did decline by 1.2 million to 10 million people.

The number of people receiving Pandemic Unemployment Assistance (PUA) has also improved by roughly 200,000, now totaling 11.2 million. PUA benefits are for people who would not typically be approved for unemployment, like gig workers and contractors. People can also apply for them when their regular unemployment benefits expire.

All in all, the total number of individuals receiving some kind of unemployment benefits is at 25.3 million, which also improved by 200,000. For comparison, there were just 1.4 million people receiving some type of unemployment benefits during this same week last year. The lack of people working will continue to pressure supply chains and could contribute to higher inflation ahead.

It’s important to note that California did not report for the second week due to an internal review to try to flush out some fraud they were experiencing, so these numbers once again need to be taken with a grain of salt. California makes up 20% to 25% of claims due to the size of its population, so the numbers could have been much better or much worse. California is expected to report their data in the next weekly report.

 

Wholesale Inflation Comes In Hot

September’s Producer Price Index (PPI) showed that headline wholesale inflation increased 0.4%, which was double market expectations. On a year over year basis, headline PPI also increased from -0.2% to 0.4%.

Core PPI, which strips out volatile food and energy prices, was also up 0.4% and increased from 0.6% to 1.2% year over year. Although the PPI report does not get much respect from the markets, it is hard to ignore the significant increases in wholesale inflation. These numbers are still relatively low, but the pace of increase is sharp.

Part of the reason for the big rise is shipping costs, which have been seeing double digit gains for land, air and sea. If this continues, those higher producer costs can find their way to consumers, causing inflation to rise.

Consumer inflation was still tame in September, however, coming in at 0.2%, per the Consumer Price Index (CPI) report. The year over year reading increased from 1.3% to 1.4%. Core CPI, which also strips out volatile food and energy prices, also increased by 0.2% month over month. On an annual basis, Core CPI remained stable at 1.7%. Consumer inflation readings were held down in part by rents, which make up 40% of the CPI and continue to move lower in many areas due to the pandemic.

Why does rising inflation matter?

Inflation erodes the buying power of a Bond’s fixed coupon over time. Home loan rates are tied to Mortgage Bonds, and if Mortgage Bonds worsen or move lower as they often do when inflation heats up, home loan rates can move higher.

 

Small Businesses Expressed Optimism in September

Despite the ongoing impact of the pandemic, small businesses expressed confidence as the NFIB Small Business Optimism Index rose 3.8 points in September to 104.0, which is the best level since February and historically high. The focal point of the report was those expecting higher selling prices, which jumped by 12 points to 13. This is the most since January and could point to future inflation.

Understandably, the Uncertainty Index increased 2 points to 92, up from 75 in April.

“As parts of the country continue to open, small businesses are seeing some improvements in foot traffic and sales,” said NFIB Chief Economist Bill Dunkelburg. “However, some small businesses are still struggling financially to operate at full capacity while navigating state and local regulations and are uncertain about what will happen in the future.”

 

Family Hack of the Week

One of the treats of carving pumpkins is roasting the seeds afterwards, but removing the sticky pulp from the seeds beforehand can be tricky. Here’s an easy trick that can help: Boil the pumpkin seeds in a salty brine first.

Add 1 cup of pumpkin seeds, 2 cups of water and 2 tablespoons to a medium saucepan. Bring to a boil and then simmer for 10 minutes. Once that’s done, drain and dry the seeds.

Next, coat with olive oil, 1 teaspoon of allspice (or your favorite spice) and a pinch of salt. Spread out on a baking sheet, bake at 400 degrees Fahrenheit for 20 to 25 minutes, and enjoy!

 

What to Look for This Week

Housing news will be in the spotlight with several key reports ahead. On Monday, we’ll get a read on builder confidence with the National Association of Home Builders Housing Market Index for October. Tuesday look for the latest on Housing Starts and Building Permits when the data for September is released. Then on Thursday, we’ll get an update on Existing Home Sales for September.

Also on Thursday, the latest weekly Initial Jobless Claims remain critical to monitor as the labor sector continues to struggle.

 

Technical Picture

The Fed’s ongoing purchases of Mortgage Backed Securities continues to provide stability to the markets. Mortgage Bonds remain in a battle with the 25-day and 50-day Moving Averages, which are basically the same level currently. This dual level is an important inflection point and it will be critical to see which direction Bonds breakout. If Bonds break to the upside, there is roughly 27bp of room for improvement. On the other hand, if Bonds move lower from these levels, there is roughly 40bp of room to the downside.

 

Todd Abelson - Tucson Mortgages

Tucson Mortgages Home Loan News 10-12-2020

By Todd Abelson NMLS #180858 on .

Week of October 5th, 2020 in Review

The economic calendar was relatively quiet, but there was important news to note about unemployment, housing and the Fed.

Initial Jobless Claims are still staggeringly high, as another 840,000 people filed for unemployment benefits during the week ending October 3. Meanwhile, another 11 million people are continuing to receive benefits, though this was an improvement by about 1 million from the previous week. The caveat to this data is that California, which makes up 20% to 25% of claims, did not report which means the number of claims filed could have been much better…or much worse.

There was more evidence that the housing sector remains a bright spot in the economy, as CoreLogic’s latest Home Price Index report showed that homes appreciated nearly 1% from July to August. Prices were also 5.9% higher than compared to August of last year. In addition, Veros Real Estate Solutions released their forecast, showing that they believe home prices will rise 5% over the next twelve months, which is a strong upward revision to their previous forecast of 3.5% last quarter.

The Fed released the minutes from their September 15-16 meeting, which showed that not all members agreed with the strategy for keeping the Fed Funds Rate at zero through 2023. This is the rate at which banks lend money to each other overnight and it’s important to note that it is not the same as home loan rates. Find out why the members disagreed – and how the disagreements differed – below.

Jobless Claims Remain High, With Caveat

Another 840,000 people filed for unemployment benefits for the first time during the week ending October 3, which is still a very high number of new claims. An additional 11 million people are continuing to receive benefits after their initial claim has been filed, which is an improvement of roughly 1 million people.

In addition, 11.4 million people are receiving Pandemic Unemployment Assistance (PUA), which people can apply for when their regular unemployment benefits expire. PUA benefits are also for people who would not typically be approved for unemployment, like gig workers and contractors.

All in all, the total number of individuals receiving some kind of unemployment benefits is at 25.5 million, which improved by 1 million. By comparison, there were 1.4 million people receiving some type of unemployment benefits during this same week last year.

It’s important to note that California did not report due to an internal review they conducted to try and flush out some fraud they were experiencing, which means these numbers need to be taken with a grain of salt. California makes up 20% to 25% of claims due to its large population, so the numbers could have been much better or worse depending on how California did.

The bottom line is that the lack of people working will continue to pressure supply chains. And with the economy becoming busier, this will only add to higher inflation. More about why this matters below.

 

Home Prices Continue to Appreciate

CoreLogic released their Home Price Index report for August, which showed that home prices increased nearly 1% from July and they’re up 5.9% compared to August of last year. Idaho, Arizona and Maine experienced the strongest price growth in August, up 10.8%,9.7% and 9.6%, respectively.

CoreLogic also forecast that home prices will rise 0.2% in the year going forward, which is a decline from the 0.6% increase forecasted in the previous report. However, keeping this in perspective, CoreLogic had forecasted only a 0.1% monthly gain for August and the data came in at 1%, and the same thing happened last month as well. In addition, not too long ago CoreLogic forecasted a 6.6% decline in home prices in the year going forward, which they have revised significantly to now a positive 0.2% gain. With demand for housing so high, appreciation should continue.

“The imbalance between homebuyer demand and for-sale inventory is particularly acute for lower-priced homes,” noted Dr. Frank Nothaft, chief economist at CoreLogic. “Because of this imbalance, homes priced more than 25% below the median were up 8.6% in price over the last year, compared with the 5.9% price increase for all homes.”

 

Fed Strategy and Inflation

The minutes from the Fed’s September 15-16 meeting were released on Wednesday and they showed that several Fed officials balked at the new interest rate strategy to keep the Fed Funds Rate at zero through 2023, in part because the guidance could limit the central bank’s flexibility. Note that the Fed Funds Rate is the rate banks use to lend each other money overnight and it is not the same as home loan rates.

These Fed members also argued that by influencing the market’s view about the future path of short-term interest rates, “such guidance could contribute to a buildup of financial imbalances that would make it more difficult for the Fed to achieve its objectives in the future.”

In addition, a few Fed officials argued against the strategy for different reasons. They wanted the Fed commitment to keep the Fed Funds Rate near zero to be even stronger and less qualified. They wanted the Fed to say that the policy rate would remain near zero until inflation had moved above 2% for some time.

Remember rising inflation is especially important to monitor, as inflation reduces the value of fixed investments like Mortgage Bonds. And since home loan rates are tied to Mortgage Bond performance, if Bonds worsen or lose value as they can when inflation rises, then home loan rates can increase as a result.

 

Home Hack of the Week

For most families, a washing machine is one of the most crucial appliances in their home, which means preventing a breakdown is equally crucial. These tips from Apartment Therapy will help yours last for a long time.

Help prevent mold and mildew by wiping any moisture off the door, the gasket around the door and the inside of the machine after each load. Removing clothes right away and keeping the door open so the interior can dry can also help.

Follow the recommended guidelines for detergent type and amount for your machine. Clean the detergent dispenser frequently to prevent buildup.

Each month, inspect hoses for tight fittings, cracks or leaks to help prevent floods. It’s also a good idea to periodically run a self-cleaning cycle per the instructions in your owner’s manual and to double check that the machine is level.

 

What to Look for This Week

After the market closures on Monday in honor of the Columbus Day holiday, inflation news will be making headlines. On Tuesday, look for September’s Consumer Price Index, followed by the Producer Price Index on Wednesday, which measures wholesale inflation.

We’ll also get a read on small business optimism Tuesday with the NFIB Small Business Index for September.

Jobless claims remain crucial to monitor when the latest report releases on Thursday, as usual. Thursday also brings a double dose of manufacturing news with October’s Philadelphia Fed Index and the Empire State Index, the latter of which measures activity in the New York region.

Ending the week on Friday, we’ll learn how Retail Sales fared in September.

 

Technical Picture

The Fed continues to provide stability to the markets via its ongoing purchases of Mortgage Backed Securities. Mortgage Bonds are trying to hold the line at the 25-day and 50-day Moving Averages, which is a very important floor of support as there is significant downside risk if they break beneath this level.

Todd Abelson - Tucson Mortgages

Tucson Mortgages Home Loan News 10-5-2020

By Todd Abelson NMLS #180858 on .

Week of September 28th, 2020 in Review

Last week’s calendar was jam-packed with important news on employment, housing, inflation and more.

The Bureau of Labor Statistics reported that there were 661,000 job gains in September, which was much less than expectations. However, revisions to the reports for July and August showed that there were 145,000 more jobs created than previously reported. The unemployment rate declined, which on the surface is good news, but there is more to this headline as detailed below. Private payrolls did show a gain of 749,000 jobs in September, which was higher than expected, per the ADP Employment Report.

Weekly Jobless Claims still remain persistently high, as another 837,000 people filed for unemployment benefits for the first time during the week ending September 26. In addition, 11.8 million people continue to receive regular unemployment benefits, while another 11.8 million people are receiving Pandemic Unemployment Assistance.

The final or third look at second quarter GDP came in at -31.4%, which was basically unchanged from the second look of -31.7% and still extremely weak. On a positive note, a big rebound is expected in the third quarter.

The housing sector continues to be the bright spot in the economy, with Pending Home Sales up 8.8% from July to August, reaching an all-time home. Home prices also continue to appreciate per the Case-Shiller Home Price Index, which showed a 4.8% annual gain nationwide in July.

Lastly, inflation also made headlines, as Personal Consumption Expenditures showed that inflation is heating up both on a monthly and annual basis. More about why this is so important below.

 

September Job Gains Less Than Expected

The Bureau of Labor Statistics (BLS) reported that there were 661,000 jobs added in September, which was much less than expectations. However, revisions to the data for July and August showed that there were 145,000 more jobs created in those months than previously reported. Putting things in perspective, we are still 11 million jobs short of where we were before the pandemic.

 

Looking deeper into the numbers, there are two reports within the Jobs Report and there is a fundamental difference between them. The Business Survey is where the headline job number comes from and it’s based predominately on modeling.

The Household Survey, where the Unemployment Rate comes from, is done by actual phone calls to 60,000 homes. The Household Survey also has a job loss or creation component, meaning it may be more reflective of actual job numbers, and the Household Survey showed that there were 275,000 job gains in September (as compared to the 661,000 job gains in the Business Survey).

The Unemployment Rate decreased from 8.4% to 7.9%, which was much stronger than expectations of 8.2%. Unfortunately, however, the decrease was for the wrong reasons. While there were 275,000 job gains, the labor force decreased by nearly 700,000 people. The combination of job gains and people leaving the labor force pulled the unemployment rate lower.

It’s also important to note that there has been a misclassification error where people were classified as absent from work for other reasons and not marked as unemployed on temporary layoff when they should have been. Without this error, the unemployment rate would have been 0.4% higher or 8.3%.

Looking deeper into the numbers, Government jobs fell by 216,000, but that was mostly due to the temporary 2020 Census workers. The all in U6 Unemployment Rate, which includes total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, decreased from 14.2% to 12.8%.

Average hourly earnings increased 4.7% year over year, which was unchanged. Average weekly earnings, which we focus on more, rose by 5.6%, up from 5.3%.

 

Private Payrolls Rise More Than Expected

The ADP Employment Report, which measures private sector payrolls, showed that there was a gain of 749,000 jobs in September, which was better than the 650,000 expected. Additionally, August’s report was revised higher by 53,000 jobs to 481,000.

 

Per ADP, the economy lost 19.7 million private-sector jobs in March and April and has only recovered 9.3 million of those since. This better than expected report is a step in the right direction, though there is still a way to go.

 

Jobless Claims Remain Staggeringly High

Another 837,000 people filed for unemployment benefits for the first time during the week ending September 26. California (+226K), New York (+66K) and Georgia (+43K) reported the largest gains. And 11.8 million people are continuing to receive benefits after their initial claim is filed.

In addition to the number of people receiving regular unemployment benefits, there are an additional 11.8 million people receiving Pandemic Unemployment Assistance (PUA). PUA benefits are for people who would not typically be approved for unemployment, like gig workers and contractors. People can also apply for PUA benefits when their regular unemployment benefits expire.

All in all, the total number of individuals receiving some kind of unemployment benefit is 26.5 million, which worsened by 500,000 from the previous week. The lack of people working will continue to pressure supply chains and with the economy starting to get busier, this will only add to the possibility of inflation.

 

Pending Home Sales and Home Prices Rise

Pending Home Sales, which measure signed contracts on existing homes, were up 8.8% in August after a 15.9% gain in July. The index is now at an all-time high, and all in the face of record low inventory levels! Sales are also up 24.2% when compared to August of last year, which is a big improvement from the 15.5% annual gain in the previous report.

Meanwhile, home prices continue to appreciate. The Case-Shiller Home Price Index, which is considered the “gold standard” for appreciation, showed that there was a 4.8% annual gain in July nationwide, which was 0.5% higher than the gain we saw in June.

The 20-city Index showed that home price gains rose from 3.5% to 3.9% compared to July of last year, with almost all of the cities showing strong gains. Phoenix (+9.2%), Seattle (+7%) and Charlotte (+6%) reported the highest annual gains.

Case-Shiller said that they expect this year-over-year appreciation figure to jump again in August. Think of it this way. Purchasing a $300,000 home that gains 5% in appreciation would be a benefit of $15,000 in just one year of appreciation alone. What’s more, the equity gain with amortization would be even greater.

 

Inflation Heating Up

The Fed’s favored measure, Personal Consumption Expenditures (PCE), showed that headline inflation increased 0.3% in August. On a year-over-year basis, inflation increased from 1.1% to 1.4%.

Core PCE, which strips out volatile food and energy prices and is the Fed’s real focus, increased 0.3% in August and rose from 1.4% to 1.6% annually. This is a big move both on a monthly and annual basis.

Why is this significant? Inflation reduces the value of a Bond’s fixed coupon over time and home loan rates are tied to Mortgage Bonds. So, if Mortgage Bonds worsen or move lower as they often do when inflation heats up, home loan rates can move higher. The bottom line is that if inflation begins to persistently move higher, it will start to pressure longer-term Bonds like Mortgage Bonds, which could push home loan rates a bit higher.

 

Family Hack of the Week

Fall is the perfect time for baking, and these berry-filled muffins are the perfect Sunday morning (or any time) treat for your whole family. This recipe is delicious with fresh or frozen blueberries, raspberries, blackberries, strawberries or your favorite combination.

Preheat oven to 350 degrees Fahrenheit. Butter or grease a muffin tin. Sift 2 cups flour, 1 teaspoon baking powder, 1 teaspoon baking soda and a pinch of salt together in a medium bowl. In a stand mixer, cream 1/2 cup of softened unsalted butter and 1 cup of sugar together on medium-high until light and fluffy. Add 3 eggs one at a time and then add 1 cup of sour cream, and mix well. Add dry ingredients and mix until just combined. Be careful not to overmix.

Chop 2 cups of berries into bite-size pieces. Fold in the berries, add lemon zest and then add batter to muffin tin, filling 3/4 high. Bake for 25 minutes (35 minutes for 6-count jumbo muffin tin) or until golden brown on top and a toothpick inserted comes out clean.

Let rest for 5 minutes in the baking tin, turn out onto a cooling rack and enjoy.

 

What to Look for This Week

After last week’s full slate of economic reports, this week’s calendar is relatively quiet. Of particular note, on Wednesday keep a look out for the minutes from the Fed’s latest FOMC meeting. Weekly Jobless Claims also remain critical to monitor when they release as usual on Thursday.

 

Technical Picture

The Fed’s ongoing purchases of Mortgage Backed Securities continue to provide stability to the markets. Mortgage Bonds have been battling with overhead resistance at 103.469. If they can convincingly break above this ceiling, there is room for them to test all-time highs.

Todd Abelson - Tucson Mortgages

Tucson Mortgages Home Loan News 9-28-2020

By Todd Abelson NMLS #180858 on .

Week of September 21st, 2020 in Review

Initial Jobless Claims ticked up slightly during the week ending September 19, as another 870,000 people filed for unemployment benefits for the first time. In addition, 12.6 million people continued to receive regular unemployment benefits while 11.5 million people filed for Pandemic Unemployment Assistance. Though these numbers are still staggering, there was some positive news as the number of PUA claims decreased by 3 million.

The housing sector continues to be a bright spot in the economy, as sales of existing and new homes increased in August. Existing Home Sales were up 2.4% from July to August and 10.5% higher when compared to August of last year. Meanwhile, New Home Sales rose 4.8% from July to August. They also shot up 43% year over year. Inventory remains the biggest challenge for buyers, with supply of both new and existing homes far below normal levels.

Home prices continue to appreciate, per the latest FHFA (Federal Housing Finance Agency) House Price Index, which measures home price appreciation on single-family homes with conforming loan amounts. Prices rose 1% in July and are up 6.5% year over year, which is even stronger than May and June’s annual appreciation figures.

And in another sign of strength from the housing market, research firm CoreLogic released their Homeowner Equity report showing homeowners with mortgages, which makes up roughly 63% of all properties, saw their equity increase by 6.6% year over year. Homeowners gained approximately $9,800 in equity during the past year.

Lastly, Durable Goods Orders, which reflects new orders placed with domestic manufacturers for delivery of factory hard goods, increased by 0.4% in August. While this was a slight miss due to volatile aircraft orders, Core shipments (which are plugged into GDP) rose1.5% month over month. This was about twice the level expected and should result in an uplift in GDP estimates for the third quarter. In addition, inventories fell for a third month, which supports the possibility that demand will come back before supply and can contribute to inflation. More about inflation below.

Labor Sector Has a Long Way to Go

Another 870,000 people filed for unemployment benefits for the first during the week ending September 19. California (+230K), New York (+71K) and Georgia (+48K) reported the largest increase. The number of people continuing to receive benefits remains at a staggering 12.6 million.

In addition to the regular unemployment claims, we also have to factor in Pandemic Unemployment Assistance (PUA) benefits. People can apply for PUA benefits when their regular unemployment benefits expire. PUA benefits are also for people who would not typically be approved for unemployment, like gig workers and contractors. In the latest week, 11.5 million people filed for PUA benefits. And while this is a staggering number, it did improve by 3 million from the previous week.

All in all, 26 million people are receiving some type of unemployment benefits. While this total improved significantly by 3.7 million people, the bottom line is that there is a long way to go before unemployment returns to pre-pandemic levels.

August Existing Home Sales Increase

Sales of existing homes were up 2.4% from July to August, marking three consecutive months of sales gains. And because these are closings, the data likely represents buyers shopping for homes in June and July. Sales were also 10.5% higher when compared to August of last year, which is the highest pace since 2006 when there were twice as many homes for sale.

Inventory remains tight, with only 1.49 million units for sale at the end of August, down nearly 19% from the same time last year. This marks just a 3-month supply of homes available for sale, where 6 months is considered normal.

The median home price was reported at $310,600, up 11.4% year over year. This doesn’t mean homes are not affordable, it just means that half the homes sold below and half above this price. First time home buyers made up 33% of home sales, down from 34%, but still strong.

“Home sales continue to amaze, and there are plenty of buyers in the pipeline ready to enter the market,” said Lawrence Yun, NAR’s chief economist. “Further gains in sales are likely for the remainder of the year, with mortgage rates hovering around 3% and with continued job recovery.”

August New Home Sales Beat Expectations

New Home Sales, which measures signed contracts on new homes, were up 4.8% in August, which was much stronger than the small decline expected. Sales are now on a pace above 1 million for the year and are now up a whopping 43% year over year.

The median new home price decreased 3% year over year to $312,800. Note that this number is not the same as home values and does not mean home prices went down. As with Existing Home Sales, this figure reflects the fact that half the homes sold above and half below this price. In other words, more lower priced homes sold in August which makes sense, as builders have been trying to put up more affordable homes for first time home buyers.

Inventory of new homes also remains very tight, with only 282,000 homes for sale at the end of August. This equals just a 3.3-month supply of homes available for sale. Again, a 6 months’ supply is considered normal.

The Latest News on Home Price Appreciation

The FHFA (Federal Housing Finance Agency) released their latest House Price Index, which measures home price appreciation on single-family homes with conforming loan amounts. Home prices rose 1% in July and are up 6.5% year over year, which is even stronger than the 5.8% annual increase in the previous report and the 4.9% increase seen two months ago. This report is further evidence that the housing sector remains the bright spot in our economy.

A Note on Freight Shipping… and Inflation

The Cass Freight Index, which measures freight shipments, showed that shipments fell -7.6% year over year in August, which was an improvement from the -13.1% last month. Month over month the index was up 8.0%.

Cass Freight said, “This supports what we have heard from public carriers across all modes, and we believe the trend of ‘better’ has continued here in September. Expect the Cass Index to move back closer to year-ago levels in the coming months, although we think it will stay in negative territory until 2021.” They added, “Still, all signs point to an improving economy, and goods movement is getting better every month.”

This rebuild and need for shipping items across the world is also reflected in sharply higher shipping rates across all modes. Truckstop.com said in a report that trucking spot rates are up 19% year over year. Cargo rates via ship are also up sharply and we know FedEx and UPS are implementing surcharges.

This is part of the reason we think inflation can continue to creep up … and if that were to occur, home loan rates could move a bit higher. Why? Inflation erodes the buying power of a Bond’s fixed coupon over time. Home loan rates are tied to Mortgage Bonds, and if Mortgage Bonds worsen or move lower as they often do when inflation heats up, home loan rates can move higher.

Home Hack of the Week

Fall is officially here. These quick and easy ideas from Better Homes & Gardens are the perfect way to add some pizazz to your porch.

For an inviting look, the options for fall wreathes are endless and can make for a fun art project for you and your kids. Try a combination of decorative pine cones, dried leaves and flowers, fall-colored ribbons, berries, and cinnamon sticks.

Mix and match pumpkins of all shapes and sizes. Instead of adding two same-sized pumpkins on either side of your door, consider stacking a few smaller pumpkins on a stand to balance out a larger pumpkin on the other side. This will add visual interest and an element of fun to your display.

Last, as the days get shorter, a row of lanterns not only adds a cozy feel to any pathway but also will provide important safety. And just to add more pizazz, why not add a fall-themed doormat as the perfect literal last step.

What to Look for This Week

This week brings a full slate of important news, beginning Tuesday with the Case-Shiller Home Price Index for July while August Pending Home Sales follows Wednesday. We’ll also get an update on September manufacturing on Wednesday with the Chicago PMI and Thursday with the ISM Index.

Wednesday also brings the final reading on second quarter GDP. Look for the Fed’s favorite inflation data, Personal Consumption Expenditures, on Thursday when August’s reading is released along with Personal Income and Spending.

Not to be outdone, the labor sector will be making headlines beginning Wednesday with the ADP Employment Report for September. The latest weekly Initial Jobless Claims releases as usual on Thursday. Ending the week Friday, look for the Bureau of Labor Statistics Jobs Report for September, which features Non-farm Payrolls and the Unemployment Rate.

Technical Picture

The Fed continues to stabilize the markets with its ongoing purchases of Mortgage Backed Securities. Mortgage Bonds have broken above the Pennant formation they have been in, as well as their 25 and 50-day Moving Averages. This is a positive sign and if Bonds can gain some momentum, there is a somewhat weak ceiling above and then a chance for them to test all-time highs.

 

Todd Abelson - Tucson Mortgages

Tucson Mortgages Home Loan News 9-21-2020

By Todd Abelson NMLS #180858 on .

Week of September 14th, 2020 in Review

Labor sector woes continue, as another 860,000 people filed for unemployment benefits for the first time during the week ending September 12. The number of people continuing to receive benefits remains in the multi-millions, as does the number of people receiving Pandemic Unemployment Assistance (PUA) Claims.

Despite the staggeringly high unemployment claims, the housing sector remains a bright spot in the economy. The National Association of Home Builders Housing Market Index, which is a real-time read on builder confidence, reached a new all-time high in September, rising from 78 to 83. All three components of the index (confidence in current sales, sales expectations in the next six months and buyer traffic) increased. Any reading above 50 on this index that goes from 1-100 signals expansion.

However, the spike in lumber prices since mid-April remains a concern, even though prices have since fallen from their peak levels.

Housing Starts and Building Permits did decline overall in August, but there’s more to the headline than meets the eye. The drop was all for multi-family units. Both Starts and Permits for single-family homes, which are greatly needed, increased from July to August and also higher when compared to August of last year.

Over in the manufacturing sector, the Empire State Index, which shows the health of the manufacturing sector in the New York region, was reported at 17.0, much higher than the 6.5 expected for September. Meanwhile, the Philadelphia Fed Index fell 2 points to 15, marking a third straight decline since June. However, any reading above zero does indicate improving conditions and the report beat expectations.

Retail Sales rose 0.6% in August, marking a third straight month of increases, but the pace of sales has slowed from earlier in the summer. This slowdown does correspond with millions of people also losing extended unemployment benefits last month as well.

Lastly, the Fed held its regularly scheduled meeting of the Federal Open Market Committee, with some important news in their Monetary Policy Statement regarding inflation. Find out more about what they said, and why it matters, below.

 

Initial Jobless Claims Remain at Staggering Levels

Another 860,000 people filed for unemployment benefits for the first time during the week ending September 12. While this figure has slightly improved from the readings above 1 million, it is still more than four times the number of claims that were being filed before the pandemic.

Continuing Claims, which measure people who continue to receive benefits after their initial claim is filed, totaled 12.6 million.

In addition to the regular unemployment benefit claims, there are 14.5 million people receiving Pandemic Unemployment Assistance (PUA). People can apply for PUA benefits when their regular unemployment benefits expire. PUA benefits are also for people like gig workers and contractors who usually would not be approved for unemployment benefits.

The total number of individuals receiving some type of unemployment benefit is at 29 million. By comparison, there were only 1.5 million people receiving benefits during the same week last year. While the Bureau of Labor Statistics reported that the unemployment rate was at 8.4% in August, the real unemployment rate in near real-time factoring everything in sadly has to be much higher.

 

Builder Confidence Reaches All-Time High

The National Association of Home Builders Housing Market Index, which is a real-time read on builder confidence, rose from 78 to 83 in September, which is a new all-time high.

The index is made up of three components and all three moved higher in September. Confidence in current sales jumped 4 points to 88, sales expectations in the next six months was up 6 points to 84 and buyer traffic rose 9 points to 73.

The NAHB said, “Single family construction is benefiting from low interest rates and a noticeable suburban shift in housing demand to suburbs, exurbs and rural markets as renters and buyers seek out more affordable, lower density markets.”

Also of note, lumber prices have jumped more than 170% since mid-April, adding more than $16,000 to the price of a typical new single-family home, according to the NAHB. Lumber producers shut down in March and April as the pandemic hit the US and did not expect to see the quick surge in housing demand that began in late May.

Ramping up production, while protecting workers with social distancing, was not easy and supply suffered. The fires on the west coast are adding to the concerns. Lumber prices have since fallen almost 40% from their peak so hopefully this will lend some relief if sustained.

 

Digging Deeper Into Housing Starts

Housing Starts were down 5% in August and while this headline might at first glance make it seem like this report was a miss, the drop was all in multi-family homes. What the housing market really needs is single-family homes, and single-family starts were up 4% in August and 12% year over year!

Building Permits, which are a good forward-looking indicator of Housing Starts, were down 1%. But again, the decline was all in multi-family units. Permits for single-family homes rose 6% from July to August and they’re up nearly 16% compared to August of last year. The bottom line is that housing continues to remain the bright spot in the economy.

 

The Latest Inflation Update From the Fed

The Fed met and, as expected, announced they would leave their benchmark Federal Funds Rate unchanged at zero. They also noted they don’t see a change happening until after 2023. It’s important to understand that the Fed Funds Rate and Mortgage Rates are completely different instruments. The Fed Funds Rate is an overnight rate that can be changed day to day, while a Mortgage Rate is in place for a longer time frame, such as 30 years.

The Fed also noted they will maintain an accommodative policy until their inflation target of 2% is reached. They elaborated slightly on their new “average inflation” methodology, saying that they would allow inflation to run moderately above 2% for “some time” so that inflation averages 2% over time. However, the projections from Fed members show that they don’t see inflation reaching 2% until 2023, with a projection of 1.5% in 2020, 1.7% in 2021 and 1.8% in 2022.

Why does this matter?

Inflation is the enemy of Bonds, especially long-term Bonds like Mortgage Bonds because inflation erodes the buying power of a Bond’s fixed coupon over time. Home loan rates are tied to Mortgage Bonds, and if Mortgage Bonds worsen or move lower as they often do when inflation heats up, home loan rates can move higher.

 

Home Hack of the Week

If you’ve ever had a dryer break with piles of laundry on deck, you know it’s an experience you don’t ever want to repeat. These tips from Apartment Therapy can help make sure your dryer stays in good working order for a long time.

Cleaning the lint filter after each load is one the quickest and easiest ways to make sure your dryer operates at maximum efficiency. In addition, you should also check the dryer exhaust at least once a month for any obstructions.

Once a quarter, rinse the lint catcher with mild detergent, which can help remove chemical buildup that can impede airflow. The start of a new season is a great reminder to take care of this.

Lastly, it’s always a good idea to consider having the ducts professionally cleaned once a year to minimize fire hazard.

 

What to Look for This Week

Housing news will once again make headlines, as Existing Home Sales for August will be reported Tuesday with New Home Sales following on Thursday. The Federal Housing Finance Agency House Price Index for July will be released on Wednesday.

The latest Jobless Claims figures remain critical to monitor when they are reported as usual on Thursday. Ending the week on Friday, look for an update on Durable Goods Orders for August.

 

Technical Picture

The Fed continues to stabilize the markets with its ongoing purchases of Mortgage Backed Securities. Mortgage Bonds have been knocking on a dual ceiling of resistance, formed by the 25 and 50-day Moving Averages, but have failed to break above this level and have been pushed lower each time. If Bonds are unable to break above this ceiling, the natural direction and path of least resistance is lower. We will be monitoring this closely.

Todd Abelson - Tucson Mortgages

Tucson Mortgages Home Loan News 9-14-2020

By Todd Abelson NMLS #180858 on .

Week of September 7th, 2020 in Review

After the market closures on Monday in honor of the Labor Day holiday, the economic calendar was relatively quiet. But there were several important headlines regarding unemployment, inflation, and housing bidding wars.

Initial Jobless Claims remained below 1 million during the week ending September 5, as another 884,000 people filed for unemployment benefits for the first time. While on the surface this is a step in the right direction, the headline figure does not account for Pandemic Unemployment Assistance (PUA) Claims, which are an equally significant amount. In addition, Continuing Claims, which measure people who continue to receive benefits, increased by 93,000 to 13.4 million.

Inflation was also in the news, as both the Consumer Price Index and the Producer Price Index (which measures inflation at the wholesale level) showed that inflation was on the rise in August. Rising inflation is always important to monitor, as it can have an impact on fixed investments like Mortgage Bonds. More about why this is significant below.

Despite the challenges many businesses are facing, optimism among small businesses was also on the rise in August. The National Federation of Independent Business Small Business Optimism Index increased 1.4 points to 100.2, which was higher than expectations of 98.9.

Lastly, evidence of low supply and high demand continues in the housing market. For the fourth consecutive month, over half of home offers from Redfin faced a bidding war, with 54.5% of homes sold in a bidding war in August. This was a slight drop from 57.3% in July, but still a significant amount.

 

Looking Beneath the Headlines on Jobless Claims

Another 884,000 people filed for unemployment benefits for the first time during the week ending September 5, which was unchanged from the previous week. California (+237K), Texas (+66K) and New York (+65K) reported the largest gains. However, Continuing Claims, which measure people who continue to receive benefits, increased by 93,000 to 13.4 million.

While the media has celebrated the fact that Initial Jobless Claims are under 1 million, it’s important to take a step back and ask: Are things really getting better?

The headline jobless claims figures do not count Pandemic Unemployment Assistance (PUA) Claims. People can apply for PUA benefits when regular unemployment benefits expire. PUA benefits are also for people like gig workers and contractors who usually would not be approved for unemployment benefits.

Initial PUA Claims, which again are separate and in addition to the headline figures, totaled 839,000 in the latest week. Continuing PUA Claims increased by 1 million after increasing by 2.6 million in the previous week.

Given that it’s September, it’s possible many people are applying for PUA benefits because their regular benefits have expired. If this is the case, we’re not really seeing an improvement in unemployment, but rather a transfer of people from regular to PUA benefits.

All in all, the total number of people receiving some type of benefits is around 29 million, which would bring the real-time estimate of the unemployment rate to around 17%.

 

Inflation Heats Up

Inflation was on the rise in August at both the wholesale and consumer levels. The wholesale-measuring Producer Price Index (PPI) showed that headline PPI increased 0.3% in August from July, which was slightly higher than the 0.2% expected. On a year over year basis, headline PPI increased from -0.4% to -0.2%. Core PPI, which strips out volatile food and energy prices, was up 0.4% in August and increased from 0.3% to 0.6% year over year.

The more closely watched Consumer Price Index (CPI) came in at 0.4% in August, while the year over year reading increased from 1.0% to 1.3%. The Core reading, which again strips out food and energy prices, also increased by 0.4% month over month and the year over year reading increased from 1.6% to 1.7%. Within the report, rents are rising 2.9% across the US, which is down from 3.1%. The medical care index rose 4.5% from last year.

Inflation has been rising sharply, especially on a month over month basis. If we saw 0.4% inflation each month, it would equate to a 5% inflation rate. For now, the year over year Core CPI reading is 1.7%, but it’s the hottest it’s been in 6 months. This rate could continue to rise, especially as the economy opens back up. Demand is likely to come much faster than supply, as we know supply chains have been compromised. If that were to occur, rates can rise.

Remember, inflation is the arch enemy of fixed investments like Mortgage Bonds because it reduces their value. Home loan rates are inversely tied to Mortgage Bonds, and as Bonds worsen or move lower, home loan rates can rise. Though many factors impact the markets, this is why it’s always important to keep an eye on inflation headlines.

 

Small Business Optimism Rises in August

The National Federation of Independent Business Small Business Optimism Index rose 1.4 points in August to 100.2. Plans to hire, positions not able to fill, and plans to increase inventory all rose, while capital spending plans were unchanged. Current compensation rose 3 points to a 5-month high, but future compensation plans were unchanged.

The NFIB’s chief economist, Bill Dunkelberg, said, “Small businesses are working hard to recover from the state shutdowns and effects of COVID. We are seeing areas of improvement in the small business economy, as job openings and plans to hire are increasing, but many small businesses are still struggling and are uncertain about what the future will hold.”

 

Home Hack of the Week

Fall is fast approaching. Tick these easy seasonal maintenance items off your to do list, then sit back and enjoy the season.

Schedule a service call to make sure your furnace, chimney and fireplace are in working order so they’ll be ready when you need them.

Test your smoke and carbon monoxide detector batteries and be sure to always keep extra batteries on hand.

Add weatherstripping and door sweeps to any drafty areas to keep your heating bill low.

Drain all outdoor faucets and disconnect garden hoses from outside spigots to help keep water from freezing and prevent burst pipes.

Seal cracks in your concrete driveway or patio to prevent water from seeping in, which can then freeze, expand and cause the crack to grow. Fixing small cracks before temperatures fall can help prevent more expensive repairs down the road.

 

What to Look for This Week

We’ll get a double dose of manufacturing news, starting Tuesday with the Empire State Index’s update on September activity in the New York region. The Philadelphia Fed Index follows Thursday.

On Wednesday, the latest Retail Sales figures for August will be reported and we’ll get a read on builder confidence with the National Association of Home Builder’s Housing Market Index for September. Plus, the Statement from the two-day meeting of the Federal Open Market Committee will be released, which always has the power to move the markets.

Finally, Thursday will bring the latest weekly Jobless Claims figures, as well as an update on Housing Starts and Building Permits for August.

 

Technical Picture

The Fed continues to stabilize the markets with its ongoing purchases of Mortgage Backed Securities. After trading in a narrowing range between the 25 and 50-day Moving Averages, Mortgage Bonds are right at their 25-day Moving Average. If we see a solid break above the 25-day Moving Average, there is significant upside potential. Support is also nearby at the 50-day Moving Average, now that the range has gotten so tight. A breakout is coming one way or the other, so stay tuned.

 

Todd Abelson - Tucson Mortgages

Tucson Mortgages Home Loan News 9-8-2020

By Todd Abelson NMLS #180858 on .

Week of August 31st, 2020 in Review

The labor sector dominated headlines last week, as several important reports were released. First in on Wednesday was the ADP Employment report, which measures private sector payrolls. August brought a gain of 428,000 jobs, less than half of the 900,000 expected. However, July’s figure was revised higher.

On Friday, the highly-anticipated Jobs Report from the Bureau of Labor Statistics (BLS) showed that 1.4 million jobs were created in August, which was in line with expectations. The unemployment rate also improved, but there is more to that story due to the misclassification error, as explained below.

Meanwhile, another 881,000 people filed for unemployment benefits for the first time during the week ending August 29. This was 130,000 fewer than the previous week, while the number of Continuing Claims, measuring people who continue to receive benefits, also fell by 1.2 million to 13.3 million. While these latest numbers are an improvement, they still represent a staggering number of people. They also do not account for Pandemic Unemployment Assistance Claims, which greatly add to the unemployment figures overall.

Lastly, over in the housing sector, home prices continued to appreciate in July per CoreLogic’s Home Price Index report. But perhaps the biggest headline is the change in their forecast for appreciation for the coming year. Read on for more about this.

 

August Jobs Report a Step in the Right Direction

The Bureau of Labor Statistics reported that there were 1.4 million new jobs created in August, which was in line with expectations. 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, meaning it may be more reflective of actual job numbers, and the Household Survey showed that there were 3.76 million job gains in August (as compared to the 1.4 million job gains in the Business Survey).

The Unemployment Rate decreased from 10.2% to 8.4%, which was much stronger than expectations of 9.9%. While the Household Survey showed there were 3.8 million job gains, the labor force increased by 1 million people, which is a good thing and means more people are being counted among it. Because there were so many more job creations than the increase in the labor force, the unemployment rate improved significantly.

It is important to note, however, that there has been a misclassification error where people were classified as absent from work for other reasons and not marked as unemployed on temporary layoff when they should have been. Without this error, the unemployment rate would have been 0.7% higher or 9.1%.

Looking deeper into the numbers, 238,000 of the job gains in the headline job number were temporary 2020 Census workers. Without those jobs, the unemployment rate would be 1.5% higher at 9.9%. Adding in the misclassification error, it would be 10.6%.

The all in U6 Unemployment Rate, which includes total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, decreased from 16.5% to 14.2%.

Average hourly earnings increased 4.7% year over year, down slightly from 4.8%, while average weekly earnings, which we focus on more, rose by 5.3%, down from 5.4%.

All in all, this report is a positive step in the right direction for the labor sector, but we still have a long way to go to return to pre-pandemic levels.

 

Private Payrolls Show Slow Recovery

The ADP Employment Report showed that there was a gain of 428,000 new jobs in the private sector in August. While this is positive news at face value, it was less than half of the 900,000 new jobs expected. July’s report was revised higher by 45,000 new jobs, from 167,000 to 212,000.

Leisure and hospitality led with 129,000 new jobs while education and health services contributed 100,000 and professional and business services grew by 66,000. Construction also added 28,000 and manufacturing was up 9,000 new jobs.

Overall, small businesses (1-49 employees) added 52,000 jobs, midsized businesses (50-499 employees) added 79,000 and large businesses (500 or more employees) added 298,000.

After losing 19.7 million jobs in March and April we’ve gotten back a total of about 8.5 million. Ahu Yildirmaz, vice president and co-head of the ADP Research Institute, said, “The August job postings demonstrate a slow recovery. Job gains are minimal, and businesses across all sizes and sectors have yet to come close to their pre-COVID employment levels.”

 

Digging Deeper into Jobless Claims Figures

The latest jobless claims report showed that another 881,000 people filed for unemployment benefits for the first time during the week ending August 29. This was 130,000 fewer than the previous week with California (+236K), New York (+63K) and Texas (+57K) reporting the largest gains. The number of Continuing Claims, measuring people who continue to receive benefits, also improved by 1.2 million to 13.3 million.

While these latest numbers are an improvement, they still represent a staggering number of people and there is more than meets the eye.

There are Pandemic Unemployment Assistance (PUA) Claims that are not captured

in the headline figures. People can apply for this when regular unemployment benefits expire. They’re also for people who usually would not be approved for unemployment benefits, like gig workers and contractors. These Initial PUA Claims totaled 759,000 in the latest week while Continuing PUA Claims increased by 2.6 million to 13.6 million.

Given that it’s September, people could be falling off regular benefits and applying for PUA benefits, and if that’s the case it means we are not really seeing an improvement in unemployment. All in all, the total number of people receiving some type of benefits is around 28 million, which would bring the real-time estimate of the unemployment rate to around 18%.

 

Home Prices Continue to Appreciate

Research firm CoreLogic released their Home Price Index report for July, showing that home prices increased 1.2% during the month and 5.5% when compared to July of last year.

But perhaps the biggest headline is in their forecasts, where they have said home prices will rise 0.1% in August and 0.6% in the year going forward. This is a big revision to their annual forecast from two months ago, where they estimated a 6.6% drop in the year going forward, which they revised to a 1% drop last month.

While a 0.6% gain is a big change, it is possible appreciation could be even stronger. The housing market has been hot and homes have been appreciating at a very solid level, mainly due to strong demand and tight supply.

Builders are going to have a tough time keeping up with demand because in the beginning of the Covid-19 crisis, they slowed production in anticipation of a slow housing market. When the housing sector outperformed expectations, there was much more demand than supply, causing lumber prices to spike.

What’s more, even though inflation is currently low, when the economy does come back full swing, demand for housing will return much faster than supply. This can cause a sharp rise in inflation and is something we have to monitor, especially since the Fed has mentioned they would allow inflation to run hotter for periods of time.

 

Family Hack of the Week

The start of the school year is the perfect time for an extra special treat. And this easy recipe for Chocolate Ganache is sure to please kids and adults alike.

First, chop up some hazelnuts or your favorite nut and set these aside. Then pour 1 cup of heavy cream into a saucepan and heat gently over medium. Place 8 ounces of bittersweet chocolate into a bowl. When the cream has started to form bubbles around the edge of the saucepan (hot but not simmering or boiling), pour it over the chocolate and whisk until you have a smooth consistency and the cream and chocolate are incorporated.

Spoon generous lashings over your ice cream of choice, sprinkle on the nuts and enjoy.

What to Look for This Week

After the market closures on Monday in honor of the Labor Day holiday, the economic calendar is relatively quiet. On Tuesday we’ll get an update on how small businesses are feeling with the NFIB Small Business Optimism Index while Thursday brings the latest news on weekly and continuing Jobless Claims. Inflation will also make headlines, with the wholesale-measuring Producer Price Index for August releasing on Thursday, followed by the Consumer Price Index on Friday.

 

Technical Picture

The Fed continues to stabilize the markets with its ongoing purchases of Mortgage Backed Securities. Mortgage Bonds have fallen below support at their 25-day Moving Average. They are currently in a range between the 25-day Moving Average, which has now become a ceiling of resistance, and support at the 50-day Moving Average.

 

Todd Abelson - Tucson Mortgages

Tucson Mortgages Home Loan News 8-31-2020

By Todd Abelson NMLS #180858 on .

Week of August 24th, 2020 in Review

Initial Jobless Claims remained in the millions for the second straight week, as another 1 million people filed for unemployment benefits for the first time during the week ending August 22. This was a decline of 98,000 new claims from the previous week. The number of people continuing to receive benefits also declined by 223,000 to 14.5 million. Though these declines are a move in the right direction, unemployment levels are still staggeringly high.

Home sales continue to be a bright spot, as both New and Pending Home Sales came in stronger than expected in July. Sales of new homes were up 14% from June to July and a whopping 36% higher when compared to July of last year, the Commerce Department reported. Pending Home Sales, which represents signed contracts on existing homes, increased by 5.9% from June to July.

Meanwhile, home prices also continue to appreciate. The Case-Shiller Home Price Index, which is considered the “gold standard” for appreciation, showed a 4.3% annual gain in home prices in June nationwide. This was unchanged from the annual gain reported for May. The Federal Housing Finance Agency (FHFA) House Price Index, which measures home price appreciation on single-family homes with conforming loan amounts, also revealed that home prices were up in June.

The preliminary or second look at second quarter GDP came in at -31.7%. Though this was a slight improvement from the first look of -32.9%, it is still extremely weak and reflective of the economic shutdowns during the initial height of the pandemic. Economists do expect a big bounce back in GDP for the third quarter. Relatedly, Durable Goods Orders (which are orders for items that last three years or more) were better than expected in July, which factors into third quarter GDP estimates.

The Fed’s favorite inflation measure, Personal Consumption Expenditures (PCE), was also released last week, showing that headline inflation increased 0.3% from June to July and 1% year over year. Core PCE, which strips out volatile food and energy prices, also increased 0.3% from June to July and 1.3% compared to July of last year. Personal Income and Personal Spending were also better than expected in July.

Lastly, speaking of the Fed, they made headlines with an important announcement on inflation. Find out what they said, and why it’s significant, below.

 

Initial Jobless Claims Remain at 1 Million

Another 1 million people filed for unemployment benefits for the first time during the week ending August 22, which was 98,000 fewer claims than the previous week. Continuing claims, representing people who continue to receive benefits, also improved by 223,000 to 14.5 million.

Pandemic Unemployment Assistance (PUA) Claims filed by people like gig workers and contractors who are not typically approved for unemployment benefits totaled 608,000 in the latest week. Continuing PUA Claims improved by 252,000 to 11 million. These figures are in addition to the headline numbers.

All in all, the total number of people receiving some type of benefits is around 28 million, which would bring the real-time estimate of the unemployment rate north of 16.5%.

 

New and Pending Home Sales Beat Expectations

New Home Sales, which measures signed contracts on new homes, were up 14% in July, which was much stronger than the small gain that was expected. Sales are now up 36% when compared to July of last year. However, there were only 299,000 new homes for sale at the end of July, which represents a 4-month supply of homes, showing that inventory remains very tight.

The median sales price of new homes sold increased 7.2% when compared to July of last year to $330,600. It’s important to note that this is not appreciation but instead means half the homes sold above and half below this figure. In other words, more higher-priced homes sold when compared to the same time last year.

In addition, about 60% of the homes sold were above $300,000, which is a shift from June’s report where the majority were between $200,000 to $300,000. This is why we saw the median sales price rise so sharply.

The encouraging news is that affordability is still good thanks to low home loan rates and homes appreciating at a good clip, as evidenced by the FHFA and Case-Shiller reports detailed below.

Pending Home Sales, which measures signed contracts on existing homes in July, were up 5.9% from June to July and were also 15.5% higher than July of last year, per the National Association of REALTORS. NAR’s chief economist Lawrence Yun said, “If 20% more homes were on the market, we would have 20% more sales, because demand is that high.” Yun also noted that, “Home sellers are seeing their homes go under contract in record time, with nine new contracts for every 10 new listings.”

All in all, housing continues to be a bright spot in the economy in this unprecedented year.

 

The Latest Home Appreciation Figures

The latest Case-Shiller Home Price Index, which is considered the “gold standard” for appreciation, showed that nationally there was a 4.3% annual gain in June. This was unchanged from the gain reported for May.

The 20-city Index rose 3.5% year over year. While this was a tick down from the 3.6% annual figure reported for May, this is still a very strong appreciation figure. Regionally, price gains in Phoenix (+9%), Seattle (+6.5%) and Tampa (+5.9%) were the strongest, while price gains were smallest in Chicago, New York and San Francisco.

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. Home prices rose 0.9% in June and are up 5.7% compared to June of last year. This was a big improvement from the 4.9% annual appreciation reported for May.

 

Fed Sings a Different Inflation Tune

At the virtual Jackson Hole symposium, Fed Chair Jerome Powell stated that the Fed is willing to allow inflation to run hotter than normal to support the labor market and economy. He explained a policy of “average inflation targeting,” which means the Fed will allow inflation to run moderately above its 2% goal for some time following periods it has run below that objective. However, the Fed was very ambiguous because they did not mention the timeframe for calculating average inflation of 2%.

Why does this policy change matter?

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.

The Fed’s favorite inflation measure, Personal Consumption Expenditures, was also released last week, showing that headline inflation increased 0.3% from June to July and 1% year over year.

Core PCE, which strips out food and energy prices and is what the Fed focuses on, also increased 0.3% from June to July and 1.3% compared to July of last year. This is still well below the Fed’s long-range target of 2%.

It will be interesting to see when the Fed starts the clock on the “average inflation” measure. If it were to start today, they would need to let inflation run to 2.7% to average 2%. The bottom line is that any increases in inflation will be important to monitor in the months ahead.

 

Home Hack of the Week

Getting organized at the start of the school year is always important. A great tool that can help is a family command center and creating one is easy thanks to these tips from Real Simple.

First, decide what you want to include. A calendar, corkboard to pin important items, a dry erase board, bins to organize key papers for each family member, hooks for spare car and house keys, bins or hooks for backpacks, and Mason jars to hold pens and pencils are great staples.

Next, choose a high traffic area like a wall in your mudroom, entryway or kitchen that everyone will see and feel compelled to keep tidy.

Your command center is also the perfect place to plan out your weekly meals and grocery list. You can also add your personal flair and make it fun and decorative. Inspiring quotes, favorite family photos or wall art can give the area visual appeal.

Finally, at the end of each week, purge all items that you no longer need so it’s easier to stay on top of the highest priorities for the following week.

What to Look for This Week

This week will be all about the labor sector, starting Wednesday with the ADP Employment Report, which will give us a read on private sector payrolls for August. Thursday brings the latest weekly Initial Jobless Claims while Friday we’ll see the highly anticipated Bureau of Labor Statistics Jobs Report for August, which includes non-farm payrolls and the unemployment rate.

 

Technical Picture

The Fed continues to stabilize the markets with its ongoing purchases of Mortgage Backed Securities. Mortgage Bonds have bounced off support at 102.766 and are back in a range between support at their 50-day Moving Average and overhead resistance at their 25-day Moving Average.

 

Todd Abelson - Tucson Mortgages