Tucson Mortgages Home Loan News 12-21-2020

By Todd Abelson NMLS #180858 on .

Week of December 14th, 2020 in Review

Initial Jobless Claims are moving in the wrong direction, unfortunately, as the number of people filing for unemployment benefits for the first time increased in the latest week. While the number of people continuing to receive benefits did decline, read on below to see why this news is not as positive as it seems.

In housing news, builder confidence declined in December after setting record-highs in November, per the National Association of Home Builders Housing Market Index. However, the reading is still the second highest on record and shows that builders remain positive about conditions.

The latest construction data also reflects the strong demand for housing. Housing Starts were up 1.2% from October to November and they also jumped 12.8% versus November of last year. The all-important single-family starts ticked up 0.4% to reach their highest level in 13.5 years. Building Permits, which are a good future indicator of Housing Starts, rose 6.2% from October’s revised rate, with single-family permits up 1.3% from October to November.

While housing remains a bright spot in our economy, retailers struggled in November due to the spike in COVID cases. Retail Sales fell 1.1%, much worse than the 0.3% drop expected, while Core Retail Sales (which excludes automobiles, gasoline, building materials and food service) fell 0.5%. This was also lower than the 0.2% gain expected. This report shows how crucial additional stimulus is for businesses and families to bridge the gap until vaccines are widely deployed.

The pandemic is also causing a slowdown in manufacturing in the New York and Philadelphia regions, as the Empire State Index came in below expectations in December at 4.9 while the Philadelphia Fed Index was reported at 11.1, also below estimates of 21.1.

Lastly, the Fed held its regularly scheduled Federal Open Market Committee meeting, which turned out to be somewhat of a non-event as highlighted below.

 

Jobless Claims Moving in the Wrong Direction

 

Another 885,000 people filed for unemployment benefits for the first time during the week ending December 12, which is an increase of 23,000 claims from the prior week.

Continuing Claims, which are delayed a week, did decrease by 273,000 to 5.5 million. While on the surface this sounds like good news, unfortunately the decrease is for the wrong reasons.

When regular benefits expire, people can file for Pandemic Emergency Unemployment Compensation (PEUC), which extends their benefits another 13 weeks – and that figure increased by nearly 700,000! This is just further evidence that a new stimulus deal and the vaccine distribution are crucial to help businesses and employees in the months ahead.

 

Builder Confidence Remains Strong

The National Association of Home Builders Housing Market Index, which is a real-time read on builder confidence, fell 4 points in December to 86 after setting a record high in November. Even though this was a pullback, it is still the second highest number on record. Any reading over 50 in this index that runs from 1-100 signals that more builders see conditions as good versus poor.

All three components of the index declined 4 points in December, with current sales conditions reported at 92, sales expectations for the next six months at 85, and buyer traffic dropping to 73. Again, despite the declines, these are still strong readings.

NAHB Chief Economist Robert Dietz noted “housing remains a bright spot for a recovering economy.”

The latest construction data also supports the strong demand for housing, as Housing Starts rose 1.2% in November from October’s revised rate. Starts are also 12.8% higher than they were compared to November of last year. While starts on multi-family units led the way, single-family starts were up 0.4% and at their highest level in 13.5 years.

Building Permits, which are a good future indicator of Housing Starts, rose 6.2% from October’s revised rate and they were also up 8.5% year over year. Single-family permits ticked up 1.3% from October to November.

 

The Latest from the Fed

The Fed held its regularly scheduled meeting, which was something of a non-event as they noted they will continue to purchase Mortgage Backed Securities and Treasuries at their current levels (which has helped stabilize the markets), rather than expand their Bond buying program. Fed Chair Jerome Powell did note, however, that the Fed stands ready to buy more longer-dated maturity Bonds if they feel the economy needs it.

The Fed also reiterated that they are going to keep their benchmark Fed Funds Rate at zero until at least 2023 and that they would not jump the gun on rising rates, even if there are some transient blips of inflation due to COVD and demand coming back faster than supply. Note that the Fed Funds Rate is the rate the banks use when lending to each other overnight and it is not the same as home loan rates.

As far as their projections, the Fed thinks the unemployment rate will be 5% in 2021 and GDP will be 4.2%.

 

Family Hack of the Week

Nothing makes a morning quite like a stack of warm, homemade pancakes. And this recipe from Bon Appetit is perfect for enjoying happy holiday mornings with your family this season.

In a large bowl, whisk 1 1/2 cups flour, 3 tablespoons sugar and 1 teaspoon each of baking powder, baking soda and Kosher salt. In a medium bowl, whisk 2 large eggs, 1 1/4 cups buttermilk and 2 tablespoons of melted, unsalted butter and then add to dry ingredients. Stir until just combined, then add 1/2 lemon zest.

Heat a griddle or large skillet on medium and brush with oil. Scoop 1/3 cups of batter onto griddle. Cook pancakes until bottoms are golden brown and bubbles form on the top (approximately 3 minutes).

Flip and cook until cooked through and both sides are golden brown (approximately 2 additional minutes). Continue cooking in batches until all batter has been used.

Enjoy with maple syrup and any additional brunch favorites your family loves.

 

What to Look for This Week

The middle of the week is packed with a variety of important reports across many sectors of the economy.

On Tuesday, the final estimate for third quarter GDP will be reported along with Existing Home Sales for November. More housing news follows on Wednesday with November’s New Home Sales and the Federal Housing Finance Agency’s House Price Index. We’ll also get the latest data on inflation with November’s Personal Consumption Expenditures, along with Personal Income and Spending.

Finally on Thursday, November’s Durable Goods Orders and the latest weekly Jobless Claims figures will be released.

The markets will be closing early on Thursday and will be closed on Friday for the Christmas holiday.

 

Technical Picture

The Fed’s ongoing purchases of Mortgage Backed Securities continues to provide stability to the markets. Mortgage Bonds are being squeezed in a tight range between their 25-day Moving Average, which has been a solid floor of support, and overhead resistance at 103.70.

 

Todd Abelson - Tucson Mortgages

Tucson Mortgages Home Loan News 12-14-2020

By Todd Abelson NMLS #180858 on .

Week of December 7th, 2020 in Review

The rise in COVID cases and decline in Paycheck Protection Program money is having a worsening impact on businesses and workers around the country, unfortunately, as jobless claims trended in the wrong direction in the latest report. The number of people filing for unemployment benefits for the first time increased by 137,000 to 853,000. The number of people continuing to receive benefits also rose by 230,000 to 5.575 million.

However, hope is on the horizon as a federal advisory panel recommended emergency use of Pfizer’s vaccine, which could lead to distribution quickly as soon as it’s approved by the FDA.

Consumer inflation remained tame in November, per the latest Consumer Price Index report. Headline inflation was up 0.2% in November while the year-over-year reading remained unchanged at 1.2%. Core inflation, which strips out volatile food and energy prices, was also up 0.2% monthly while the annual reading was unchanged at 1.6%. Inflation was also tame at the wholesale level per November’s Producer Price Index. More below about why tame inflation matters to Mortgage Bonds and home loan rates.

While inflation remains tame now, there is a point to note from the latest National Federation of Independent Business Small Business Optimism Index, which dropped 2.6 points in November to 101.4, a three-month low. Within the report, those seeing higher selling prices rose 3 points to the highest level since May 2018, which is just 1 point from matching the highest since 2008. This data speaks to businesses not having enough people to help their supply meet demand, which is a sign that temporary inflation could be on the horizon.

Lastly, you may have heard recent reports in the media about an “affordability” crisis when it comes to home prices. The good news is that these reports are untrue, as explained below.

 

Initial Jobless Claims Rise in Latest Week

Another 853,000 people filed for unemployment benefits for the first time during the week ending December 5, which is an increase of 137,000 claims from the prior week. California (+178K), Illinois (+106K) and New York (+63K) reported the largest increases.

Continuing Claims, which measure people who continue to receive benefits, also increased by 230,000 to 5.575 million.

In addition, remember that when regular benefits expire, people can file for Pandemic Emergency Unemployment Compensation (PEUC), which extends their benefits for another 13 weeks. The number of Pandemic Unemployment Assistance claims did decline by 313,000, but unfortunately for all the wrong reasons as benefits are expiring.

 

Keeping an Eye on Inflation

The latest Consumer Price Index (CPI) showed that inflation at the consumer level was tame in November, up 0.2% from October. The year over year reading remained unchanged at 1.2%. Core CPI, which strips out volatile food and energy prices, was also up 0.2% on a monthly basis while the year over year reading was unchanged at 1.6%.

Also of note, rents are rising 2.4% across the US, which is down from 3.5% last year.

Inflation was also tame at the wholesale level, as November’s Producer Price Index showed that headline inflation increased by 0.1%, which was in line with market expectations. On a year over year basis, headline PPI increased from 0.5% to 0.8%. The Core rate, which again strips out volatile food and energy prices, was also up 0.1% for the month, and increased from 1.1% to 1.4% year over year.

While these numbers are still relatively low, the year over year readings could continue to move higher as demand outpaces supply for goods and services. Those higher producer costs could translate to higher consumer costs and inflation.

 Why does this matter?

Inflation erodes the buying power of a Bond’s fixed coupon over time, meaning rising inflation can cause Bonds to worsen or move lower. Home loan rates are inversely tied to Mortgage Bonds, so when Bonds worsen, home loan rates can rise. Though many factors influence the markets, tame inflation can benefit Mortgage Bonds and help home loan rates remain low.

 

The Affordability “Myth”

You may have heard some recent reports in the media about problems with home affordability. The truth of the matter is that the “problem” being reported about affordability is in fact a myth. Homes remain affordable today and in some cases are even more affordable today than they were a year ago.

What causes this confusion?

Sometimes, the media mistakenly looks at the significant move higher in the median home price, which is currently up 15% versus last year. But the median home price does not measure appreciation. Instead, it marks the middle price point of recent home sales.

Home prices have appreciated in the last year, but only 7% per the latest reports. Meanwhile, rates have fallen in this same period. This means that for many people, the monthly principal and interest payment to buy a home today could actually be lower than last year!

In addition, weekly earnings have risen 5.9%, so some people have even more money each month to put toward their mortgage and other monthly expenses.

The bottom line is that there is reason to feel positive and not negative about the housing market. With rates near all-time lows, there are great opportunities for people hoping to buy a home next year!

 

Family Hack of the Week

Like many traditions this year, holiday parties may be virtual for many of us. Here are some fun ways to make the occasion memorable.

A day of virtual decorating, baking and listening to holiday music together is sure to put everyone in the holiday spirit. You can even plan contests for best decorated cookies, tree, mantle and more.

Sharing holiday memories can also make everyone feel closer. Plan a card exchange before the party, whereby guests draw a name and write a card saying what the person means to them. Cards can be read aloud during the party or shared privately.

A game of holiday and seasonal trivia is always a fun idea, with prizes for who brings the most impressive stats. For example, per Guinness World Records, did you know that Residents of Bethel, Maine, and nearby towns completed the world’s tallest snowman (which was actually a snow woman) on February 26, 2008 and that it measured 122 feet and 1 inch tall, just a few feet shorter than the Statue of Liberty?

Lastly, watching holiday movies together is always a treat. From classics like A Christmas Story to newer favorites like Home Alone, you can plan a marathon filled with options everyone will enjoy.

 

What to Look for This Week

The middle of the week is jam-packed with key report across multiple sectors of the economy.

On Tuesday, we’ll get an update on manufacturing in the New York region with December’s Empire State Index, followed by the Philadelphia Fed Index on Thursday.

In housing news, we’ll get a real-time update on builder confidence Wednesday with the National Association of Home Builders Housing Market Index for December, while Thursday brings the data on Housing Starts and Building Permits for November.

In addition, the Fed’s two-day meeting begins Tuesday with their Monetary Policy Statement being released Wednesday. November Retail Sales will also be reported on Wednesday, which will reveal how retailers fared given the uptick in COVID cases. And on Thursday, the latest jobless claims figures remain critical to monitor.

 

Technical Picture

The Fed continues to provide stability to the markets thanks to its ongoing purchases of Mortgage Backed Securities. Mortgage Bonds continue to ride the 25-day Moving Average, which has provided solid support in recent days. Bonds have room to move higher until reaching resistance at 103.953 and if Stocks continue to sell off, we could see Bonds move higher in this range.

 

Todd Abelson - Tucson Mortgages

Tucson Mortgages Home Loan News 12-7-2020

By Todd Abelson NMLS #180858 on .

Week of November 30th, 2020 in Review

The news on job creations in November was disappointing, as the spike in COVID cases continues to impact people and businesses across the country.

The closely watched Bureau of Labor Statistics report showed that there were 245,000 job gains in November, which was about half of market expectations. The Unemployment Rate did decrease from 6.9% to 6.7% – but unfortunately, the decrease was for the wrong reasons, as explained below. The ADP Employment report for November showed a gain of 307,000 jobs in the private sector, though this was also below estimates and a disappointment overall.

The number of people filing for unemployment benefits for the first time did decrease in the latest week, as did the number of people continuing to receive benefits. Unfortunately, however, both declines were for the wrong reasons, as noted below.

In housing news, Pending Home Sales, which measures signed contracts on existing homes, were down 1.1% from September to October. But the real story is the year-over-year data showing sales up 20.2% compared to October of last year. This is especially impressive, given that inventory is down 20% on an annual basis. Quite simply, low supply remains a challenge for homebuyers and if there were more homes on the market, there would have been more signed contracts.

Home prices also continue to appreciate, as CoreLogic’s Home Price Index report showed that prices increased 1.1% from September to October and 7.3% when compared to October of last year. This annual reading is a big improvement from the 6.7% year over year appreciation figure reported for September. CoreLogic has also modified their forecasts for the year ahead, as noted below.

Lastly, the latest ISM Index, which measures the health of manufacturing in the US, showed that we need to keep an eye on this sector in the coming months due to some signs of inflation. Remember, inflation is the enemy of fixed investments like Mortgage Bonds because it reduces their value. Home loan rates are tied to Mortgage Bonds, and while many factors influence the markets, it’s always important to monitor news about inflation.

 

November Job Creations Fall Short of Expectations

There were just 245,000 job gains in November, which was about half of market expectations, per the Bureau of Labor Statistics (BLS).

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

The Household Survey, where the Unemployment Rate comes from, is done by actual phone calls to 60,000 homes. The Household Survey also has a job loss or creation component, meaning it may be more reflective of actual job numbers, and the Household Survey showed there were 74,000 job losses.

The Unemployment Rate decreased from 6.9% to 6.7%, which was stronger than expectations of 6.8%. Unfortunately, the decline was for the wrong reasons, as the labor force shrunk by 400,000 people. This is why the unemployment rate improved even though the Household Survey showed that there were 74,000 job losses.

In addition, 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 7.1%.

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 12.1% to 12.0%.

Average hourly earnings decreased from 4.5% to 4.4% year over year. Average weekly earnings, which we focus on more, rose by 5.9%, up from 5.7%. See below why this is important when it comes to home prices and appreciation.

 

Private Payrolls Also Below Expectations

The ADP Employment Report, which measures private sector payrolls, showed that there was a gain of 307,000 jobs in November, which was lower than the 420,000 expected. October’s report was revised slightly higher by 39,000 additional jobs, from 365,000 to 404,000, but overall this report was a disappointment.

After losing almost 20 million private jobs in March and April, we have only recaptured 10 million. Why are job gains fading? Unfortunately, the main reason is that companies are closing and the Paycheck Protection Program money that was keeping many of these companies afloat has run out.

 

Jobless Claims Declining for Wrong Reasons

Another 712,000 people filed for unemployment benefits for the first time during the week ending November 28. While this is a decrease of 75,000 people from the previous report, the data is for Thanksgiving week when many people may not have filed. It’s also hard to make adjustments that are accurate to compensate for this.

Continuing Claims, which measures people who continue to receive benefits, did improve by 569,000 to 5.520 million. Note that this figure is delayed a week and did not include Thanksgiving week.

While the number of Continuing Claims has been improving in the past few weeks, it’s important to put this in perspective. When regular benefits expire, people can file for Pandemic Emergency Unemployment Compensation (PEUC), which extends their benefits another 13 weeks – and that figure increased by 60,000. While there is still a net benefit of 500,000 people dropping off of Continuing Claims, in most cases this is due to benefits expiring and not people returning to work.

In addition, it’s estimated that by Christmas another 12 million individuals will see their benefits expire. Without a new stimulus plan, these people could face tremendous hardship.

 

Low Supply Impacts Pending Home Sales

Pending Home Sales, which measures signed contracts on existing homes, were down 1.1% from September to October. While this was less than the 2% monthly gain expected, sales were still up 20.2% compared to October of last year.

The decline in signed contracts from September to October is not due to a lack of demand but a lack of supply, with the supply of existing homes down 20% when compared to October of last year. When you think about it, it’s quite impressive that sales are up 20.2% year over year while inventory is down 20%.

Quite simply, if there were more homes on the market, there would have been more signed contracts.

 

Appreciation Forecasts on the Move

CoreLogic’s Home Price Index report showed that home prices increased 1.1% from September to October and 7.3% when compared to October of last year. This annual reading is a big improvement from the 6.7% year over year appreciation figure reported for September. The hottest markets were Phoenix (+12.1%), San Diego (+8.3%) and Washington DC (+ 7.1%).

Prices for single-family, detached homes rose by 7.9% year over year, while attached homes only rose by 4.5%. This supports the theme that condos are appreciating at a slower pace than standalone homes.

CoreLogic forecasted that home prices will rise 0.4% from October to November and 1.9% in the year going forward, which is a huge revision to their 0.2% annual forecast in the previous report. Also of note, not that long ago, CoreLogic was expecting a negative 6.6% annual appreciation.

Part of the change in forecast is related to something we’ve been discussing recently: birth statistics which show that the largest wave of millennials are heading into their prime homebuying years. As such, first-time buyers will be a big part of next year’s home purchases, which should continue for several years.

Note also that the weekly earnings figure discussed above measures what people actually take home and it shows that this level of income can support much greater levels of appreciation than we are currently seeing without homes being unaffordable. People don’t use their entire income for their mortgage payment, so the weekly earnings figure does not have to rise at the same pace as appreciation.

 

Family Hack of the Week

Hot chocolate is always a crowd pleaser, especially this time of year. If you ever want to spice yours up, this easy recipe from Allrecipes is the perfect choice.

In a saucepan, heat 6 cups of skim milk on medium low until its lukewarm. Add 3 tablespoons of unsweetened cocoa powder and 3 tablespoons of white sugar, stirring until dissolved.

Next, add 1 teaspoon vanilla extract, 1 teaspoon of cinnamon, 1/4 teaspoon ground nutmeg and 1/4 teaspoon of ground cloves. And if you want to add an extra kick, also add 1/4 teaspoon chili powder.

Heat for another five minutes, stirring occasionally, and then enjoy with your favorite baked goodie and holiday movie marathon!

 

What to Look for This Week

We’ll see a quiet start to the week when it comes to data, but the second half features several reports to note. Thursday brings the latest weekly Jobless Claims data, which remains important to monitor given the struggles in the labor sector.

We’ll also get an update on consumer and wholesale inflation for November, starting Thursday with the Consumer Price Index, followed by the Producer Price Index on Friday. As noted above, these reports will be especially important to monitor due to the impact inflation can have on Mortgage Bonds and home loan rates, which are tied to them.

 

Technical Picture

The Fed continues to provide stability to the markets thanks to its ongoing purchases of Mortgage Backed Securities. Mortgage Bonds are trading in a very wide range between support at the 25-day Moving Average and overhead resistance at 103.953.

 

Todd Abelson - Tucson Mortgages

Tucson Mortgages Home Loan News 11-30-2020

By Todd Abelson NMLS #180858 on .

Week of November 23rd, 2020 in Review

It was a busy start to the week, as a cornucopia of news was reported ahead of the Thanksgiving holiday.

The number of people filing for unemployment for the first time hit a five-week high, as Initial Jobless Claims reached 778,000 during the week ending November 21. This increase in new claims is likely a result of the spike in COVID cases. While the number of people continuing to receive regular benefits did decline, this unfortunately doesn’t mean the employment picture is improving, as explained below.

New Home Sales, which measures signed contracts on new homes, were down 0.3% from September to October, but there’s more to that headline than meets the eye. Sales in October neared 1 million units, plus they were up a whopping 41.5% compared to October of last year. This was quite a remarkable feat given the big drop in inventory, which is down 13.4% year over year!

Home prices continue to appreciate, lending more evidence to housing remaining the cornerstone of our economic recovery. The Case-Shiller Home Price Index, which is considered the “gold standard” for appreciation, revealed a 7% annual gain in home prices in September nationwide. Meanwhile, the Federal Housing Finance Agency (FHFA) House Price Index showed that home prices on single-family homes with conforming loan amounts rose 1.5% from August to September and are up 9.0% year over year. Tight supply and high demand certainly favor strong appreciation continuing in the months’ ahead.

The second estimate of third quarter Gross Domestic Product (GDP) remained flat at 33.1% on an annualized basis, which was in line with expectations.  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. And on a related note, the minutes from the Fed’s November 4-5 meeting showed that the Fed identified downside risks in the lack of fiscal stimulus and a resurgence of COVID, both of which could negatively impact GDP in the fourth quarter.

Lastly, the Fed’s favored measure of inflation, Personal Consumption Expenditures (PCE), showed that inflation was tame in October. More about why that can be good news for Mortgage Bonds and home loan rates below.

 

Initial Jobless Claims Reach Five-Week High

Another 778,000 people filed for unemployment benefits for the first time during the week ending November 21. This was an increase of 30,000 people from the previous week and a five-week high. New claims have increased over the past several weeks, likely due to the spike in COVID cases. California (+167K), Illinois (+65K) and New York (+47K) reported the largest increases.

Continuing Claims, which are filed by people who continue to receive benefits, did improve by 300,000 to 6.071 million. While this number has been improving in the past few weeks, it’s important to remember that when regular benefits expire, recipients can file for Pandemic Emergency Unemployment Compensation (PEUC), which extends their benefits another 13 weeks.

The number of PEUC claims increased by 132,000, so the drop in continuing claims is not as good as the headline would lead us to believe. Plus, the larger story here is that many people are reaching the point where their regular benefits are due to expire. As such, we will likely see the number of Continuing Claims continue to improve, but this doesn’t really mean the employment picture is getting better, unfortunately.

 

Looking Past the New Home Sales Headline

New Home Sales, which measures signed contracts on new homes, were down 0.3% and essentially flat from September to October. But that doesn’t tell the whole story.

September’s sales figure was revised 4.5% higher and sales in October neared 1 million units. In addition, sales are up a whopping 41.5% compared to October of last year – even with the big drop in inventory, which is down 13.4% year over year! Low inventory remains a challenge, with just a 3.3 months’ supply of new homes available for sale at the end of October. Typically, 6 months of supply is considered a healthy housing market.

The median home price increased to $330,600, up 2.5% year over year. Remember this is not the same as appreciation, which is near 7% as noted per the latest Case-Shiller data below. The median home price simply means half of the homes sold were above and half were below that price.

 

September a Strong Month for Home Appreciation

The Case-Shiller Home Price Index, which is considered the “gold standard” for appreciation, showed that there was a 7% annual gain in home prices in September nationwide, up from an already strong reading of 5.8% in August. The 20-city Index rose from 5.3% to 6.6% when compared to September of last year, with all of the cities showing strong gains. Phoenix (+11.4%), Seattle (+10.1%) and San Diego (+9.5%) reported the highest annual gains among the 20 cities.

The 7% national reading for appreciation means there is a huge opportunity in homeownership. For example, buying a $300,000 home that gains 7% in appreciation would mean a benefit of just over $21,000 in just one year on appreciation alone. The equity gain with amortization would be even greater.

There was also news from the Federal Housing Finance Agency (FHFA) regarding home price appreciation on single-family homes with conforming loan amounts. Their House Price Index showed that home prices rose 1.7% from August to September and are up 9.0% year over year, even higher than the 8% reading in the previous report. Note that while, for example, you can have a million-dollar home with a conforming loan amount, the report typically represents lower-priced homes, where supply is tightest and demand is strongest. This is why the FHFA report shows even stronger annual appreciation than the Case-Shiller report.

Will the appreciation trend continue?

While single-family home construction is rising slowly, it is not even close to meeting the demand, especially in the lower-priced tiers. In addition, single-family building permits, which are an indicator of future construction, were basically flat in October, suggesting construction is not going to rise significantly in the winter months. This should exacerbate an already tight supply issue, with record low levels of inventory.

In addition, demand should continue to rise due to demographics as, based on birthrates, we should see an increasing number of first-time home buyers enter the market over the next several years.

 

Inflation Remains Tame

Personal Consumption Expenditures, the Fed’s favored inflation measure, showed that headline inflation was flat in October and fell from 1.4% to 1.2% year over year. The Core rate, which strips out volatile food and energy prices and is the Fed’s real focus, was also flat in October while decreasing from 1.5% to 1.4% compared to October of last year.

Why does tame inflation matter?

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

 

Family Hack of the Week

The holiday season typically brings a bevy of wrapping paper and gift bags, and often a big pile of leftovers in the process. Save yourself the hassle of sorting through these items next year with these easy organization ideas from our friends at HGTV.

Magazine racks are perfect for storing gift bags by holiday and event. Create decorative labels and you’ll easily be able to find wedding shower, birthday or holiday gift bags whenever you need them. Include matching tissue paper in each bag so you’ll have everything you need handy if you’re ever in a last-minute pinch.

Suit and pants hangers also work wonders for keeping gift bags organized and in easy reach. They can hold multiple bags while also keeping them flat and in good shape.

Tall laundry baskets can be repurposed into wrapping paper bins. The height will allow you to fit rolls large and small, and the handles will make it easy to carry your supplies around the house.

Folding lawn chair bags can come in handy beyond the summer months. They make great storage cases for wrapping paper. Plus, the strap can easily be hung on a wall or closet door hook for space-saving efficiency.

Lastly, don’t ignore your accessories. A plastic tote is great for storing things like gift tags, ribbon, tape and scissors.

 

What to Look for This Week

Housing news kicks off the week on Monday with Pending Home Sales for October, while we’ll get an update on manufacturing with the Chicago PMI and ISM Index for November on Monday and Tuesday, respectively.

Then the labor sector will highlight the rest of the week. Wednesday brings the latest news on private payrolls with the ADP Employment Report for November. Look for the latest Initial Jobless Claims numbers as usual on Thursday, while Friday we’ll get the highly-anticipated Bureau of Labor Statistics Jobs Report for November, which includes Non-farm Payrolls and the Unemployment Rate,

 

Technical Picture

The Fed’s ongoing purchases of Mortgage Backed Securities continues to provide stability to the markets. After trading in a wide range, Mortgage Bonds moved close to a ceiling of resistance at 103.75. Meanwhile, the 10-year has broken beneath its 25-day Moving Average and has room to move lower until the next floor of support at its 50-day Moving Average.

 

Todd Abelson - Tucson Mortgages

Tucson Mortgages Home Loan News 11-23-2020

By Todd Abelson NMLS #180858 on .

Week of November 16th, 2020 in Review

Initial Jobless Claims rose slightly in the latest week, as another 742,000 people filed for unemployment benefits for the first time during the week ending November 14. However, the number of people continuing to receive benefits did decline again, with Continuing Claims falling by 430,000 to 6.4 million. This decline in Continuing Claims does come with a caveat, namely the increase reported in the number of Pandemic Emergency Unemployment Compensation (PEUC) claims, as explained below.

There was more evidence that the housing sector remains the backbone 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 a record high for the third month in a row. All three components of the index, including current sales conditions, sales expectations in the next six months and buyer traffic, moved higher.

In addition, Housing Starts (which measure the start of construction on homes) also came in strong in October, up 4.9% from September and beating expectations. All of the gain was among starts for single-family homes, which is the crucial area where supply is needed and which reached their highest level in 13.5 years. Building Permits, which are a good future indicator of Starts, were flat from September to October, but they did rise 2.8% year over year. Permits for single-family homes were also up 0.6% from September.

There was also news on existing homes, as sales were up 4.3% from September to October per the National Association of Realtors (NAR). Sales were also nearly 27% higher than October of last year. Low inventory remains the biggest challenge for buyers, sitting at a record low of 2.5 months’ supply. By comparison, a 6 months’ supply is considered reflective of a healthy housing market.

Lastly, Retail Sales will be important to monitor in the coming months, as sales were less than expected in October, rising just 0.3% from September’s downwardly revised rate. While the initial stimulus package and additional unemployment benefits certainly helped people earlier this year, we may see a continued pull back in spending if we don’t have another stimulus deal and as unemployment benefits expire. In addition, ongoing shutdowns may also affect sales as several states, including California, Washington, Michigan and Oregon, have implemented stiffer rules.

 

Initial Jobless Claims Rise in the Latest Week

Another 742,000 people filed for unemployment benefits for the first time during the week ending November 14, which was an increase of 31,000 people from the prior week’s revised report. California (+158K), Illinois (+46K) and New York (+43K) reported the largest increase.

Continuing Claims, which measure people continuing to receive benefits, improved by 430,000 to 6.4 million. While this number has been declining in recent weeks, it’s important to note that people can file for Pandemic Emergency Unemployment Compensation (PEUC) when their regular benefits expire. PEUC extends benefits for another 13 weeks.

The number of PEUC claims increased by 233,000, so while the drop in continuing claims is positive, it does need to be taken in context. In addition, we don’t know if the decrease in Continuing Claims is reflective of people who are going back to work or people whose benefits are just expiring. And unfortunately, with the recent shutdown announcements from many states, the jobless claims picture may start to get worse.

 

Builder Confidence Reaches Record High

The NAHB Housing Market Index rose 5 points to 90 in November, setting a record high for the third month in a row. All three components of the index increased, with current sales conditions rising 6 points to 96, sales expectations for the next six months up 1 point to 89, and buyer traffic notching 3 points higher to 77. Any reading above 50 indicates expansion, and given that the index runs from 1-100, confidence among builders can’t get much higher.

NAHB Chairman Chuck Fowke noted, “Historically low mortgage rates, favorable demographics and an ongoing suburban shift for home buyer preferences have spurred demand and increased new home sales by nearly 17 percent in 2020 on a year-to-date basis.”

Meanwhile, October Housing Starts (which measure the start of construction on homes) were up 4.9% from September, coming in stronger than expectations. They were also 14.2% higher than October of last year. All of the gain was among starts for single-family homes, which is the area crucial for supply, as single-family starts were up 6.4% from September to October and a whopping 29.4% compared to October of last year. Single-family starts are at their highest level in 13.5 years.

Building Permits, which are a good future indicator of Starts, were flat from September to October, but they did rise 2.8% year over year. Single-family permits were up 0.6% from September.

The bottom line is that the increase in single-family starts and permits will help to meet some of the demand among homebuyers. However, there is so much more demand than supply right now and this imbalance will continue to support home prices.

 

Existing Home Sales Rise but Inventory Challenges Remains

Existing Home Sales, which measures closings on existing homes, were up 4.3% in October, which was well above expectations of a 1.2% decline and the fifth consecutive month of gains. Sales were also nearly 27% higher than October of last year, and the level of sales is near the all-time high set in 2006 when there were twice as many homes for sale.

Speaking of inventory, challenges remain on the supply front as inventory is down nearly 20% from last October with a record low 2.5 months’ supply. By comparison, a 6 months’ supply is considered reflective of a healthy housing market. In addition, homes were only on the market for 21 days on average, with 72% of homes selling in October in under 30 days.

The median home price was reported at $313,000, which is another record and up 15.5% year over year. Note that this doesn’t mean homes are not affordable. It just means the middle-priced home that sold was $313,000, with half the homes selling below and half above that price. In October, a greater number of higher-priced homes sold (including twice as many million-dollar homes selling compared to last year), and as a result, the median home price moved higher.

Despite the strong competition for lower-priced homes, first-time buyers made up 32% of sales, a tick up from the 31% reported in September.

NAR chief economist Lawrence Yun noted, “Considering that we remain in a period of stubbornly high unemployment relative to pre-pandemic levels, the housing sector has performed remarkably well this year.”

 

Family Hack of the Week

Thanksgiving gatherings may be smaller than usual this year. If you’re looking for ideas for scaling down your serving of stuffing, this “Stuffin Muffin” recipe from Delish can help.

Preheat oven to 375 degrees Fahrenheit, then grease a 12-cup muffin tin with cooking spray.

In a medium skillet, melt 4 tablespoons of butter over medium heat. Add 1 pound of pork sausage (with casings removed) and cook until browned, breaking up with a wooden spoon as it cooks. Add 1 medium diced onion and 1 1/2 cups of diced celery and stir for about 5 minutes until the vegetables have softened. Add 2 cloves of minced garlic, and 1 teaspoon each of thyme, rosemary and ground sage. Season with salt and pepper and then remove from heat and let cool slightly.

In a large bowl, combine 8 cups of bread cubes (about 1 loaf), the sausage mixture, 1 lightly whisked egg and 2 cups of chicken broth. Season with salt and pepper to taste, then spoon evenly into muffin tins.

Bake until warmed through and golden on top, about 25-30 minutes and enjoy!

 

What to Look for This Week

A full slate of data will be released ahead of the Thanksgiving holiday on Thursday.

In the housing sector, Tuesday brings an update on appreciation with the Case-Shiller Home Price Index and the Federal Housing Finance Agency House Price Index for September. October New Home Sales follow on Wednesday.

Also on Wednesday, look for the latest Initial Jobless Claims, third Quarter Gross Domestic Product as well as the following reports for October: Durable Goods Orders, Personal Consumption Expenditures (the Fed’s favored inflation reading), Personal Spending and Personal Income. The minutes from the Fed’s meeting earlier this month will also be released.

 

Technical Picture

The Fed continues to provide stability to the markets with its ongoing purchases of Mortgage Backed Securities. Mortgage Bonds continue to trade in a wide range between a dual-layer of support at their 25-day and 50-day Moving Averages and overhead resistance near the all-time high of 103.875.

Todd Abelson - Tucson Mortgages

Tucson Mortgages Home Loan News 11-16-2020

By Todd Abelson NMLS #180858 on .

Week of November 9th, 2020 in Review

The economic calendar was relatively quiet, but news on inflation and the latest jobless claims figures made headlines at the end of the week.

The number of Initial Jobless Claims declined in the latest week, as another 709,000 people filed for unemployment benefits for the first time during the week ending November 7. The number of people continuing to receive benefits also fell in the latest week to 6.8 million. While these declines are both a step in the right direction, the caveat remains the rise in people filing for Pandemic Emergency Unemployment Compensation, as noted below.

The National Federation of Independent Business Small Business Optimism Index remained unchanged in October at 104 and is among the highest in the survey’s history. However, as COVID cases rise and things potentially shut down again, this optimism may wane in the months to come. Of particular note, those who expect higher selling prices rose for the fifth month by 2 points to match the highest level since July 2019, which speaks to potential inflation.

But for now, consumer inflation remains tame as the Consumer Price Index (CPI) came in flat for October while decreasing from 1.4% to 1.2% annually. Core CPI, which strips out volatile food and energy prices, was also flat in October while the annual reading also saw a decline. At the wholesale level, the Producer Price Index showed that headline inflation ticked up a bit more than expected in October, but Core PPI also remains tame. Read on to learn more about the significance of inflation when it comes to home loan rates.

Lastly, don’t miss an important note below regarding the media and rising home prices – and what metric to look for.

 

Jobless Claims Moving in the Right Direction

Another 709,000 people filed for unemployment benefits for the first time during the week ending November 7, which is a decline from the previous week. California (+157K), Illinois (+71K) and New York (+44K) reported the largest increases.

The number of people continuing to receive benefits also improved, as that figure dropped to 6.8 million in the latest week.

While both of these figures have been moving in the right direction over the past few weeks, it’s important to remember that when regular benefits expire, people can file for Pandemic Emergency Unemployment Compensation (PEUC), which extends their benefits for another 13 weeks. That figure increased by 160,000 people, so while the drop in continuing claims is a great sign, it does need to be taken in context.

 

Consumer Inflation Cooled in October

Consumer inflation was tamer than expected in October, as the Consumer Price Index (CPI) was flat for last month. On an annual basis, CPI decreased from 1.4% to 1.2%.  Core CPI, which strips out volatile food and energy prices, was also flat in October while the year-over-year reading fell from 1.7% to 1.6%.

Of particular note, rents are rising 2.7% across the US, which is stable from the previous month.

Most likely, the spike in COVID cases in October caused consumers to be fearful, which led to inflation cooling a bit. Inflation had been up 1.5% over the previous five reports.

At the wholesale level, the Producer Price Index (PPI) showed that headline inflation did increase by 0.3%, which was higher than market expectations of 0.2%. On a year over year basis, headline PPI increased from 0.4% to 0.5%, but still remains very tame. Core PPI, which again strips out food and energy prices, was up 0.1% for the month, but decreased from 1.2% to 1.1% annually. As with the Core CPI reading, we are not seeing much in the way of Core inflation in October, likely due to the increase in COVID cases.

Why is tame inflation significant?

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

 

A Note on Home Prices

When the media talks about rising home prices, it’s important to note which data they reference, as the median home price is the wrong metric to look at. Here’s why.

The median home price simply measures the middle-priced home that sold in a given timeframe, meaning that half the homes sold above that number and half below that number.

For example, the median home price for Existing Home Sales in September was reported at $311,800, up almost 15% year over year. But this doesn’t mean homes are not affordable. It means the middle-priced home that sold was $311,800, with half the homes selling below and half above that price. In September, inventory remained tightest among lower-priced homes, which is why not as many were sold. As a result, a greater number of higher-priced homes sold and the median home price moved higher.

The real metric to look at is appreciation, which is growing at a pace of 5.5% to 6% year over year.

 

Family Hack of the Week

Soup season is here! This hearty chicken soup recipe is sure to be one your whole family will enjoy.

Cut 1 bunch celery, 3 large onions and 5 large, peeled carrots into a medium dice and add to a large stockpot. Heat on medium-high so onions and celery release their water. Stir often.

Once the vegetables have softened, rinse 2 1/2 pounds of chicken thighs and add on top of the vegetables. Continue to stir periodically as you peel and dice 4 large parsnips and add to pot. Add 3/4 gallon of water, 3 bouillon cubes, 2 tablespoons Italian seasoning and 1 pound small white potatoes.

Bring to a boil, then reduce to a simmer. Stir occasionally and skim off any film at the top as needed.

After 15 minutes, add 1 pound of green French lentils and another 1/4 gallon of water. Simmer until lentils are cooked, vegetables are tender and chicken falls apart, approximately 1 hour and 15 minutes to 1 hour and 30 minutes. Break chicken apart with a fork into bite-size pieces. Add salt and pepper to taste.

Serve with your favorite crusty bread and freeze leftovers for the perfect easy meal.

 

What to Look for This Week

This week’s economic calendar contains key reports throughout the week. In housing news, we’ll get a look at homebuilder confidence for November on Tuesday with the NAHB Housing Market Index while Wednesday brings us October data on both Housing Starts and Building Permits. October Existing Home Sales will also be released Thursday.

In the manufacturing sector, look for an update Monday from the New York region with November’s Empire State Index. The November Philadelphia Fed Index follows Thursday.

Also on Thursday, the latest weekly Initial Jobless Claims remain important to monitor, as do Retail Sales for October, which will be reported Tuesday.

 

Technical Picture

The Fed’s ongoing purchases of Mortgage Backed Securities continues to provide stability to the markets. Mortgage Bonds are in the middle of a range between support at the 25-day and 50-day Moving Averages and overhead resistance at 103.50.

Todd Abelson - Tucson Mortgages

Tucson Mortgages Home Loan News 11-9-2020

By Todd Abelson NMLS #180858 on .

Week of November 2nd, 2020 in Review

The election certainly dominated the headlines throughout the week, while the labor sector was the main highlight of the economic calendar.

The closely watched Bureau of Labor Statistics report showed that 638,000 jobs were added in October, which was right around market expectations. The Unemployment Rate also decreased from 7.9% to 6.9%, which was much stronger than expectations of 7.7%. While this is positive news, it’s important to put these figures in perspective, as we are still 9 million jobs short of where we were before the pandemic. The ADP Employment report for October also showed a gain of 365,000 jobs in the private sector, though this was far below expectations.

The number of Initial Jobless Claims held steady in the latest week, as another 751,000 people filed for unemployment benefits for the first time during the week ending October 31. There was also a big improvement in the number of people continuing to receive benefits, but there is more to that story as noted below.

Good news continues from the housing sector, as CoreLogic’s Home Price Index report showed that home prices increased 1.1% from August to September and 6.7% when compared to September of last year. This tops the 5.9% annual appreciation that was reported for August. Looking ahead, CoreLogic forecasts that home prices will rise 0.2% in the year going forward. But there is reason to think prices could rise even further, as detailed below.

Lastly, the Fed held its regularly scheduled Federal Open Market Committee meeting, which was essentially non-eventful. The statement following the meeting was almost identical to the statement from the previous meeting, likely due to a desire to keep the status quo in the face of election uncertainty. Also of note, there was no mention of buying longer-dated maturity Bonds which, if the Fed chooses to do so in the future, could possibly support lower home loan rates.

Diving Deeper Into Jobs Data for October

The Bureau of Labor Statistics (BLS) reported that there were 638,000 job gains in October, which was right around market expectations. While these are important job gains to have, it’s also important to put things in perspective, as we are still 9 million jobs short of where we were pre-pandemic.

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

The Household Survey, where the Unemployment Rate comes from, is done by actual phone calls to 60,000 homes. The Household Survey also has a job loss or creation component, meaning it may be more reflective of actual job numbers, and the Household Survey showed there were a whopping 2.24 million job gains (as compared to the 638,000 job gains in the Business Survey).

The Unemployment Rate decreased from 7.9% to 6.9%, which was much stronger than expectations of 7.7%. And the decrease was for the right reasons. While there were 2.24 million job gains, the labor force increased by 724,000. Because there were so many more job gains than people joining the labor force, the unemployment rate moved 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 0.3% higher.

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 12.8% to 12.1%. Meanwhile, average hourly earnings increased 4.5% year over year, which was down from 4.7%. Average weekly earnings, which we focus on more, rose by 5.7%, up from 5.6%.

Private Payrolls Rise, But Sharply Lower Than Expected

The ADP Employment Report, which measures private sector payrolls, showed that there was a gain of 365,000 jobs in October, far below the 643,000 new jobs expected and the lowest level since July. However, September’s report was revised slightly higher from 749,000 to 753,000 jobs added in that month.

Looking deeper into the report, services accounted for almost all the gains with 348,000. The hospitality sector added 125,000 jobs, while education and health grew by 79,000 and the professional and business sector added 60,000 jobs.

The bottom line is that after losing 19.7 million private sector jobs in March and April, we’ve since added back 9.6 million according to ADP. We still need to add 10 million private sector jobs to reach pre-pandemic employment levels.

The Caveat to Continuing Jobless Claims

Another 751,000 people filed for unemployment for the first time during the week ending October 31, which is about the same number as the previous week. California (+152K), Illinois (+53K) and New York (+52K) reported the largest gains.

Perhaps the biggest news is the nice improvement in Continuing Claims, as people continuing to receive benefits fell by 540,000 to 7.2 million.

However, there is more to this headline number than meets the eye. Remember that when people run out of continuing benefits, they can apply for Pandemic Emergency Unemployment Compensation (PEUC), which extends their benefits another 13 weeks. And unfortunately, the number of PEUC claims increased almost 300,000 in the latest week. It’s also unclear if people are in fact going back to work or just running out of benefits.

All in all, the bottom line is that the drop in Continuing Claims is certainly a step in the right direction, but it’s not quite as strong as the headline would lead us to believe.

Home Prices Continue to Appreciate

CoreLogic released their Home Price Index report for September, which showed that home prices increased 1.1% from August and 6.7% when compared to September of last year. The latter reading is a big improvement from the 5.9% annual appreciation that was reported for August. The hottest markets in September were Phoenix (+11.1%), San Diego (+7.1%) and Los Angeles (+6.3%).

Looking ahead, CoreLogic has forecasted that home prices will rise 0.2% in the year going forward, which is unchanged from the previous report.

However, it’s important to note that earlier this year CoreLogic forecasted a 6.6% decline in home prices in the year going forward, which they have since revised significantly. Given the strength seen in the housing market and the low inventory of homes available, even stronger levels of appreciation are certainly possible in the year ahead.

Home Hack of the Week

The days may be getting shorter, but that doesn’t mean the decreasing daylight has to get you down. These ideas from our friends at Better Homes & Gardens can make your home cozier for the whole family.

Bright colors can brighten anyone’s day and the good news is you don’t have to commit to a large painting project or accent wall to gain the same results. Add a bright throw or a few bold pillows to your couch for pops of seasonal color.

Everyone loves cocoa so get creative by setting up a cocoa nook in your kitchen and keeping it stocked throughout the fall and winter seasons. Complete your space with seasonal mugs and jars of chocolate and marshmallows. You can even plan a weekly hot cocoa and movie night for your family to enjoy together.

Gather up some delicious dessert recipes your family would love to try and plan some fun time to bake together. Recipes for poached pears, apple crisp, bread pudding and chocolate chip banana bread are just some suggestions that work perfectly for the season.

Lastly, maximize the light in your home by hanging large mirrors to reflect sunlight during the day. Use lightbulbs that emit blue or white light, which mimic sunlight.

What to Look for This Week

The economic calendar is relatively quiet to start the week, but there will be important news on inflation at the week’s end.

First, there will be an update Tuesday regarding how businesses are feeling via the National Federation of Independent Business (NFIB) Small Business Optimism Index for October.

The latest weekly Initial Jobless Claims remain important to monitor when it releases as usual on Thursday.

Also on Thursday we’ll get a look at the latest update regarding consumer inflation with October’s Consumer Price Index. News on inflation at the wholesale level follows on Friday with October’s Producer Price Index.

In addition, the Bond market will be closed Wednesday in honor of Veterans Day.

Technical Picture

The Fed continues to provide stability to the markets with its ongoing purchases of Mortgage Backed Securities. Mortgage Bonds remain above an important floor of support at 103.469. However, if Mortgage Bonds break beneath this level, there is significant downside risk until reaching the 25-day Moving Average. The 10-year is also at an important technical ceiling at the 200-day Moving Average. If this level is convincingly broken, the yields could move much higher, which would have a negative impact on Mortgage Bonds.

Todd Abelson - Tucson Mortgages

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