Tucson Mortgages Home Loan News 12-2-2019

By Todd Abelson NMLS #180858 on .

Week of November 25th, 2019 in Review

Last week was an action-packed holiday week, with both the Stock and Bond Markets closed all day on Thursday and early on Friday for the Thanksgiving celebration.  And speaking of Thanksgiving, we all have so much to be thankful for.  It seemed fitting to share portion of this passage from our friends at The Garrett, McAuley Report:

“How’s your health?  Not so good?  Give thanks you’ve lived this long.  Are you hurting?  Millions are hurting more.  Visit a veterans’ hospital or a hospital for children to appreciate what you have.

When you woke up this morning, were you able to hear the birds sing, use your voice, walk to the breakfast table, read the paper?  There are a lot of people today who are deaf, blind, paralyzed, or unable to speak.

How’s your financial situation?  Not good?  Most people on this planet have no welfare.  No food stamps.  No pensions.  No health insurance.  In fact, hundreds of millions of people in the world go to bed hungry every night.

Are you lonely?  The way to have a friend is to be a friend.  If nobody calls, call someone.  Get out and do something nice for someone.

Are you unhappy?  Go out of your way to smile at people you bump into during the day.

And be kind to everyone, for everyone you meet might be fighting a hard, lonely battle of some kind.”

The above passage does a good job of reminding us that things could always be worse and to remember to try to live your life with gratitude.  Also remember that everyone has their own struggles they face and to be kind before passing judgement.

Onto the news of the week, which provided a Thanksgiving helping of data.  All of the reports were packed into Tuesday and Wednesday, due to the market being closed on Thursday…And the theme was stronger data.

The Housing Scoop

On the housing front, acceleration accelerated.  The Case-Shiller Home Price Index, which is considered the “gold standard” for appreciation, showed that homes appreciated 3.2% on a year over year basis in September.  The 3.2% gain was a slight increase from the previous annual figure of 3.1% reported for August.

Just how significant is 3.2% appreciation?  On a $300,000 home, a 3.2% gain in appreciation translates to a $9,600 gain over the course of the year…which is meaningful.

The FHFA (Federal Housing Finance Agency) released their House Price Index, which is another widely viewed measure of appreciation, but only on single-family homes with conforming loan amounts.  Because it’s measuring homes with conforming loan amounts, they are most likely homes under $500,000, which is the area of the market we have been seeing the strongest demand.  As a result, the appreciation figures are much stronger – Year over year homes appreciated 5.1%, up from 4.6% in the previous report.  Again, a sign of acceleration.

There were two other reports pertaining to housing, New Home Sales and Pending Home Sales.  New Home Sales, which measures signed contracts on new homes, were down 0.7% in October.  But because of the strong revision in September, in aggregate they were much higher and showed a lot of strength.  Perhaps of more importance, year over year sales increased from 15.5% in August to 31.6%.

Pending Home Sales, which measures signed contracts on existing homes and is a good leading indicator for Existing Home Sales, were down 1.7% in October.  This reading was weaker than expectations, but again, year over year sales rose 4.4% from 3.9% in the previous report.  Overall, Pending Home Sales remain at very strong levels, but the minor drop was due to a lack of inventory according to the National Association of Realtors.

Lastly, the Mortgage Bankers Association reported that Mortgage Application volume was up 1.5% last week.  Applications to purchase a home were down 1.0%, while Refinances were up 4.0%.  Year over year Purchases were up 55% and Refinances up 314%…which would normally seem fantastic.

Remember that data is not always what it seems, and you have to dig deeper than the headlines in many cases.  The year over year figures in this report were skewed heavily because last year the Thanksgiving holiday fell one week earlier, so these results are being measured against a holiday week and appear much greater.  Keep in mind that next week we will likely see the reverse occur and will need to wait a few weeks for these figures to smooth out.

How Strong is the Economy?

Let’s switch gears from housing and take a look at some of the economic reports released that show how the economy is fairing.  Judging by the data received last week, the economy appears to be on pretty solid footing.  The second look at Q3 GDP showed that it increased from 1.9% to 2.1% and was stronger than expectations of 1.79%.  Consumer Spending was up 2.9%, which was slightly stronger than the 2.8% expected.  Additionally, Durable Goods, which was expected to show a decline, surprised to the upside.  Initial Jobless Claims, which measures individuals filing for unemployment benefits for the first time, dropped after two consecutive weeks of higher prints.  Overall, the economic data was strong and helped Stocks set several new all-time highs.

The Latest on Inflation

Inflation is something that we follow closely, as it has a direct correlation to interest rates.  Think about it – If you were to purchase a Bond, let’s say for 30-years, you would receive a fixed interest payment over that time period.  But if inflation is on the rise, that fixed payment could purchase less and less.  As a result, in a rising inflation market, the investor has to be compensated with a higher rate of interest.  As a result, when inflation is on the rise, interest rates rise.

The highly anticipated Personal Consumption Expenditures (PCE) Report, which is the Fed’s favored measure of inflation, showed that headline inflation remained very tame at 1.3%.  The Core rate, which strips out food and energy prices and is the most important reading that we focus on, was reported at 1.6%, which was lower than September’s reading of 1.7%.  There are other factors, but the low readings of inflation will help to keep rates low.

What to Look for This Week

It’s jobs week, which means we will be getting the ADP Jobs Report on Wednesday and BLS (Bureau of Labor Statistics) Jobs Report on Friday.  ADP will give us some clues as to what to expect on Friday, but the two don’t always correlate month to month.  The real market moving item here is Friday’s BLS Jobs Report.  There are there main components the market will be focusing on keenly – The overall job creation figure, the unemployment rate, and average weekly and hourly earnings.

There are always estimates that are released that set the bar for the level of job creations expected.  If that figure is beat heavily to the upside, usually the Stock market rallies at the expense of Bonds.  If the figure is much weaker than expected, the opposite is usually also true.  The unemployment rate is also very important, as it can be an early warning signal that the economy is slowing and a recession could be on the horizon.  Lastly, average weekly and hourly earnings will show if there is wage pressured inflation, which the Bond market will be watching closely…Remember Bonds hate inflation.

It’s always hard to handicap the Jobs Report figure, but job growth has been slowing.  It is not at a concerning level yet, but it’s something to keep an eye on.  When businesses slow, the first thing they do is stop hiring.  Next, they lay people off, which will show up in the Initial Jobless Claims figures.  And eventually, the unemployment rate will rise…which is probably the best recession indicator.