Tucson Mortgages Home Loan News 3-29-2021

By Todd Abelson NMLS #180858 on .

Week of March 22, 2021 in Review

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

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

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

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

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


The Lowdown on Low Inventory of Existing Homes

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

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

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

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

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


Winter Weather Puts a Freeze on New Home Sales

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

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

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


Inflation Remains Tame … For Now

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

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

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

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

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

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


Seeing the Whole Picture on Jobless Claims

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

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

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

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

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


Family Hack of the Week

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

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

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

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


What to Look for This Week

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

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

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

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


Technical Picture

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


Todd Abelson - Tucson Mortgages