Tucson Mortgages Home Loan News 3-30-2020

By Todd Abelson NMLS #180858 on .

Week of March 23rd, 2020 in Review

Help for many businesses and individuals is on the way as, after much negotiation, Congress passed and President Trump signed into law the massive $2 trillion dollar stimulus bill to stem the economic fallout from the Covid-19 pandemic. Among other things, the bill includes direct payments to individuals, expanded unemployment insurance and help for small businesses.

With weekly Initial Jobless Claims surging to a record high of 3.28 million individuals filing for unemployment benefits for the first time in the latest week, this relief will be a welcome glimmer of hope to many who have lost jobs and are fearful about paying their bills.

The Fed also said that it will continue its asset purchase program “in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy.”

Economic data has taken a back seat to the current fallout from the pandemic, but of note, two important housing reports were released, New Home Sales and the Federal Housing Finance Agency Home Price Index. While data does not reflect the current environment, there is a key take away from both as explained below. Also, the Final reading of Q4 GDP, even though not important anymore, was reported at 2.1% as expected.

Trials are taking place on a combination of drugs that are thought to help cure the virus within 3-7 days. We will continue to watch for results.

 

What’s in the Coronavirus Stimulus Bill?

Here is a recap of how the Coronavirus Stimulus Bill will help families:

Direct payments will be sent to individuals making $75,000 or less of up to $1,200 ($2,400 for couples making up to $150,000) with an extra $500 per child. Assistance will start to phase out for people earning more than these amounts.

Unemployment benefits will be expanded, increasing by $600 a week for up to four months. People could also get an additional 13 weeks of unemployment if they remain unemployed after state benefits end.

Homeowners with federally-backed mortgages will be protected from foreclosures for at least six months.

Students with federal loans can suspend payments until October.

Businesses will also get assistance, with small businesses gaining access to a nearly $350 billion loan program to cover things like payroll, rent and utilities. The loans will not have to be repaid if businesses keep their employees. The help will be retroactive to February 15, 2020, giving employers a chance to bring back employees.

An additional $500 billion will be available to businesses in hard-hit industries. Companies that receive assistance will not be allowed to increase executive pay or buy back stocks. In addition, businesses controlled by the president, vice president, members of Congress and heads of federal agencies do not qualify for loans.

In the coming days, we should learn more about the timing and methods for these cash payments. President Trump has said he wants them distributed quickly.

Also of note, Treasury Secretary Steven Mnuchin announced that he has formed a task force of U.S. financial regulators to deal with the liquidity shortfall that mortgage service firms may face as countless homeowners stop making their monthly payments. This is an important and positive development for the mortgage industry during this time.

 

Initial Jobless Claims Hits Record High

The latest Initial Jobless Claims showed that there were a whopping 3.28 million individuals who filed for unemployment benefits for the first time last week. This was much higher than the 1.5 million consensus and even higher than Goldman Sachs’ estimate of 2.2 million.

One thing this volume does show was that, despite concerns, the unemployment system was able to handle many more claims than thought. With that being said, the real number is probably much greater than 3.28 million, as it’s likely all the claims were not processed.

The silver lining, as noted above, is the Stimulus bill extends the term of benefits to 39 weeks, an increase from 26 weeks, if needed. Filers will also receive an additional $600 per week on top of the normal benefits they would receive.

 

The Key Take Away From Housing Data

February New Home Sales were down 4.4% on a monthly basis, but that is due in part to January’s already strong report, which was was revised even higher from 764k units to 800k units. Factoring in the revision, sales of new homes were actually a little higher than the originally reported number for January. February sales were up a strong 14.3% when compared to February of last year.

While this data is not reflective of the current environment, it’s important to note how strong housing has been. Housing has been solid, both on the new construction front and from what we saw in last week’s Existing Home Sales report as well. This is meaningful because as we head into an inevitable slowdown, and housing may see a temporary downturn, this housing market can sustain it.

This is not a scenario like the last recession where the Housing Bubble brought us into recession and junk loans were being done. After a short downturn, we expect housing to continue to show the strength it showed prior to the coronavirus, which could be a great opportunity for many people once this is all over.

Similarly, the FHFA (Federal Housing Finance Agency) released their House Price Index, which measures home price appreciation on single-family homes with conforming loan amounts. While there can be a one-million-dollar home with a conforming loan amount, for the most part, this report specifically represents more of the lower-priced homes. So it should be no surprise that this report was even hotter than Case-Shiller, showing that home prices rose 0.3% in January and 5.2% on an annual basis. The year-over-year reading was unchanged from the previous report and remained at extremely strong levels.

Again, this is just another report showing that we headed into the Covid-19 pandemic with a solid housing market that should be resilient.

 

The Latest Inflation News

The Fed’s favorite measure of inflation, Personal Consumption Expenditures (PCE), showed that headline inflation increased 0.1% for the month of February and remained at 1.8% on an annual basis.

The Core rate, which strips out food and energy prices and is the most important reading that we focus on, was up 0.2% for the month. Year-over-year Core PCE increased from 1.7% to 1.8%.

Also of note, February Personal Income and Spending showed that incomes were up 0.6%, which was better than the 0.4% expected. Spending was up 0.2%, which was in-line with expectations.

Again, all of this data is for February, before the coronavirus effects really took place. Expect inflation numbers to go down as there is no pricing pressure out there. In fact, there are concerns we could see deflation occur, which is a decrease in the general price level of goods and service.

Remember that inflation news is always important to monitor because it reduces the value of fixed investments. This includes Mortgage Bonds, to which home loan rates are tied. And PCE will be a very important report to watch as things recover, as demand could come back ahead of supply.

Look at it this way: Once things start to turn around, consumers will start having stronger demand for products and services and the supply of those goods and services will likely lag behind. That’s why, once we see a recovery starting, we could see temporary periods of higher inflation.

 

Housing Hack of the Week

Spring is officially here, which means it’s important to schedule some seasonal maintenance on your home. Here are just a few items to tick off your list as the weather starts to warm.

Keep bugs away by making sure there aren’t any standing areas of water in your yard, which can be a breeding ground for mosquitoes and other pests. Also, if you notice any areas where water could pool, add soil to prevent both bugs and flooding.

Clear any debris from gutters and make sure none are loose or leaking. Also, double check that downspouts will drain away from your foundation, which is especially important if you’re in an area known for spring showers.

Make sure your screen doors and windows are free of any holes or tears. Also, check your outside faucets, hoses and sprinklers for frost damage to ensure they will work properly.

 

What to Look for This Week

The labor sector will be in the headlines again, as the ADP Jobs Report for March releases Wednesday followed by the Bureau of Labor Statistics Jobs report on Friday. Thursday will bring the latest weekly Initial Jobless Claims and all eyes will be watching to see if another record is set.

Also, look for housing news via Pending Home Sales on Monday and the Case-Shiller Home Price Index Tuesday. In manufacturing news, Chicago PMI releases Tuesday while the ISM Index will be reported on Wednesday.

Expect market volatility to continue, as additional cities across the country could become new hotspots for the virus. Stay safe, be well and remember to keep practicing social distancing!

 

Technical Breakdown

Mortgage Bonds are quite literally in uncharted territory as they set new all-time highs yesterday in reaction to the Fed’s purchases of Mortgage Backed Securities.  The chart below shows how new all-time highs were set on several days, as well as new all-time closing highs.  Unfortunately, the lower rates that should be associated with this are not being passed to the consumer because lenders are having capacity issues.  There is just too much volume trying to be pushed down the system…And lenders / servicers have their own set of difficulties and they are getting crushed by the government’s new mortgage payment forgiveness and have to front the money.

The charts will once again this week take a back seat to the news headlines and updates on the potential for an effective treatment.  Last week testing began on a combination of Hydroxychloroquine and Azithromycin, which has shown promising results in the French study.  We are expecting to see results here as early as Wednesday…Fingers crossed.