Tucson Mortgages Home Loan News 9-21-2020

By Todd Abelson NMLS #180858 on .

Week of September 14th, 2020 in Review

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

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

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

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

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

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

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


Initial Jobless Claims Remain at Staggering Levels

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

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

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

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


Builder Confidence Reaches All-Time High

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

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

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

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

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


Digging Deeper Into Housing Starts

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

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


The Latest Inflation Update From the Fed

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

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

Why does this matter?

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


Home Hack of the Week

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

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

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

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


What to Look for This Week

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

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


Technical Picture

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

Todd Abelson - Tucson Mortgages