When things get crazy, sometimes you’ve got to focus on the little wins. For instance, after what was going on a couple of months, I’ve finally completed my personal COVID-19 housebound project and automated my blinds. It felt like I was doing battle with them.
Observers of the economy may have noticed a win or two last week even if they feel a bit small in the grand scheme. Take your victories where you can get them.
Before we get started, a tip of the cap to Econoday for helping provide much of the analysis that goes into this report. 1 Let’s dig in!
Consumer Price Index (CPI)
Prices on the consumer side showed signs of life in June, up 0.6% overall. Although they’ve still risen only 0.6% on the year, this was a substantial gain from the 0.1% pace of yearly appreciation in the May report.
People are driving more, so the price of gas was up 12.3% for the month. Meanwhile, the price of eating at home was up 0.6% as fewer people are going out to restaurants. When food and energy were taken out, prices were only up 0.2%, having gone up 1.2% for the year. Substantially lower energy prices have been holding back overall inflation.
Taking a look at individual categories, the price of shelter was up 0.1% on the month as was the cost of rent. Compared to the same time a year ago, the cost of homeownership is up 2.8% based on the cost to rent an equivalent space. Rent is up 3.2%.
The cost of apparel, shelter, medical care and auto insurance showed significant increases after dropping like a rock in recent months. Meanwhile, there continued to be downturns in the price of used vehicles, recreation and communications.
Looking at year-to-year in some key categories, the price of eating at home is up 5.6%. Medical services costs are up 6%. Meanwhile, in continuing COVID-19 effects, costs for auto insurance, gas and airfare are down 10.1%, 23.3% and 27.2%, respectively.
MBA Mortgage Applications
Overall mortgage applications were up 5.1% on the week. Despite purchase applications falling 6% on the week, there was a 12% uptick on the refinance side. Applications to buy a home are still up 16% compared to last year at this time.
The reason for the sharp increase in activity no doubt has to do with very low rates. The average rate as measured by this index for a 30-year fixed mortgage fell 7 basis points to 3.19%.
Industrial production saw major gains in June, up 5.4%. Meanwhile, helped by the fact that the output of motor vehicles doubled last month, manufacturing was up 7.2%. There were also gains for the production of machinery and aircraft at 6.4% and 4.9%, respectively.
Capacity utilization in factories was up 3.5% to 68.6%. Finally, the cost of utilities was up 4.2%. People are running their air-conditioning for sure.
Not everything was up. Mining, which has been a weak sector overall in recent months, was down 2.9%.
Initial jobless claims were down 10,000 to come in at 1.3 million, which is still running more than six times the long-term average from prior to the current situation. The 4-week moving average was down 60,000 to 1.375 million.
On the continuing claims end, these were down 422,000 to settle at 17.388 million. The 4-week average of continuing claims fell by 737,750 to about 18.272 million.
The rate of people eligible who were receiving unemployment insurance decreased by 0.3% to 11.9%, which is still deeper than the previous recession in 2008, but things are moving in the right direction.
Retail sales were up a sizable 7.5% in June. When cars were taken out, this number was 7.3%. Further removing gas, the increase was 6.7%. Finally, a control group whose prices aren’t prone to seasonal volatility had sales rise 5.7%.
Sales of vehicles were up 8.2% on the month. These are now up 7.5% on the year. Although building materials had a slight downturn in June, these are up 17.3% on the year with people working on their homes.
E-commerce is also blooming because people aren’t going out to shop as much. It’s up 23.5% for the year despite sales being down 2.4% in June.
Gas sales are down 19.1% on the year even as sales were up 15.3% in June. Restaurants show a 20% uptick in sales, but this is down 26.3% for the year as they are still trying to come back from a drop in demand related to COVID-19.
One thing to keep an eye on is the fact that some states have had to slow down reopening and even take steps back as virus cases have surged in certain areas of the country. July will be interesting to look at.
Housing Market Index
No doubt buoyed by an increase in purchase applications, confidence among homebuilders was up 14 points to come in at 72, which is back where it was prior to the downturn caused by COVID-19.
Among the key data, current sales levels are up 15 points and traffic of potential buyers going through new homes is up quite a bit as states have started to let people venture out.
Housing starts were up 17.3% in June to settle at a seasonally adjusted annual rate of 1.186 million, slightly below consensus. However, in good news, starts at single-family homes were up 17.2% to an annual rate of 831,000 with multifamily starts accounting for the remaining 355,000 starts.
On the permit side, these were up 2.1% in June to 1.241 million, still below the 1.5 million permits being pulled before COVID-19. Permits were up 11.8% on the single-family side though to come in at 134,000.
In preliminary numbers for July, consumer sentiment fell nearly 5 full points to 73.2. Analysts had expected a slight increase in sentiment.
Current conditions were down 2.9 points to come in at 84.2. However, expectations for the future were down more than 6 points to settle at 66.2, which is right about where they were in the middle of COVID-19 worries.
The culprit is considered to be rising infection rates, and these have continued to go up after the cutoff date of the survey, so it’ll be something to look at. Meanwhile, inflation expectations were up 0.1% to 3.1% in the next year and up 0.2% to 2.7% over the next 5 years. Consumers expect rising prices.
Driven by market uncertainty, people are putting more money in the bond market where they can get a guaranteed return, presuming bond returns at least stay higher than inflation rates. This trend drove the rate for a 30-year fixed mortgage below 3% for the first time.
Whether you’re looking to buy a home or refinance to better your financial position, low rates are certainly helping affordability. If you want to go over your options, we recommend speaking with a Home Loan Expert.
The average interest rate on a 30-year fixed mortgage with 0.7 points paid in fees was down 5 basis points last week to 2.98%. This is fallen from 3.81% a year ago.
Looking at shorter terms, the average rate on a 15-year fixed mortgage with 0.7 points paid fell a few basis points to 2.48% this is down from 3.23% last year.
Finally, the average rate on a 5-year treasury-indexed, hybrid adjustable rate mortgage with 0.3 points paid was up 4 basis points at 3.06%, but down from 3.48% at this time last year.
For once, traditional earnings moved the markets on Friday. Netflix missed earnings expectations and the stock was driven down 6.5%. This had a wider impact on tech stocks in general.
The thinking goes that if Netflix isn’t going to hit the earnings estimates when everyone is stuck inside watching things like Netflix, it will be hard for them to hit expectations going forward. Also, the forecast for subscriber growth in Q3 was weak.
The Dow Jones Industrial Average closed down 62.76 points to 26,671.95. Despite this, it was up 2.29% on the week. Meanwhile, the S&P 500 was up 1.25% on the week after finishing 9.16 points higher at 3,224.73. The Nasdaq finished the day up 29.36 points at 10,503.19. Despite this, it was down 1.08% for the week.
The Week Ahead
Wednesday, July 22
MBA Mortgage Applications (7:00 a.m. ET) – The mortgage applications index measures applications to mortgage lenders. This is a leading indicator for single-family home sales and housing construction.
FHFA House Price Index (9:00 a.m. ET) – The Federal Housing Finance Agency House Price Index covers single-family housing using data provided by Fannie Mae and Freddie Mac. The HPI is derived from transactions involving conforming conventional mortgages purchased or securitized by Fannie Mae or Freddie Mac.
Existing Home Sales (10:00 a.m. ET) – Existing Home Sales tallies the number of previously constructed homes, condominiums and co-ops that were sold during the month. Existing homes (also known as “home resales”) account for a larger share of the market than new homes and indicate housing market trends.
Thursday, July 23
Jobless Claims (8:30 a.m. ET) – New unemployment claims are compiled weekly to show the number of individuals filing for unemployment insurance for the first time. An increasing trend suggests a deteriorating labor market. The 4-week moving average of new claims smooths out weekly volatility.
Opening Day of baseball season is Thursday. If you’re not an owner or employed by the clubs, I get that there’s very little economic tie here. However, the thought of it puts a smile on my face and we could all use one of those. Here’s to more good news!
Friday, July 24
New Home Sales (10:00 a.m. ET) – This report measures the number of newly constructed homes with a committed sale during the month.
There’s not much going on before the second half of the week, but we’ll have it all covered for you in next week’s Market Update!
If economics and mortgage rates aren’t your thing, we’ve got plenty of home, money and lifestyle content to share with you if you subscribe to our mailing list below! Because I’m geeked up about baseball season, here’s an article I wrote a couple years back about what baseball can teach us about mortgages. Play ball!
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