It’s been quite a week. The good news is the sun came out, and it’s a new day. The weather has cooled off a bit around here after being uncomfortably hot last week.
There’s also good news if you know where to look for it. There are signs people are starting to go back to work after being sidelined for a while by COVID-19.
This report was put together with the help of Econoday summaries.1 Let’s get to it.
FHFA House Price Index
House prices were up 0.1% in the month of March, according to the Federal Housing Finance Agency. However, unlike the S&P index that we’ll discuss next, it’s a 3-month average, so any drops that may have been specific to March were muted. However, the signs are still there because this was the lowest monthly gain in 4.5 years.
The year-to-year rate was down 0.1% to 5.9% compared to last March, but it’ll be interesting to see how far this moves as months pass.
S&P CoreLogic Case-Shiller HPI
In March, this index showed that home prices were up 0.5% on a seasonally-adjusted basis, and they rose 1.1% all in. Taking out seasonal adjustment across the 20-city index, prices were up 3.5%.
Analysts note that prices typically go up in March as sellers anticipate the start of home buying season. It’ll be interesting to see what the virus effects are moving forward.
Consumer confidence rose, up 0.9 points in the month of May to 86.6 after being downwardly revised by 1.2 points in April to settle at 85.7.
Digging into the details, 7% less people feel that jobs are hard to get at 27.8%, while there was also a 1.4% dip in the number of people who saw jobs as plentiful at 17.4%. Meanwhile, future expectations for income and jobs were little changed.
In terms of buying plans, plans to buy a house were at a 6-month low. That doesn’t quite match up with the actual data, as we’ll see in a minute when we get to mortgage applications, but it’s interesting to see. Meanwhile, more people are looking to buy cars, hoping that restrictions on travel lift and they can go back to the office. Meanwhile, inflation expectations were up 0.9% to 6.2% overall. Thus far, there’s nothing in the data that backs this up either, but the expectations are for price increases.
New Home Sales
New home sales were up 0.65% overall in April on a seasonally-adjusted annual basis, rising a total of 4,000 units to 623,000. This is still well below a high in January of 774,000 units.
It should be noted that builders are discounting to get to these sales numbers. That shouldn’t be a surprise because builders aren’t in the habit of sitting on inventory, but prices are down 6.4% from February to come in at 309,900 in April. That’s quite a drop in the last couple months. There’s also 6.3 months’ worth of supply in the market, meaning that the market is about balanced, but given the current sales rate, things are starting to move to advantage buyers. It’ll be interesting to keep an eye on this.
MBA Mortgage Applications
Mortgage applications were up 2.7% overall. Refinance applications were down 0.2%, but this was more than made up for by a 9% increase in purchase applications for the week. More encouraging, purchase applications are 9% higher compared to this time a year ago, which means that people are interested in buying houses as much as ever, which can be a major driver in local economies. Perhaps spending all that time in the house is making people rethink their current abode.
The average 30-year fixed conventional mortgage rate was about the same, up a single basis point to 3.42%.
Durable Goods Orders
Durable goods orders were down 17.2% overall in April. About the only good thing you can say about the report was that the drop was expected. Orders for vehicles and other modes of transportation were down quite a bit and when transportation was taken out, orders rolling down 7.4%. Finally, when looking only at goods in core categories, these were down 5.8% overall.
It wasn’t all bad. Orders for communications equipment were up 1.7%, while computers and electronics only saw minimal losses and orders down 0.3%. However, there was a 52.8% downtick in motor vehicle orders along with a 12% fall in fabrications and a 13.8% dip in primary metal orders.
Inventories were up 0.2%, which is up only because there are a few orders. Meanwhile, shipments were down 17.7% as states were shut down. There was a slight improvement in terms of there being fewer unfilled orders.
Gross Domestic Product (GDP)
In the second reading for the first quarter, economic contraction worsened from 4.8% to 5% overall. However, there was a 0.8% improvement in the original consumer spending reading, which has only fallen 6.8% in the latest estimate. Finally, prices were up 1.4% in the quarter compared with the previous reading of 1.3% inflation.
Despite the slight improvement, consumer spending still subtracted 4.69% from overall GDP. Meanwhile, inventories fell, which caused a 1.43% downtick in the numbers. Finally, business investment fell, which pulled GDP down another 1.06%.
There were some positives to limit the damage. Notably, the trade deficit decreased and net exports added 1.32% to the overall GDP number while residential investment increases from early-quarter construction increased GDP readings by 0.66%. Government spending also added 0.15% to economic growth. Next month, we’ll see the final reading for the first quarter.
Initial jobless times were still fairly high at 2.123 million, despite being down 323,000 from the week prior. However, as we’ve noted before, at this point, many of the increases in new claims can be tied to backlog of claims that otherwise would’ve been processed weeks earlier if it weren’t for technological snafus. The 4-week average of continuing claims was down 436,000 at 2.608 million.
Meanwhile, things are looking up on the continuing claims side. The 4-week average was up 716,250 to come in at about 22.722 million. However, continuing claims continued to fall in the majority of states, and this is starting to show up in the overall number. The rate of insured unemployment was down 2.6% to 14.5% last week, while 3.860 million people fell off continuing claims roles, meaning they got their jobs back or found other work. The total number of continuing claims was 21.052 million last week.
Pending Home Sales Index
The number of existing homes under contract for sale fell by 21.8% to an index level of 69 in April. Given this, existing home sales in May aren’t expected to be great.
However, as mentioned earlier, an increase in purchase applications seems to show that there’s continued interest in buying homes, and as states open up, we could see a rebound for purchase season.
International Trade In Goods
There was a big drop in international trade overall, related to COVID-19. The trade deficit in April increased to $69.7 billion as the drop in exports outpaced a drop in imports.
On the import side, these were down 14.3% overall. There were particularly deep dips in the motor vehicle area. Exports for vehicles fell precipitously as well. Food exports were only down slightly, but overall, exports were down 25.2%
Personal Income And Outlays
Personal incomes were up 10.5% in April, but that number’s a bit deceptive because it’s entirely related to government stimulus checks. Wages and salaries saw an 8% overall drop. Meanwhile, consumer spending was down 13.6% as Americans saved more of the income they did have.
Spending was down across the board, but food and food service, hospitality and health care services were particularly hard hit. Meanwhile, when looking at prices, they fell 0.5% overall on the month and 0.4% in core categories. On the year, inflation is only up 0.5% for each category and 1% month when food and energy are excluded.
Consumer sentiment was down 1.4 points from the midmonth reading of 73.7 to come in at 72.3. The good news is current conditions were up 8 points in the month of May to come and 82.3, which helped offset a 4-point downturn in expectations for the future.
Similar to the consumer confidence reading, there’s an incongruence here between consumer expectations for inflation and what actually appears to be happening when the data is looked at. Over the next year, consumers expect inflation to be up 1.1% at 3.2% overall. In the next 5 years, it’s 2.7%, which is up 0.2% from the last survey.
Mortgage rates are as low as they’ve ever been, according to Freddie Mac. While that’s traditionally associated with bad economic data – the worse things look, the better it tends to be for mortgage rates, given where purchase applications are, there’s a good chance low rates could help spark a post-COVID-19 economic recovery.
Obviously, there’s a lot to consider before jumping into a new mortgage in this environment. Feel free to talk to one of our Home Loan Experts to see if it’s right for you.
The average rate on a 30-year fixed mortgage with 0.8 points paid in fees was down 9 basis points to 3.15%. This has fallen from 3.99% at the same time a year ago.
Looking at shorter terms, the average rate for a 15-year fixed mortgage with 0.7 points paid was down 8 basis points at 2.62% having fallen from 4.46% last year.
Finally, the average rate for a 5-year treasury-indexed, hybrid adjustable rate mortgage fell 4 basis points to 3.13% with 0.4 points paid. This is down from 3.6% at this time last year.
It’s been a while since we talked about China in this update, but there’s renewed focus on the trade deal with China as the market is worried about repercussions as they squabble over the treatment of Hong Kong. China has imposed new laws cracking down on dissent. The Trump administration contends that this ends the one-country, two systems principle under which it was allowed to be given back to China after years of being a British possession. Because of this, Hong Kong has been treated as a separate trading partner from China and afforded special privileges from a U.S. perspective. The stock market had a bit of an up-and-down day to end the week as President Trump said he was looking to end these policies given the change in the treatment of Hong Kong by China, but he also said he didn’t want to change the trade deal.
The Dow Jones Industrial Average was up 3.75% on the week despite falling 17.53 points Friday to close at 25,383.11. Meanwhile, the S&P 500 was up 14.58 points to finish at 3,044.31, up 3.01% on the week. Finally, the Nasdaq closed at 9,489.87, up 120.88 points Friday and rising 1.77% on the week.
The Week Ahead
Monday, June 1
ISM Manufacturing Index (10:00 a.m. ET) – This index measures the general direction of manufacturing within the U.S. The qualitative survey of purchasing managers looks at production, new orders, order backlogs, inventories and supplier deliveries, among other factors.
Wednesday, June 3
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.
Thursday, June 4
International Trade (8:30 a.m. ET) – International trade is composed of merchandise (tangible goods) and services. It’s available by export, import and trade balance for six principal end-use commodity categories and for more than 100 principal Standard International Trade Classification system commodity groupings.
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.
Friday, June 5
Employment Situation (8:30 a.m. ET) – The employment situation report measures unemployment in the labor force as well as the sentiments of workers about the job market.
In terms of volume, there’s not too much economic data coming out this week. However, reports on the manufacturing sector and labor situation will be important to keep an eye on. Friday’s jobs number is expected to show the highest rate of unemployment of this current cycle just given the timing. We’ll have it all covered for you next week in Market Update.
If mortgage rates and economic reports don’t get you excited about the new week, we get it. We’ve got plenty of home, money and lifestyle content to share with you if you subscribe to our mailing list below. If you’re feeling the need to take a step back and relax, you’re not alone. Here’s a post on creating the spa bathroom of your dreams. Have a good week and stay safe!
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