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Many of us are working from home for the first time across the country as we all hunker down and ride out the COVID-19 (also known as “coronavirus”) situation. It’s been interesting because every day there’s something new, and you can’t take anything for granted at the moment. Still, if everyone washes their hands and avoids large crowds for a while, everything should be fine. We just need to keep an eye on each other.
The Federal Reserve made an emergency move in order to boost the economy while people aren’t going out and spending a ton of money on the usual entertainment and vacations and all sorts of other things. We’ll get into that below, but first let’s take a look at some February economic data.
Econoday provided summary assistance with this report.1 Let’s jump into it with the implicit acknowledgment that none of this would seem to matter to decision-makers because all that’s being talked about is COVID-19. At the same time, this stuff is somewhat important to look at because data from last month gives us a baseline against which to compare March data.
MBA Mortgage Applications
Mortgage rates were down 10 basis points to 3.47% for a 30-year fixed mortgage with 20% down. It’s important to note that there’s a difference in the timing and sample size of the two major mortgage rates reports we cover here, and there’s quite a difference in the two results, but more on that later.
Refinance applications were up 79% for the week with a 6% bump in purchase applications, which have seen in 12% year-over-year increase. Applications are up 55.4% overall.
Consumer Price Index
Inflation was up 0.1% overall on the month of February and 2.3% year-to-year. When food and energy were taken out, inflation was up 0.2% and 2.4% since last February.
There was a 0.5% increase in the price of food consumed in the home, which represents the biggest monthly increase in 6 years. Overall food prices were up 0.4%. Meanwhile, on the gasoline side, these prices were down 3.4% while energy was down 2% overall.
The price to rent was up 0.3% while the cost of owners’ equivalent rent for their home was up 0.2%. Medical care costs were up 0.1%, while there was a 0.8% drop in the price of prescription drugs. Meanwhile, health insurance costs were really driving the increase, up 1.4% and 20.7% on the year. It’ll be interesting to see the effect of COVDI-19 on medical costs.
New vehicle prices were up 0.1%, and the cost of used vehicles was up 0.1%. Meanwhile, airline fares were down 0.3%, and with as many cancellations as there are right now including a U.S. ban on travel to all of Europe, there are already signs that it’s getting rough in that industry with some workers being offered unpaid leave.
Finally, the cost of clothing was down 0.4%. Recreation prices were down 0.3%, and this will be another big thing to look at because several high-profile events are being canceled or postponed, including concerts. The three major professional sports leagues that are in season had gone on an indefinite hiatus by last Wednesday, and the NCAA canceled all of its championships for the remainder of the school year, including the cash cow that is the NCAA Division I men’s basketball tournament.
It’s gotten weird out there – just try to get your hands on some toilet paper – so people will be watching to see the economic effect of all this when it shakes out.
Initial claims for unemployment were down 4,000 last week to 211,000. The 4-week average was a very slightly, rising 1,250 to 214,000. These weekly numbers might be volatile over the next couple weeks if people start to limit going out and businesses slow down.
On the continuing claims side, these were down 11,000 to come in at 1.722 million. Meanwhile, the 4-week moving average was up 5,250 to come in at 1.728 million.
Producer Price Index
Prices on the production side were down 0.6% and have only risen 1.3% on the year as of February. This is a dramatic decrease from the 2.1% annual rate of inflation for production that we saw in January. When food and energy were taken out, inflation was down 0.3% in February with the year-to-year change going down 0.3, % up 1.4%. Finally, when trade services – sales at wholesale stores – were removed, prices were down 0.1% and have gone up 1.4% on the year.
This 0.6% overall drop represents the biggest decline in 5 years. Energy prices were already falling in February as they were down 3.6%, mostly on the back of a decline in crude oil prices. Food prices were down 1.6% last month. In the services sector, these were down 0.3% in the biggest monthly drop since September. A big portion of the blame here goes to a 0.7% downturn and trade services, which are tied to margins for wholesalers and retailers.
As with inflation on the consumer side, this will be something to really keep an eye on in March.
Consumer sentiment fell 4.9 points in preliminary readings for March to come in at 95.9. While this is the lowest reading since October, it still points to an economy on solid footing.
Expectations for the future were down 4.8 points to 85.3. Despite this, analysis of the report shows that consumers see the current COVID-19 situation as a temporary setback. Meanwhile, current conditions were down 2.3 points to 112.5.
Expectations for future inflation remain low at 2.3% over the next year, down 0.1%, and flat at 2.3% over the next 5 years.
The Federal Reserve held its March meeting early, and the committee made several moves to try and support the economy as we feel our way through this COVID-19 situation. The first move, and the easiest to explain, is that it cut short-term interest rates to a range of between 0% – 0.25%, down a full point from where they had been previously. But committee participants made several other moves that they usually don’t.
Very briefly, the Fed lowered the rate on loans from its discount window by 1.5% to 0.25%. This is the Fed’s main emergency lending mechanism, and it wants to make sure that lenders don’t hesitate to use it in order to shore up liquidity and make sure that they can keep up with potential demand for borrowing from consumers during this crisis.
The other major thing that the Fed did is take the reins off reserves so that banks aren’t held to having as many funds on hand to show solvency. If you don’t have to keep cash, you can lend more of it out, which is intended to keep borrowing costs in check and maintain affordability.
Last week, the rate for a 30-year fixed mortgage ticked up slightly, but it’s important to note that no matter when the surveys are collected right now, they’re out of date by the time they go to press mostly because there are wild swings in the market as investors don’t know how to take this. This is also different from the MBA numbers in that it only looks at conventional mortgages. Whether you’re looking to purchase a home or refinance a mortgage, it’s very important to follow the guidance of a Home Loan Expert. If you’re looking for guidance, you can get started online.
The average rate on a 30-year fixed mortgage was up seven basis points to 3.36% with 0.7 points paid in fees. This is down from 4.31% last year.
Meanwhile, looking at shorter terms, the average rate on a 15-year fixed mortgage was down a couple of basis points to 2.77% with 0.7 points paid. This has fallen from 3.76% a year ago.
Finally, the 5-year treasury-indexed, hybrid adjustable rate mortgage had an average rate of 3.01% with 0.2 points paid, down 17 basis points on the week. Last year at this time, the rate was 3.84%.
One of the reasons for all these Federal Reserve moves is the promotion of stability. The market is a little bit all over the place at the moment when it comes to both stocks and bonds. The markets staged one of its biggest comebacks in recent memory on Friday, and yet there are signs in the futures markets that it’s going to be down quite a bit again today. It’s probably best to not look at your 401(k) right now, and just know that we’re on a bit of a roller coaster ride.
The Dow Jones Industrial Average was up 1,985 points, a staggering 9.36%, on Friday to close at 23,185.62. Still, it was down 10.36% on the week. The S&P 500 was down 8.79% on the week despite being up 230.38 points Friday to close at 2,711.02. Finally, the Nasdaq finished at 7,874.88. This was up 673.07 points on the day, but down 8.17% for the week.
The Week Ahead
Tuesday, March 17
Retail Sales (8:30 a.m. ET) – Retail sales measure total receipts from stores selling merchandise and related services to final consumers. Sales are measured by retail and food service stores. Data is collected from the Monthly Retail Trade Survey conducted by the U.S. Census Bureau.
Housing Market Index (10:00 a.m. ET) – The National Association of Home Builders (NAHB®) produces a housing market index based on a survey in which respondents from the organization are asked to rate the general economy and housing market conditions. The index is a weighted average of separate diffusion indexes, including present sales of new homes, sales of new homes expected in the next 6 months and traffic of prospective buyers in new homes.
Wednesday, March 18
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.
Housing Starts (8:30 a.m. ET) – A housing start is registered when the construction of a new residential building begins. The start of construction is defined as the beginning of excavation of the foundation for the building.
Thursday, March 19
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, March 20
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.
Most of the data coming out for next week will still be for February. The exceptions are mortgage applications, the housing market index and jobless claims. We’ll have it all covered in next week’s Market Update.
With everything that’s going on, market news and so much else seems secondary to spending time with our families and making sure that everyone stays healthy. If you’re looking for something else for your reading pleasure, we’ve got plenty of home, money and lifestyle content to share with you if you subscribe to our mailing list below. We’re going to be spending a lot more time with those closest to us over the next several weeks or months, so here are 10 tricks to beating cabin fever. Have a great week and stay healthy!
1 Important Legal Notice: Econoday has attempted to verify the information contained in this calendar. However, any aspect of such information may change without notice. Econoday does not provide investment advice, and does not represent or warrant that any of the information is accurate or complete at any time. Copyright 2020 Econoday, Inc. All rights reserved.
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