The headline says it all, but really understanding the why behind the market nowadays has required us all to become amateur economists and epidemiologists at the same time. Like most of us, I’m neither, but let’s see if we can make sense of some of these patterns.
The Big Story
As reported by Freddie Mac last Thursday, mortgage rates were the lowest ever seen under the index. While we’ll get into the details a little later on, for right now it’s more interesting to look at the why.
In a word, this is all being driven by “uncertainty.” If people aren’t sure about the direction of the economy in the future, they tend to invest in safer assets like bonds and mortgage-backed securities (MBS) rather than the more volatile stock market.
If more people are buying MBS, the yields on those bonds end up being lower because they don’t need to be as high to attract investors. Because mortgage rates are tied to these yields, they also move lower.
There are plenty of reasons to be a bit uncertain about the economy right now. While falling, new claims for unemployment continue to be elevated, consistently north of 1 million. People are being rehired, but it’s going to be a long way back.
Further, the continued struggles of the economy have caused the Federal Reserve to leave short-term rates near zero and further support the mortgage market by buying a lot of agency MBS. There are no immediate plans to raise rates.
Moreover, a surge in various cases, particularly across the South and West, have made governments reconsider reopening plans. If employees in various sectors have to go back home again, the economy is going to take longer to get moving.
The good news, as we’ll see in a minute, is that housing has typically been a bright spot. Let’s dig into the data!
News You Can Use
Econoday provided analysis used in this report.1 Let’s see what happened!
Housing Market Index
The National Association of Home Builders’ housing market index went up 14 points in the month of July to come in at 72. This is back to where it was before the virus hit.
Even more importantly, the numbers are up across the board whether it’s in terms of current or future sales or traffic of people walking through homes.
Housing starts in June were up 17.3% to a seasonally adjusted annual rate of 1.186 million. It’s still quite a bit below the 1.6 million pace it had been on at the beginning of the year, but it’s improvement. Single-family starts were up 17.2% to 831,000 on a seasonally adjusted annual basis.
Meanwhile, permits were up 2.1% overall at 1.241 million. This included an 11.8% uptick in single-family permits at 834,000 after accounting for seasonal adjustment.
FHFA House Price Index
Because this metric runs 2 months ahead of the data covered in its release, this report deals with May, even though it was out in July. COVID-19 was definitely a presence, with prices flipping 0.3% and the annual pace of price appreciation falling 0.5% to 4.9%.
In an indication of how much affect the virus had, transactions were about a third lower than normal. Still, that amount in price appreciation tells a very good story on a year-to-year basis. It’ll be interesting to see how these numbers are affected by state reopenings in June and July.
Existing Home Sales
Existing home sales were up 20.7% in June, which is a record gain. They settled at 4.72 million on a seasonally adjusted annualized basis. While still being down 11.3% since this time a year ago, that’s a far cry from the 26.6% year-to-year drop in May.
Co-op and condo sales were up 29.4% to 440,000, while the annual pace for single-family homes was 4.28 million, up 19.9%.
At the same time, prices were up 3.8% on the month at $295,300, up 3.5% on the year. Part of the sales price increase was no doubt driven by low inventory. It went down from 4.3 months to 4 months at the current pace of sales.
New Home Sales
New home sales were up 13.8% in June to come in a seasonally adjusted annual rate of 774,000. Supply is still a little thin but getting better, having gone from 4.7 months in May to 5.5 months at the current pace of sales in June. As a reminder, 6 months’ worth of supply indicates a balanced market.
In addition, the median price of a new home in June was up $19,000 to come in at $339,200. There were sales gains in all four regions, including the South, which has since pulled back a bit in terms of the way it’s reopened, so it will be interesting to see July numbers for that region in particular.
S&P CoreLogic Case-Shiller HPI
Unlike the price Index put out by the FHFA, prices in the 20-city Case-Shiller index are based on a 3-month average. On a seasonally adjusted basis, prices were flat in May and up 0.4% overall. That brings year-to-year price gains of 3.7%. It tends to consistently run below the FHFA number.
Pending Home Sales Index
Pending home sales were up 16.6% to 116.1. That’s higher than levels from prior to the impact of the virus. A June increase in pending home sales is a good sign for future existing home sales in July.
Gross Domestic Product (GDP)
GDP was down 32.9% overall in the first estimate for the second quarter released at the end of July, while consumer spending fell 34.6%.
It’s included here because residential investment is a big driver of the economy and slid 38.7% in the first estimate, dragging down GDP by 1.76%. It’s worth noting that the second quarter featured a couple of months that were very impacted by the virus, so it’ll be interesting to see where this heads going forward.
MBA Mortgage Applications
Since this particular report comes out on a monthly basis, I’m less interested in the weekly numbers than the broader trends. Those broader trends show real interest in mortgage applications at the moment.
Purchase applications are up 22% from where they were a year ago. On the refinance side, it’s a 47% increase. Low rates appear to be a primary motivator for consumers.
Speaking of mortgage rates, they’ve never been better, and this should be a huge motivator for both you as a real estate agent and the clients you serve.
The average rate on a 30-year fixed mortgage was 2.88% with 0.8 points paid in fees, down 11 basis points on the week and falling from 3.6% a year ago.
Looking at shorter terms, the average rate on a 15-year fixed mortgage with 0.8 points paid fell 7 basis points to 2.44%. This is a drop from 3.05% last year at this time.
Finally, the average rate on a 5-year treasury-indexed, hybrid adjustable rate mortgage (ARM) with 0.4 points paid was down 4 basis points to 2.9%, dipping from 3.36% last year.
For even more resources for agents, check out our real estate page. Have a great week!
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.
If so, subscribe now for tips on home, money, and life delivered straight to your inbox.