I’ve been writing this report for several years now, and last week was the ugliest in the stock market that I can remember. Indeed, it’s the worst week since the 2008 financial crisis. The coronavirus definitely has traders a little spooked at this point. The first two deaths from the virus in the U.S. were reported over the weekend.
If you’re a college basketball fan, you know that March is associated with a certain level of tournament insanity. Maybe some of that madness hit the markets a little early, but it’s definitely something to keep an eye on. We’ll get into just what happened in the stock market a little later, but first let’s take a peek at some key underlying data for investment decisions.
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FHFA House Price Index
Prices for homes keep rising, with yet more evidence coming from the two big home price indexes in December. The Federal Housing Finance Agency said that the average price for homes financed by conventional loans went up 0.6% to end the year. Prices have gone up 5.2% since last December. However, the pace of appreciation is still a little bit slower than earlier in the year when the annual rate was in the mid-5% range.
S&P Corelogic Case-Shiller HPI
In December, home prices were up 0.4% on a seasonally adjusted basis despite being flat overall across the 20-city index measured by Case-Shiller. This missed expectations for a 0.5% increase on the month. However, the overall increase beat the consensus for year-to-year gains, with the index up 2.9% since last December. It’s also the best reading since last January in terms of 12-month appreciation.
Together with a strong FHFA report, signs point to strengths in home prices.
Consumer confidence was up 0.3 points in February to come in at 130.7. However, this was after January was revised down 1.2 points to 130.4. The number also slightly missed expectations.
However, there’s a lot to like in this report. The number of people who were optimistic about their future income prospects went up 0.4% to 22%. Meanwhile, only 6.7% of people are pessimistic on this front, down 1.3% since last month. Plans to buy cars, appliances and homes were all on the increase.
On the downside, more people are viewing jobs as hard to get, as there was an uptick of almost 3% for a total of 14.8% of those surveyed sharing this sentiment. There was also a downturn in the number of people who see jobs as plentiful. Those who answered that way numbered 44.6% of those polled, down 0.6% from January. Finally, there was a drop in the number of people who see the stock market going up in the near future, at 41.4% compared to 44.5% to begin the year. Meanwhile, those who see the stock market as falling in the near term saw their numbers increased 0.5% to 22.4%.
It’s important to note that there is a significant portion of the population surveyed that doesn’t have an opinion one way or another on many of these questions. Maybe they’re the smart ones. The crystal ball is a little cloudy right now.
MBA Mortgage Applications
Overall mortgage applications were up 1.5% as a 6% uptick in purchase applications made up for a 1% decline in applications among those looking to refinance. Purchase application activity is up 10% on the year.
The fall in refinance activity is slightly odd because the average rate for a 30-year conventional fixed mortgage according to this index was down 4 basis points at 3.73% last week.
New Home Sales
New home sales really outperformed expectations in January, climbing 7.9% to a seasonally adjusted annual rate of 764,000, a high that hasn’t been seen in 13 years. Adding to the good news, there were 14,000 additional sales in December, according to revised numbers. The 3-month average of sales was up 2.8% in January to 721,000. This is an 18.6% increase over where the average was last January.
While supply on the market held in January at 324,000 units, the sales surge meant that at the current pace, there were only 5.1 months’ worth of supply in the market in comparison to December’s 5.5 month number.
Bolstered by a strong labor market and mortgage rates that remain very low, perhaps these sales numbers will convince builders to put more homes on the market, but it does take time to stand up a home, so inventory continues to be something to keep an eye on, particularly if you’re in the market to buy soon.
Durable Goods Orders
New orders were down 0.2% in durables. The good news is that when transportation was taken out, orders overall were up 0.9%. Moreover, core capital goods were up 1.1% in January. Everything in this report performed better than expected.
On the transportation side, these orders fell 2.2% as motor vehicle orders were down 0.8% and orders for defense aircraft dropped 19.6%. Some good news was that orders for civilian aircraft were up 346% to a total of $8.5 billion for the year. However, this still represents a decrease as 41.8% for the year. The Boeing 737 Max situation continues to be an issue.
When you move past transportation, there’s plenty of good news here. Orders of primary metals were up 1.2%, with machinery up 2.1%. The final category called out was computers and electronics, up 0.3%.
Gross Domestic Product
In the second estimate for the fourth quarter, U.S. GDP, the preeminent measure of economic success, shared again that the U.S. economy grew at a rate of 2.1% on a seasonally adjusted annual basis.
On the consumer spending side, this was down 0.1% to 1.7% in the latest reading. However, this may have been partially offset by the fact that prices didn’t rise as much, with inflation as measured in this report down 0.1% from the previous estimate to 1.3% quarter-to-quarter.
Net exports made up 1.53% of the overall 2.1% economic growth. Meanwhile, residential investment has increased 6.2% and contributed 0.22% to the numbers in a net positive. Also significant, consumer spending added 1.17% to the overall number.
Potentially seeing headwinds, businesses aren’t keeping as much inventory on hand, as these levels dragged GDP down 0.98%. On the other hand, it does mean that more sales are coming through.
Government spending was heavy, and it added 0.46% to the GDP numbers. There’s also a lot of spending happening right now that could carry forward this momentum into the first quarter.
Initial jobless claims were up 8,000 last week to settle at 219,000. This pushed the 4-week average up 500 to 209,750.
Meanwhile, on the continuing claims side, these fell 9,000 to come in at 1.724 million. It’s worth noting that the 4-week average did go up 5,250 to just over 1.729 million.
Pending Home Sales Index
After a dreadful December, this index rebounded, up 5.2% on the month to 108.8. Representing the number of homes under contract for sale, this is a leading indicator for February existing home sales. Regional data to show that there were increases in three regions. The only region to see the number of existing homes under contract for sale shrink was the West, but this is a very up-and-down index.
International Trade In Goods
On the goods side in January, the deficit decreased by $3.2 billion to $65.5 billion. However, there are indications that even though the deficit decreased, it may not be good news for the economy.
Exports were down 1% overall. Capital goods were down 2.2% for the month and 3.9% since last January. This was enough to cause a downturn despite the fact that there was a 4.5% increase in exports of foods, feeds and beverages for a 2.1% gain since a year ago at the same time. Vehicle exports were up 6.9% in January, but are still down 1.8% on the year.
Imports to the U.S. were down 2.2% in January. This included a 2.3% downturn for vehicle imports and an 8.3% yearly fall. Capital goods imports were down 1.4% on the month and have fallen 3.2% annually. Meanwhile, food imports were down 2.2% in January and 3.9% annually.
Personal Income And Outlays
Personal incomes were up 0.6% in January. There were signs that consumers were saving more of that money, as spending only rose 0.2%. Inflation remains weak, up 0.1% overall and in core categories. They remain well below Federal Reserve targets of 2% annual inflation at 1.7% and 1.6%, respectively.
The major reasons for the income increases included annual cost-of-living adjustments related to government payments for things like Social Security and health insurance under the Affordable Care Act.
In the final reading for February, overall consumer sentiment was up 0.2 points to 101. This is 1.2 points higher than the final January number. It’s important to note that this number was collected before the biggest portion of the stock market downturn and reports of coronavirus in the U.S. However, sentiment remained very strong even among those few that did mention the virus.
Inflation over the next year is expected to be 2.4%, down 0.1% from the last reading. Meanwhile, the 5-year outlook was down 0.2% to 2.3%.
As the stock market fell last week, mortgage rates got better, with investors looking to put that money into the safety of bonds, including mortgage-backed securities. The bottom line is if you’re looking to purchase or refinance your home, rates are in an excellent spot. It’s a great time to consider locking your mortgage rate.
With 0.7 points paid in fees, the average interest rate on a 30-year fixed mortgage was 3.45%, down 4 basis points on the week and falling from 4.35% last year.
Looking at shorter terms, the average rate on a 15-year fixed mortgage with 0.8 points paid was also down 4 basis points to 2.95%. This is down from 3.77% a year ago.
Finally, the average interest rate on a 5-year treasury-indexed, hybrid adjustable rate mortgage was down 5 basis points last week to 3.2% with 0.2 points paid. Last year at this time, the rate was 3.84%.
There are now major concerns over the impact that coronavirus could end up having on the economy, and there was no better indication of that than that the stock market fell into correction territory across all the major indexes last week. Correction is indicated when the market drops 10% or more over the course of a single week.
Coronavirus has officially hit the U.S., with many cases mostly centered on the West Coast, so it’s going to be something all investors will be tracking closely. There’s reason to believe that a lot of the concern still has more to do with China being a major world manufacturing center, but the fact that the virus has hit the U.S. isn’t helping.
The Dow Jones Industrial Average was down 12.36% on the week and 357.28 points on the day as it closed Friday at 25,409.36. On the S&P 500, stocks were down 24.54 points on the day and 11.49% for the week at 2,954.22. Finally, the Nasdaq was mostly unchanged, up 0.89 points on the day to finish at 8,567.37, down 11.67% for the week.
The Week Ahead
Monday, March 2
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, March 4
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, March 5
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 6
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.
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.
While there aren’t nearly as many economic reports hitting this week, we do get a key monthly insight in the manufacturing as well as the monthly employment numbers. These two reports are always a big deal.
I’m pretty sleepy as I write this and it’s not the most scintillating content, I know. The good news is if you subscribe to our mailing list below, you can find more home, money and lifestyle content in our weekly email. Do you have a lot of prints and pictures to show off? Check out our tips for creating a great gallery wall. Have a fantastic week!
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