Friday – July 30, 2021
Inflation woes were allayed a bit this morning when a key gauge was better than feared. The June Core PCE grew 0.4%, slower than the 0.5% rise in May and below the gain of 0.6% expected. The annual Core PCE increased 3.5% from 3.4%. The Core PCE measures prices paid by consumers for goods and services, excluding food and energy. The index is the fed’s favorite inflation gauge.
Consumer spending rose in June with Americans shelling out for services at the start of the summer. Personal Spending rose 1% from May and above the 0.7% increase expected. Incomes were up scantily by 0.1% with a decline of 0.6% estimated. Since the country fully reopened, the restaurant and travel sectors have benefitted. Consumer spending makes up two-thirds of U.S. economic activity and is vital for economic growth.
Stocks are lower today as the month comes to an end but the Dow, S&P and NASDAQ are on pace for their sixth straight monthly gains. Stocks are falling after Amazon posted glum earnings after hours on Thursday but earnings have been solid so far this season. Of the 195 companies in the S&P 500 that have reported Q2 earnings, almost 91% have exceeded estimates, according to Refinitiv.
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Thursday – July 29, 2021
Home borrowing costs were essentially unchanged this week and remain at historically low levels. Freddie Mac reports that the 30-year fixed-rate mortgage rose two basis points to 2.80% last week with 0.7 in points and fees. It is up from 2.65% on January 7 of this year. The Fed signaled on Wednesday that rates will remain accommodative or low. Sam Khater, Freddie Mac’s Chief Economist said, “As the economy works to get back to its pre-pandemic self, and the fight against COVID-19 variants unfolds, owners and buyers continue to benefit from some of the lowest mortgage rates of all-time. Largely due to the current environment, the 30-year fixed-rate remains below three percent for the fifth consecutive week while the 15-year fixed-rate hits another record low.”
First-time unemployment claims remained stubbornly high in the latest week as the sector continues to encounter hurdles. At present, there are 9.2 million jobs available across the nation, according to the Bureau of Labor Statistics. Weekly Initial Jobless Claims came in at 400,000 for the week ended July 24, 2021, from 424,000 in the previous week. To put it into perspective, the week of April 4, 2020 claims were over 6 million as the shutdowns took hold. Continuing claims, or those receiving benefits for at least two weeks straight, increased to 3.269 million from 3.262 million. Many unemployed Americans should be able to go back to work as the enhanced unemployment benefits are set to expire in September.
The U.S. economy grew at a brisk pace in the second quarter of this year but the growth was less that anticipated. Gross Domestic Product (GDP) rose 6.5% in Q2 2021, below the 8.5% expected and just above the 6.3% gain seen in Q1. Personal consumption expenditures or changes in the prices of goods and services purchased by consumers in the United States, rose 11.8% and is a big part of the U.S. economy. GDP measures the value of the goods and services produced in the United States.
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Wednesday – July 28, 2021
Home borrowing costs declined to lows not seen since February and remain at historically low levels. Mortgage Bankers Association (MBA) reports that the 30-year fixed-rate mortgage fell ten basis points to 3.01% with 0.34 in points for the week ending July 23, 2021. The Market Composite Index, a measure of mortgage loan application volume, increased 5.7%, the Refinance Index rose 9% while the Purchase Index fell 2%. Spokesperson Joel Kan said, “The purchase index decreased for the second week in a row to its lowest level since May 2020, and has now declined on an annual basis for the past three months. Potential buyers continue to be put off by extremely high home prices and increased competition.”
As the country economic landscape continues to get back to pre-shutdown levels, the housing forbearance sector has been gradually improving. The MBA reports that the share of loans in forbearance declined slightly in the week ended July 18, 2021 to 3.48%. It is estimated that there are 1.74 million homes in forbearance plans. “As is typical for mid-month reporting, forbearance exits slowed, and there was a slight increase in new requests. The net result was a small drop in the share of loans in forbearance – the 21st consecutive week of declines,” said spokesperson Mike Fratantoni.
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Tuesday – July 27, 2021
In housing news, tighter supply and low rates continue to push prices higher. The somewhat backward-looking S&P Case-Shiller 20-City Index surged 17% annually in May and was up 2.1% monthly from April. The National Index jumped 16.6% from 14.8% in April. Cleveland, Dallas, Denver, Seattle and Charlotte, North Carolina marked their all-time highest annual gains. “Housing price growth set a record for the second consecutive month in May 2021,” said spokesperson Craig J. Lazzara.
Economic data has eased a bit since the big numbers seen soon after the reopening of U.S. states following the shutdowns. June Durable Orders were not that durable, coming in at a gain of 0.8%, well below expectations of a 2.1% increase and the rise of 3.2% seen in May. A durable good is defined as a good which lasts an extended period of time (over three years) during which its services are extended.
After weeks of higher prices, gas prices leveled off in the past week giving motorists a break from the recent surge. The national average price for a regular gallon of gasoline fell to $3.15, down two cents from the previous reading. One factor was a decline in oil prices with West Texas Intermediate falling to the mid-$60s a barrel last week but has since has risen to $71. “For pump prices to push less expensive, OPEC will need to follow through with their production increases, crude will need to sell consistently at lower prices and the market will need to adjust to the potential resurgence of COVID cases,” said Jeanette McGee, AAA spokesperson.
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Monday – July 26, 2021
Rising material and labor costs weighed on new home sales last month as the sector has seen some slowdown in the past few months. June New Home Sales fell 6.6% in June from May to an annual rate of 676,000 units versus the 800,000 expected. Sales plunged in the Northeast, fell in the West and South with gains seen in the Midwest. The supply of new homes on the market rose to 6.3% while the median price of a new home sold in June was $361,800, up 6.1% from a year ago.
It’s a big risk-event filled week with the two-day Fed meeting, heavy earnings, added supply, inflation and economic growth data along with key housing reports that will impact the markets this week. The ‘Main Event’ will be the two-day Fed meeting that kicks off on Tuesday and ends Wednesday with the 2:00 p.m. ET release of the monetary policy statement. There is a zero percent chance of a hike to the near-zero percent Fed Funds Rate … BUT, what will the Fed convey regarding the recent surge in inflation.
The inflation reading Core PCE for June will be released on Friday. Will the Fed discuss if and when tapering will begin? We shall see. More on the subject Wednesday morning. The week will feature the first reading on Q2 2021 GDP where it is expected that growth rose by 8.5% from 6.4% in Q1. The Treasury will sell $60B 2-year notes today, part of $183B being offered this week. At the end of the week, the Fed’s favorite inflation gauge, the Core PCE, will be released and will be closely watched by investors and Fed members.
Courtesy of Mortgage Market Guide
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