Unemployment Claims to Lowest Levels Since March
Another 787,000 people filed for unemployment benefits for the first time during the week ending October 17, which was a nice decline from the previous week. Continuing Claims, which measure people continuing to receive benefits, also declined by 1 million to 8.4 million, the lowest level since March! These headline figures are certainly positive, but there is a caveat to them as detailed below.
There was more evidence that the housing sector remains the cornerstone of our economic recovery, as the National Association of Home Builders (NAHB) Housing Market Index, which is a real-time read on builder confidence, set another record high this month. All three components of the index, which includes readings on current sales conditions, sales expectations in the next six months and buyer traffic, signaled expansion.
Meanwhile, both Housing Starts and Building Permits rose from August to September. Of particular importance, both Starts and Permits for single-family homes, which is the area where building is really needed due to high demand, both increased.
Existing Home Sales were also strong in September, up 9.4% from August and up nearly 21% when compared to September of last year. Note that this report measures closings and likely represents buyers who were shopping for homes in June and July. Low inventory remains the biggest challenge, as there were only 1.47 million homes for sale in September, which equates to just a 2.7 months’ supply. Typically, a 6-month supply is considered normal.
Lawrence Yun, Chief Economist for the National Association of REALTORs, noted, “There is no shortage of hopeful, potential buyers, but inventory is historically low. To their credit, we have seen some homebuilders move to ramp up supply, but a need for even more production still exists.”
Reading Beneath the Headlines on Jobless Claims
Initial Jobless Claims fell below 800,000 for the week ending October 17, as 787,000 people filed for unemployment benefits for the first time. This marks a nice improvement from the previous week. California did report after two weeks of not providing figures, which adds to the positive nature of the decline in initial claims. California (+158K), New York (+56K) and Texas (+51K) reported the largest gains.
Continuing Claims, which measure people continuing to receive benefits, also improved by 1 million to 8.4 million people, marking the lowest level since March.
Looking past the headlines, one important thing to remember is that people can apply for Pandemic Emergency Unemployment Compensation (PEUC) after the 26 weeks of regular benefits expire, which extends their benefits for another 13 weeks. That figure increased by more than 500,000. So, while the report is an improvement, it needs to be dissected with the increase in pandemic unemployment assistance in mind.
Builder Confidence Reaches Another Record High
The National Association of Home Builders (NAHB) Housing Market Index rose from 83 to 85 in October, marking the second month in a row that it has set a record high. This report is a near real-time read on builder confidence, and any reading above 50 on this index that goes from 1 to 100 signals expansion.
All three components of the index were positive, with current sales conditions rising 2 points to 90, sales expectations in the next six months up 3 points to 88, and buyer traffic remaining unchanged at 74.
It’s important to note that builders have said that they are being challenged by a lack of land, labor, and seriously spiking material costs.
“Traffic remains high and record-low interest rates are keeping demand strong as the concept of ‘home’ has taken on renewed importance for work, study and other purposes in the Covid era,” said NAHB Chairman Chuck Fowke. “However, it is becoming increasingly challenging to build affordable homes as shortages of lots, labor, lumber and other key building materials are lengthening construction times.”
Digging Deeper Into Housing Starts
Housing Starts, which measure the start of construction on homes, were up 1.9% from August to September and 11.1% when compared to September of last year. While this monthly reading was a bit lower than expectations, it’s important to look more closely at the numbers.
Starts on single-family homes, which is the area where building is really needed due to the high demand, were up 8.5% from August and a whopping 22.3% versus last September.
The headline figure was brought down by starts on multi-family units, which declined 14.7%. All in all, this was a very strong report.
Building Permits, which are a good future indicator of Housing Starts, were up 5.2% from August and 8.1% on an annual basis. Permits for single-family homes once again were even stronger, up 7.8% from August and 24.3% from September of last year.
Interestingly, new homes that were sold but not started yet are up 69%, which shows how strong the demand has been. September’s increase in both Housing Starts and Building Permits will help to meet some of this demand, but there is so much more demand than supply right now that many more homes are needed. The imbalance will continue to support home prices.
September Existing Home Sales Soar
Existing Home Sales came in strong in September, up 9.4% from August. This report measures closings, which means it likely represents buyers who were shopping for homes in June and July. Sales were also up nearly 21% when compared to September of last year, which is the highest pace since 2006 – when there were more than twice as many homes for sale. This certainly speaks to the strength of the current housing market.
Inventory remains tight, as there were only 1.47 million units for sale in September, down 19.2% compared to September of last year. This equates to just a 2.7 months’ supply, marking a record low, whereas a 6-months’ supply is considered indicative of a healthy housing market. Quite simply, if there were more homes for sale, sales would be even higher.
The median home price was reported at $311,800, up almost 15% year over year. Note that this doesn’t mean homes are not affordable. It just means the middle-priced home that sold was $311,800, with half the homes selling below and half above that price. In September, a greater number of higher-priced homes sold and as a result, the median home price moved higher.
Inventory remained tightest among lower-priced homes, which is why not as many were sold. This impacted first-time buyers, which dropped from 33% to 31% of buyers in September. On average, homes were only on the market for 21 days, which is an all-time low.
Family Hack of the Week
Halloween may look a bit different this year, but that doesn’t mean your family can’t have some spooky fun. Here are just a few ways you could celebrate.
With Halloween falling on a Saturday, consider a family hike or visit to a pumpkin patch or apple farm for some daytime fun. There are sure to be some delicious baked goods to pick up while you’re there.
If the weather is less cooperative for outdoor activities, bake and decorate some spooky looking pumpkin or ghost-shaped cookies. Or build a haunted gingerbread house.
Scary movies are always fun on Halloween. Settle in at night with a family-friendly favorite like Casper or save some scarier options like the classic Halloween for the adults later on.
What to Look for This Week
The last week of October brings a full slate of economic news, beginning Monday with September’s New Home Sales. The Case-Shiller Home Price Index for August follows on Tuesday and September’s Pending Home Sales will be reported Thursday.
Also on Tuesday, we’ll get the latest on Durable Goods Orders when September’s reading is reported while third quarter Gross Domestic Product will be released Thursday.
The latest weekly Initial Jobless Claims remain critical to monitor when that data is released on Thursday. Ending the week on Friday, we’ll get a read on September inflation when Personal Consumption Expenditures (the Fed’s favorite inflation measure) is released, along with Personal Income and Spending.
Technical Picture
The Fed continues to provide stability to the markets with its ongoing purchases of Mortgage Backed Securities. Mortgage Bonds are sitting on a dual level of support at the 100-day Moving Average and a trendline that goes back several months. If this level is broken there is significant downside risk. The 10-year is also being pushed against its ceiling at the 200-day Moving Average.