Mortgage Rates Move Down, GDP Misses, Stimulus Supports, Inflation Ticks Up and Housing (still) Continues to Exceed Expectations
As the market reacts to a new administration in Washington and COVID-19 driven economic malaise, mortgage rates continued to decrease this week, just slightly. Even as house prices increase at the fastest rate we’ve seen in years, competition to buy is strong given the low inventory that exists across the country.
The fact that there are not enough homes to meet demand is going to be an ongoing issue for the foreseeable future.
Market Activity Summary: Detached Single-Family Homes
December 2020
Central County – East Bay (Find more Community Stats here:)
Castro Valley:
● Days-on-Market (DOM) year-to-date is approximately 16 days – 56 days in December 2019.
● Inventory: 9 units were listed for sale as of the last day of December – approximately 0 month of inventory – 0.4 months in December 2019..
● Sales Activity: 47 single-family detached units were sold during December – 28 in December 2019.
● Median Sales Price: $1,090,000 during December – $891,250 in December 2019.
● Average sales price was 106.91% of the average list price during December – 99.13% in December 2019.
Hayward:
● Days-on-Market (DOM) year-to-date is approximately 19 days – 39 in December 2019.
● Inventory: 35 units were listed for sale as of the last day of December – approximately 0 month of inventory – 0.5 months in December 2019.
● Sales Activity: 103 single-family detached units were sold during December – 84 in December 2019.
● Median Sales Price: $820,000 during December – $800,937 in December 2019.
● Average sales price was 104.26% of the average list price during December – 100.50% in December 2019.
San Leandro:
● Days-on-Market (DOM) year-to-date is approximately 19 days – 22 in December 2019
● Inventory: 18 units were listed for sale as of the last day of December – approximately 0 month of inventory – 0.4 months in December 2019.
● Sales Activity: 73 single-family detached units were sold during December – 29 in December 2019.
● Median Sales Price: $785,000 during December – $715,000 in December 2019.
● Average sales price was 104.92% of the average list price during December – 102.97% in December 2019.
San Lorenzo:
● Days-on-Market (DOM) year-to-date is approximately 24 days – 26 in December 2019.
● Inventory: 6 units were listed for sale as of the last day of December – approximately 0 month of inventory – 0.0 in December 2019.
● Sales Activity: 21 single-family detached units were sold during December – 19 in December 2019.
● Median Sales Price: $735,000 during December – $708,000 – in December 2019.
● Average sales price was 104.79% of the average list price during December – 103.98% in December 2019.
Week of January 25th, 2021 in Review
Jobless claims remain at elevated levels, unfortunately, as another 847,000 people filed for unemployment benefits for the first time during the week ending January 23. Meanwhile, 4.7 million people continue to receive benefits. There was a sliver of good news, however, as the recent extension of pandemic benefits has kicked in for many families across the country who are relying on this assistance.
The housing market remains red hot nationwide, as home prices continue to appreciate. The Case-Shiller Home Price Index reported a 9.5% annual gain in home prices nationwide in November, up from an already strong reading of 8.4% in October. The Federal Housing Finance Agency (FHFA) House Price Index, which measures home price appreciation on single-family homes with conforming loan amounts, showed that home prices were up 11% annually in November. Again, this was even higher than the 10.2% annual reading for October.
Meanwhile, sales of new homes notched up 1.6% from November to December. Though this was a bit below expectations, sales are still up over 15% year over year, which is especially impressive given the inventory challenges that have persisted around the country. Pending Home Sales were essentially flat in December, though they equaled the highest December reading ever, which again speaks to the high demand for homes.
In other news, the first look at GDP for the first quarter of 2020 came in at 4%, which was lower than expectations of 4.2%. For all of 2020 GDP declined 3.5%, marking the worst year since at least the end of World War II. Meanwhile, the Fed’s favorite inflation measure, Personal Consumption Expenditures, showed that inflation was hotter than expected in December but still tame overall.
Speaking of the Fed, they held the first Federal Open Market Committee meeting of the year. While the Monetary Policy Statement didn’t really contain many surprises, of note the Fed said they will continue to buy at least $120 billion of Mortgage Backed Securities and Treasuries per month, which has helped stabilize the markets. The Fed also said that economic growth has “moderated in recent months” and that the pace of the recovery depends on the path of the virus and the vaccine distribution.
Important Jobless Benefit Extensions Kick In
Initial Jobless Claims, which measures people filing for unemployment benefits for the first time, equaled 847,000 in the latest week, though this was a decline of 67,000 from the previous week.
The number of people continuing to receive benefits also declined by 203,000, though this remains extremely elevated at 4.7 million.
Pandemic Unemployment Assistance Claims, which provide benefits to people who would not usually qualify, increased by 1.6 million after falling by 1.7 million in the previous week. This is likely due to the extension of benefits seen in the recent stimulus legislation, where people are receiving this much-needed assistance again after falling off for a time.
Similarly, Pandemic Emergency Claims, which extend claims by 13 weeks after regular benefits expire, increased by 836,000 after falling in the previous report. Again, this likely reflects people once more receiving this help due to the extension.
December’s Home Sales Impressive Given Inventory Challenges
New Home Sales, which measure signed contracts on new homes, were up 1.6% from November to December. Though this was slightly lower than expectations, sales are still up over 15% year over year, which is especially impressive given that supply has been so much lower than demand. In fact, homes that have been sold but not started are up 33% year over year, which speaks to the high demand.
Though there was some good news in that regard, as inventory went from being down 13% annually to down 6%, which is likely due to some of the new supply we have seen in recent Housing Starts reports.
The median home price was reported at $355,900, up 8% year over year. Remember, this figure is not the same as appreciation. It simply means that half the homes sold were above that price and half were below it.
Pending Home Sales, which measure signed contracts on existing homes, were essentially flat in December, ticking down 0.3% from November. But they reached the highest December reading ever and given that normally there is a slowdown in the housing market around the holidays, this is another sign of the high demand for housing. In addition, sales were up 21.4% annually, which again is amazing in the face of record low inventory levels that are down 23% over that same period.
Home Price Appreciation Remains Red Hot
The Case-Shiller Home Price Index, which is considered the “gold standard” for appreciation, showed that there was a 9.5% annual gain in home prices nationwide in November. This was up from an already strong reading of 8.4% in October.
The 20-city Index rose at the quickest pace in 6 years, rising from 7.9% to 9.1% year over year, with all of the cities showing strong gains. Phoenix (+13.8%), Seattle (+12.7%) and San Diego (+12.3%) reported the highest annual gains among the 20 cities.
The Federal Housing Finance Agency also released their House Price Index, which measures home price appreciation on single-family homes with conforming loan amounts. Note that while you can have a million-dollar home with a conforming loan amount, the report most likely represents lower-priced homes where supply is tightest and demand is strongest.
As such, it should be no surprise that the report was even stronger than Case-Shiller’s. Home prices rose 1% in November and are up 11% compared to November of 2019, which is much higher than the 10.2% annual reading in the previous report.
Inflation Hotter Than Expected But Still Tame
The Fed’s favored inflation measure, Personal Consumption Expenditures (PCE), showed that inflation was up 0.4% from November to December, which was hotter than expectations of 0.3%. Year over year, inflation increased from 1.1% to 1.3%, as expected.
Core PCE, which strips out volatile food and energy prices and is the Fed’s real focus, was up 0.3% in December. Again, this was hotter than the 0.1% rise anticipated. On an annual basis, Core PCE increased from 1.4% to 1.5%; market expectations were for a 1.3% reading.
Even with the slightly hotter readings, inflation is still at very tame levels. Why does tame inflation matter?
Inflation reduces the value of fixed investments, like Mortgage Bonds, meaning rising inflation can cause Bonds to worsen or move lower. Home loan rates are inversely tied to Mortgage Bonds, so when Bonds worsen, home loan rates can rise. Though many factors influence the markets, tame inflation can benefit Mortgage Bonds and help home loan rates remain low.
What to Look for This Week
Manufacturing news kicks off the week on Monday when the ISM Index for January is reported.
Then, reports from the labor sector dominate the rest of the week. On Wednesday, January’s ADP Employment Report will give us the latest data on private payrolls while the latest weekly Jobless Claims figures will be released as usual on Thursday.
Ending the week on Friday, the highly anticipated Bureau of Labor Statistics Jobs Report for January will be released, which includes Non-farm Payrolls and the Unemployment Rate.
Technical Picture
The Fed continues to provide stability to the markets with its ongoing purchases of Mortgage Backed Securities. Mortgage Bonds are trading in a range between a ceiling of resistance at their 25-day and 100-day Moving Averages and a floor of support at the 103.053 Fibonacci level.
