The drop in rates this week followed a downward trend for the 10-year Treasury yield, which rates closely follow. The economy is gaining momentum, however, and consumers can expect mortgage rates to rise in the upcoming months. For now, the drop in mortgage rates is good news for home buyers and homeowners, too, said Sam Khater, Freddie Mac’s chief economist. “Freddie Mac research suggests that lower income and minority homeowners have been less likely to engage in the refinance market,” Khater said. “Low and declining mortgage rates provide these homeowners the opportunity to reduce their monthly payment and improve their financial position.”
Week of April 19, 2021 in Review
The economic calendar was relatively quiet, but key housing reports showed that demand for homes remains strong around the country.
Sales of existing homes did decline from February to March, but the decline was due to a lack of inventory rather than a lack of demand. There were just 1.07 million homes for sale at the end of March, which was slightly higher than the amount of available homes in February – though still 28.2% lower on an annual basis. The amount equates to just a 2.1 months’ supply of homes.
Meanwhile New Home Sales surged in March, coming in nearly 21% higher than February, while February’s sales figure was also revised higher. Inventory of new homes was tight as well, with just a 3.6 months’ supply of homes for sale at the end of March.
In other news, Initial Jobless Claim declined by 39,000 to 547,000 in the latest week, marking the second week in a row that the number people filing for benefits for the first time declined. When we also factor in people who continue to receive both regular and pandemic-specific benefits, 17.5 million people are still receiving benefits throughout all programs – up 500,000 from the previous week. While it’s encouraging to see the improvement in Initial Jobless Claims, the bottom line is that our recovery still has a way to go.
Lastly, investors were closely watching Wednesday’s 20-year Bond auction. Learn more about the results below.
Existing Home Sales Hindered by Low Inventory
Existing Home Sales, which measures closings on existing homes, were down 3.7% in from February to March. However, sales were up 12.3% when compared to March of last year.
The decline in the monthly sales reading was not due to a lack of demand, but to a lack of inventory. There were just 1.07 million homes for sale at the end of March, which was slightly higher than the amount of available homes in February, but 28.2% lower on an annual basis. The amount equates to just a 2.1 months’ supply of homes.
As a result of this tight level of inventory, homes were only on the market for 18 days on average, which is a record low and down from the previous record low of 20 set in February.
The median home price was $329,100, which is a record high and up 17.2% compared to March of last year. Note, this is not the same as appreciation. It simply means half the homes sold were above that price and half were below it. Sales on the low end were down 25%, while sales of homes above $1 million were sharply higher. This dragged the median home price higher.
First-time home buyers increased from 31% in February to 32% in March, which is a decent level considering the stiff competition for homes on the lower end. Investors purchased 15% of homes in March, which was down from 17% in February, while cash buyers increased from 22% to 23% over that same period.
New Home Sales Surge in March
New Home Sales, which measures signed contracts on new homes, surged nearly 21% higher in March. February’s sales figure was also revised higher and without that revision, sales in March would have been 32% higher than February’s original number. In addition, sales were also almost 67% higher on a year over year basis, but that is likely skewed due to the economy being shut down in March of last year.
Looking at inventory levels, there were only 307,000 new homes for sale in March, which is down 7% from last year. There were also 14% less homes for sale under $300,000 compared to March of last year.
The median home price was reported at $330,800, up not even 1% from last year. Again, this is not the same as appreciation. It simply means half the homes sold were above that price and half were below it.
Initial Jobless Claims Fall for Second Straight Week
The number of people filing for unemployment benefits for the first time fell for the second week in a row, as Initial Jobless Claim declined by 39,000 to 547,000. This is the lowest level since the pandemic began. California (+72K), Texas (+43K) and New York (+41K) reported the largest number of claims.
Continuing Claims, which measure people who continue to receive benefits, dropped slightly but remain elevated at around 3.7 million.
Pandemic Unemployment Assistance Claims (which provide benefits to people who would not usually qualify) and Pandemic Emergency Claims (which extends benefits after regular benefits expire) increased by a combined 700,000.
All in all, 17.5 million individuals are still receiving benefits throughout all programs, which is up 500,000 from the previous week. While it’s encouraging to see the improvement in Initial Jobless Claims, our recovery still has a way to go.
Update on 20-year Bond Auction
Investors were anticipating the 20-year Bond auction held on Wednesday to see the level of demand. High demand, which is reflected in the purchasing of Bonds and Treasuries, can push prices higher and yields or rates lower. Weak demand, on the other hand, can signal that investors think yields will continue to move higher, which can have a negative effect on rates.
The 20-year Bond auction was met with above-average demand. The bid to cover of 2.42 was above the average of 2.37. Direct and indirect bidders took 78.9% of the auction compared to 75.9% in the previous auctions. Mortgage Bonds moved higher after the release.
What to Look for This Week
The last week of April will shower us with economic reports across a wide spectrum of the economy, beginning Monday with March’s Durable Goods Orders.
On Tuesday, we’ll get an update on home price appreciation when both the Case-Shiller Home Price Index and the Federal Housing Finance Agency House Price Index for February are reported. More housing news follows Thursday with March’s Pending Home Sales.
Also on Thursday, we’ll get the latest Jobless Claims figures and a look at Gross Domestic Product for the first quarter of the year.
Ending the week on Friday, we’ll get an update on the Fed’s favored inflation measure, Personal Consumption Expenditures, along with Personal Income and Spending for March.
And speaking of the Fed, their two-day meeting begins Tuesday, with their Monetary Policy Statement following on Wednesday. This always has the potential to be a market-mover.
Mortgage Bonds remain just below a tough ceiling of resistance at the 103.752 Fibonacci level, which they have been unable to break above. There is 36bp of room to the downside before the next floor of support at the 50-day Moving Average.