Freddie Mac has released its Primary Mortgage Market Survey (PMMS) for the week ending May 27, 2021. The PMMS reports that 30-year fixed-rate mortgage averaged 2.99% with an average 0.6 point, up from last week when it averaged 2.95%. A year ago at this time, the 30-year FRM averaged 3.18%. The 15-year fixed-mortgage averaged 2.27% with an average 0.6 point, unchanged from last week. A year ago at this time, the 15-year FRM averaged 2.62%. In prepared remarks, Freddie Mac’s Chief Economist Sam Khater said, “Home prices continue to accelerate while inventory remains low and new home construction cannot happen fast enough. There are many potential homebuyers who would like to take advantage of low mortgage rates, but competition is strong. For homeowners, however, continued low rates make refinancing an option worth considering.”

Primary Mortgage Market Survey^®

U.S. weekly averages as of 06/03/2021

Average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage. Visit the following link for the Definitions. Borrowers may still pay closing costs which are not included in the survey.

Opinions, estimates, forecasts, and other views contained in this document are those of Freddie Mac’s Economic & Housing Research group, do not necessarily represent the views of Freddie Mac or its management, and should not be construed as indicating Freddie Mac’s business prospects or expected results. Although the Economic & Housing Research group attempts to provide reliable, useful information, it does not guarantee that the information or other content in this document is accurate, current or suitable for any particular purpose. All content is subject to change without notice. All content is provided on an “as is” basis, with no warranties of any kind whatsoever. Information from this document may be used with proper attribution. Alteration of this document or its content is strictly prohibited. © 2021 by Freddie Mac.

Week of May 31, 2021 in Review

Despite some ongoing challenges in the labor sector, May proved to be a strong month for job creations. Home prices also soared in April, while Fed members made headlines last week.

The highly anticipated Jobs Report from the Bureau of Labor Statistics (BLS) showed that 559,000 jobs were created in May. Though this was slightly beneath estimates and weaker than ADP’s report for private sector payrolls, it was still a strong number overall. There were also slight positive revisions to March’s and April’s figures, totaling an additional 27,000 more jobs in those months combined. Hourly and weekly earnings both rose, while the Unemployment Rate fell – though the real Unemployment Rate is higher than the headline figure, as explained below.

Private sector job creations soared in May, as the ADP Employment Report showed a gain of 978,000 jobs, which was much higher than the 600,000 new jobs expected. Job gains were seen across all sizes of businesses. However, April’s report was revised lower, bringing the total number of jobs created in that month from 742,000 down to 654,000.

Initial Jobless Claims once again hit their lowest level since the pandemic began, finally falling below 400,000, as 385,000 claims were filed in the latest week. All in all, 15.4 million people are still receiving benefits throughout all programs, which is down 366,000 from the previous week. These improvements are certainly a step in the right direction, but real challenges remain for many families, especially parents who have lost access to important after-school programs and other childcare options.

Home prices continue to appreciate nationwide, per CoreLogic’s Home Price Index report, which showed that home prices increased 2.1% from March to April. Prices also rose 13% year over year, which is up from the 11.3% annual gain reported for March. Tight inventory remains a key reason for the appreciation we’re seeing.

Lastly, several Fed members made headlines with their comments about the Fed’s ongoing asset purchases. Read on for the scoop – and for how Mortgage Bonds responded.

May Job Creations Strong But Slightly Below Estimates

The Bureau of Labor Statistics (BLS) reported that there were 559,000 jobs created in May. Though this was slightly beneath estimates and weaker than the ADP report, it was still a strong number. In addition, there were slight positive revisions to March and April in the amount of 27,000 more jobs in those months combined.

Putting these numbers in perspective, however, we are still 7.6 million jobs below where we were pre-pandemic.

Note that there are two reports within the Jobs Report and there is a fundamental difference between them. The Business Survey is where the headline job number comes from and it’s based predominately on modeling. 

The Household Survey, where the Unemployment Rate comes from, is done by actual phone calls to 60,000 homes. The Household Survey also has a job loss or creation component, and it showed there were 444,000 jobs created. On a positive note, the Unemployment Rate decreased from 6.1% to 5.8%. While there were 444,000 job creations, the labor force decreased by 53,000. The number of unemployed people also decreased by 496,000, causing the unemployment rate to drop.

However, it’s important to further analyze these numbers, as the true Unemployment Rate is actually higher than the headline figure. That’s because people who are not able to look for work due to pandemic reasons, and who are still unemployed, are not counted. And that number equates to 2.5 million people. When we add this into the calculations, the real Unemployment Rate is 7.2%.

In addition, there has been a lingering misclassification error where people were classified absent from work for other reasons and not marked as unemployed on temporary layoff when they should have been. Without this error, the headline Unemployment Rate would have been 0.3% higher or 6.1%, while the real Unemployment Rate counting those unable to look for work due to pandemic reasons would be closer to 7.5%.

The all in U6 Unemployment Rate, which includes total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, improved from 10.4% to 10.2%.

Wages were on the rise, as average hourly earnings were up 0.5% in May after rising 0.7% in April. Average weekly earnings, which we focus on more because it measures what people actually take home, rose 0.5% in May after rising 1% in April. If we extrapolate the last three month’s numbers over the course of the year, weekly earnings would show an increase of close to 7.5%.

And of note, leisure and hospitality wages increased by 1.3% in May, as businesses in those sectors raised wages in the hopes of attracting much needed help.

Private Payrolls Much Higher Than Expected

The ADP Employment Report, which measures private sector payrolls, showed that there were 978,000 jobs created in May, which was higher than the 600,000 new expected. However, April’s report was revised lower, bringing the total number of jobs created in April from 742,000 down to 654,000.

Leisure and hospitality again led the way with 440,000 new jobs. In total, the service-providing sector added 850,000 new jobs. The goods-producing sector added 128,000 jobs, with manufacturing adding 52,000 and construction adding 65,000.

Job gains were present across all sizes of businesses. Small businesses (1-49 employees) gained 333,000 jobs, mid-sized businesses (50-499 employees) gained 338,000 jobs, and large businesses (500 or more employees) gained 308,000 jobs.

Initial Jobless Claims Fall Below 400,000

The number of people filing for unemployment benefits for the first time decreased by 20,000 in the latest week, as Initial Jobless Claims totaled 385,000. This is the lowest number since the pandemic began and finally under 400,000. California (+75K), Pennsylvania (+31K) and Georgia (+24K) reported the largest number of claims.

However, the number of people continuing to receive regular benefits did increase by 169,000 to 3.77 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) decreased by roughly 45,000 people combined.

All in all, 15.4 million people are still receiving benefits throughout all programs, which is down 366,000 from the previous week. While it’s nice to see the improvements we’re seeing, real challenges remain for many families, especially parents who have lost access to important after-school programs and other childcare options. As the economy and more schools continue to re-open, and as extended unemployment benefits expire, hopefully further improvements in unemployment will follow. 

Home Prices Feeling the Heat

CoreLogic released their Home Price Index report for April, showing that home prices increased 2.1% from March. Prices also rose 13% year over year, which is up from the 11.3% annual gain reported for March.

Within the report, the hottest markets once again were Phoenix (+21%), San Diego (+16%) and Denver (14%).

CoreLogic forecasts that home prices will rise 1.1% in May, which is the same level they forecasted for April. On an annual basis, they’re predicting that home prices will rise 2.8% in the year going forward. This is surprising considering they’re forecasting a 1.1% rise in the next month alone and their figures are still lower than most forecasts out there.

Also of note, CoreLogic says that Baby Boomers are staying in their homes for a median of 13 years, which is 50% longer than the previous generation. This is another factor impacting inventory along with the high labor and material costs builders are facing.

Fed Keeping On With Purchases

Last Thursday, New York Fed President John Williams made headlines when he said that he felt the economy has improved and is on a good trajectory, but that we are still a ways off from reaching the “substantial further progress” that would be needed to adjust the Fed’s purchases of Mortgage Bonds and Treasuries. And, as we noted above, we likely won’t see meaningful improvement in the labor sector until after schools and childcare facilities open back up fully and until after extended benefits expire.

While other Fed members have expressed differing opinions, Williams is one of the Fed’s most powerful members. As a result, Mortgage Bonds responded positively on Friday to his comments from Thursday that the Fed is still a way off from tapering their purchases.

What to Look for This Week

This week’s economic calendar is relatively quiet, but there are several reports to note. On Tuesday, we’ll get a read on how small businesses are feeling with the National Federation of Independent Business Small Business Optimism Index for May.

Inflation will be back in the headlines on Thursday with the release of the Consumer Price Index for May. Plus, the latest jobless claims will be reported as usual.

There are also two important auctions that could impact the markets. First up is Wednesday’s 10-year Note auction, followed by the 30-year Bond auction on Thursday.

Technical Picture

Mortgage Bonds broke above their 25-day Moving Average on Friday but closed beneath it. They remain near the ceiling at their 25-day Moving Average with a floor of support at their 50-day Moving Average below. The 10-year ended last week trading at around 1.56% after bouncing off its 50-day Moving Average and falling beneath the 1.60 Fibonacci level following the Jobs Report.