July 23, 2020

Don’t let the headline fool you. We are still experiencing historically low rates and an incredibly vibrant market for home purchases here in the SF Bay Area. In fact, recently, there has been a lot of discussion and speculation on the numbers of people leaving the Bay Area for places outside California, in general. A recent study by Zumper suggest otherwise. According to the study, “…if you look at where people in San Francisco are searching to move on their site, in April and May 2020, the San Francisco Bay Area metro was still the #1 most searched for area, taking up 72% of total searches. This was followed by Sacramento, Los Angeles, Sonoma County and Seattle-Tacoma, showing that people seem to want to stay in California and definitely on the West Coast if they can.”

The migration report goes on to say:

Southern California cities are interested in moving to Phoenix and Las Vegas & Vice Versa

Looking at both inbound and outbound searches for the Southern California cities on the map, Phoenix and Las Vegas were the top recurring out-of-state cities. There is a mutual migration relationship between these areas and perhaps since Southern California, Phoenix, and Las Vegas all tend to be warm most of the year, renters in those cities who were itching to move are looking for similarly tempered environments.

Bay area cities mostly want to stay in state with 2 exceptions

Meanwhile, for our Bay Area cities, while most inbound and outbound searches were within California, the 2 exceptions were the Chicago and New York City metro areas. It seems if Bay Area residents were to move out of California, they would be the most interested in living in or around other large, metropolitan areas.

Reno ties southern and northern California together

The most amount of out-of-metro inbound searches to Reno came from cities in both southern and northern California, in particular Sacramento, San Francisco, and Los Angeles metros. The interest in moving to Reno was a common migration thread that tied this state together.

Housing Demand Continues to Rebound

While housing demand continues to rebound, the month-long swoon in economic activity has caused the 10-year Treasury benchmark to drop. In the short-term, this means the demand will continue on the back of near record low mortgage rates. However, the most recent consumer spending data has been pointing to slow growth since mid-June. The concern is that the pause in economic activity will cause unemployment to remain elevated which will lead to longer-term labor market distress.

• Current Mortgage Rates Data Since 1971

Week of July 20th, 2020 in Review

The economic calendar was relatively quiet, with unemployment numbers and housing reports dominating the headlines.

The news regarding jobless claims continues to reflect the pandemic’s ongoing impact on the labor sector, as another 1.416 million people filed for unemployment benefits for the first time during the week ending July 18. This was about 100,000 claims higher than last week’s number of 1.3 million first-time filers. Continuing claims, which measure people continuing to receive benefits, did improve significantly – at least, the headline figure did. There’s more to the story, as noted below.

A plethora of housing reports were also released, with June’s Existing Home Sales surging 20.7% from May, marking the largest one-month increase ever. Inventory of existing homes continues to remain a challenge for buyers, however, down 18.2% compared to June of last year. New Home Sales also rose much higher than expected in June, up 13.8% from May.

Lastly, the Federal Housing Finance Agency (FHFA) released their House Price Index, which measures home price appreciation on single-family homes with conforming loan amounts. While home prices fell 0.3% from April to May, they are still up 4.9% compared to May of last year.

Initial Jobless Claims Rise in Latest Week

Another 1.416 million people filed for unemployment benefits for the first time during the week ending July 18, an increase of about 100,000 people from the previous week’s number of 1.3 million. California (+292K), Florida (+105K) and Georgia (+120K) saw the largest gains.

Continuing claims improved significantly from 17.304 million to 16.197 million, but there is much more to this headline number because the Pandemic Unemployment Assistance (PUA) Claims are not captured.

PUA Claims reflect people like gig workers and contractors who usually would not be approved for unemployment benefits. These claims, again which are separate and in addition to the headline claims, totaled 975,000 in the latest week. Continuing PUA Claims did improve slightly from 14.2 million to 13.18 million but they are still significant.

All told, the total number of people receiving some type of benefits improved slightly from 32 million to 31.8 million. Based on the total number of people receiving benefits, divided into the labor force of 160 million, there is likely a 20% unemployment rate.

Home Sales Surge in June

The National Association of REALTORS (NAR) reported that sales of existing homes jumped 20.7% in June, which was the largest one-month jump ever, albeit still slightly beneath expectations. The report measures closings in the month of June and likely represents buyers shopping for homes in April and May.

Sales were down 11.3% year over year, but this is a big improvement from the -27% annual reading we saw in May’s report. First-time home buyers made up 35% of home sales, up from 34%.

Inventory remains tight, as there were only 1.57 million units for sale, down 18.2% when compared to June of last year. The median home price was reported at $295,300, up 3.5% year over year.

“The sales recovery is strong, as buyers were eager to purchase homes and properties that they had been eyeing during the shutdown,” said Lawrence Yun, NAR’s chief economist. “This revitalization looks to be sustainable for many months ahead as long as mortgage rates remain low and job gains continue.”

Meanwhile, New Home Sales, which measure signed contracts on new homes, also came in strong, up 13.8% from May to June. This was much stronger than the 4% gain anticipated. Sales are now up 7% when compared to June of last year, which is quite an impressive amount especially given the pandemic.

Nationally, the median new home price increased 5.8% year over year to $329,300, while the majority of homes that sold were between $200,000 and $300,000. Here’s what the median home price looks like here in the San Francisco Bay Area:

Peninsula Cities		East Bay Cities
Daly City	$1,130,000	Alamo	$2,000,000
South SF	$1,100,000	Danville	$1,566,000
Brisbane	$1,436,500	San Ramon	$1,150,000
San Bruno	$1,200,000	Lafayette	$1,580,000
Millbrae	$1,875,000	Orinda	$1,500,000
San Mateo	$1,550,000	Moraga/Canyon	$1,450,000
Belmont	$1,800,000	Union City	$921,000
Foster City	$1,800,000	Hayward	$705,000
San Carlos	$1,910,000	Castro Valley	$880,000
Redwood City	$1,638,500	Newark	$920,000
Redwood Shores	$2,100,000	San Leandro	$705,000
Menlo Park	$2,400,000	San Lorenzo	$710,000
		Dublin	$1,065,000
		Pleasanton	$1,230,000
		Livermore	$818,000
		Fremont	$1,150,000
		Union City	$925,000
		Newark	$950,000
Oakland All	$805,000	San Francisco (All)	$1,600,000
Select Zip Codes (within Oakland):		Select Neighborhoods or Districts (within SF):
94705 (Claremont Hills)	$1,850,000	Pacific Heights	$5,700,000
94618 (Rockridge)	$1,560,000	Marina	$3,115,000
94611 (Lakeshore/Grand Ave.)	$1,460,000	Noe, Eureka & Cole Valleys	$2,495,000
94610 (Montclair)	$1,250,000	Richmond District/Lone Mtn	$2,000,000
94609 (Temescal)	$1,172,500	St. Francis Wood	$3,232,500
94602 (Glenview/Oakmore)	$1,010,000	Forest Hill	$2,200,000
94608 (NOBE)	$850,000	Potrero Hill	$1,867,000
94601 (Fruitvale)	$599,000	Bernal Heights	$1,600,000
94603 (South Oakland)	$496,000	Miraloma Park	$1,512,500
		Sunset District	$1,500,000
		Excelsior/Portola	$1,165,000
		Bayview	$994,500

An Update on Home Appreciation

There was news on home appreciation from the Federal Housing Finance Agency House Price Index, which measures home price appreciation on single-family homes with conforming loan amounts.

Home prices fell 0.3% from April to May, but they are still up 4.9% compared to May of last year. However, May’s 4.9% year-over-year reading is a bit lower than the reported 5.5% annual gain in April and 5.9% in March.

What to Look for This Week

The last week of July brings a full slate of economic data, beginning Monday with Durable Goods Orders for June. We’ll get a sense of how consumers are feeling with July’s Consumer Confidence reading on Tuesday, plus there’s housing news with May’s Case-Shiller Home Price Index. June’s Pending Home Sales figures follow on Wednesday.

Wednesday also brings the statement from the latest Federal Open Market Committee meeting, which always has the potential to move the markets.

On Thursday, all eyes will be watching for the latest Initial Jobless Claims numbers, along with the first look at Gross Domestic Product for the second quarter. The market is expecting -35% GDP in the second quarter, following -5% in the first quarter.

Finally, on Friday we’ll get an update on the Fed’s favorite inflation reading with June’s Personal Consumption Expenditures. Also look for June’s Personal Income and Personal Spending figures along with July’s Consumer Sentiment Index and Chicago PMI (which measures manufacturing in that region).

We’ll also keep an eye on rising tensions between the U.S. and China, as well as details regarding a new stimulus package throughout the week.

Technical Picture

The Fed’s ongoing purchases of Mortgage Backed Securities remain a stabilizing force in the markets, though they did cut back their purchases last week from $4.4 billion to $3.4 billion per day. Mortgage Bonds have been trading sideways over the past two weeks, testing overhead resistance a few times but failing to break through. Every time the 103.219 ceiling was tested, or close to being tested, Bonds have been pushed lower. Mortgage Bonds remain in the middle of a wide range between the aforementioned ceiling and support at the 25-day Moving Average, meaning they are susceptible to price swings.

July 21, 2020

Mortgage rates fell below 3 percent last week for the first time in 50 years. The drop has led to increased demand for refinancing of existing mortgages, as well as demand for new mortgages for those buying homes.

A quick word about these historically low interest rates. The lowest rates available almost always come at a cost of between 0.7 and 1 point (multiplied by the size of the loan and added to the cost). Often these “teaser” rates also have loan size limitations that require it be under the conforming loan limit, which is $510,400 here in the SF Bay Area. You’ll also need to have a credit score above 740 and maybe even above 760 to get access to these rates. Even then, it’s important to remember that rates can and do change every day!

Want to take cash out for home improvements, deb consolidation or put the kids through school, you can expect to see upward adjustments to your rate.

If you are buying an investment property or something other than a single family residence, there will be upward adjustments to the interest rate and there are other things that can and do add risk premium to the rates that are available to you.

So, can you get one of those mortgages that start with an interest rate in the 2’s? You sure can but you’ll need to check all of the boxes to get that super low rate. Do you have to check all those boxes? No. Are 2.5% interest rates available? Yes! Will you have to pay thousands of dollars to get that low of a rate? It’s certainly possible!

Rather than focus on rate, let me share an example: if you borrowed the conforming loan amount of $510,400 (again, here in the SF Bay Area, as that limit changes from county to county). The difference in principal and interest payment between 2.99% and 3.25% is …$71 per month. Don’t misunderstand me, saving money on your home mortgage is important but if your rate is in the high 3s or low 4s, getting a mortgage 3.25% could save you between $175 and $225 per month. NOW THAT’S WORTH FOCUSING ON!

Everyone’s situation is different, and the calculations above are only illustrations and for discussion purposes only. They’re simply designed to get you thinking about your home finance.

Need to get pre-approved for a purchase? Looking to refinance to a lower rate and to tap into your home equity for any reason? Give me a call so we can discuss your specific situation. I’m happy to run some scenarios for you so you can see for yourself where you’ll save. When you call, we can talk about why it’s unlikely you’ll hang on to your loan for the full term and why that’s important in your decision making process.

Week of July 13th, 2020 in Review

The pandemic’s impact on unemployment continues, as another 1.3 million people filed for unemployment benefits for the first time during the week ending July 11. While continuing claims did improve significantly from the previous week, the headline numbers may not be telling the whole story, as highlighted below.   

Over in the housing sector, confidence among builders was on the rise in July, per the National Association of Home Builders Housing Market Index, which increased 14 points to 72. Housing Starts and Building Permits also improved from May to June, with significant increases in both for single family homes.  

June’s Consumer Price Index showed that consumer inflation rose after three previous months of declines, but the overall trend is that inflation remains tame. Meanwhile, Retail Sales came in stronger than expected last month while May’s figure was also revised higher.

There was also some good news from the manufacturing sector, as July’s Empire State Index showed that manufacturing activity in the New York region rose from essentially flat to 17.2. This is a big improvement from the -48 reading just two months ago. Meanwhile, the Philadelphia Fed Index showed a modest slowdown for manufacturing in that region in July, after a large expansion in June. However, July’s reading was higher than expected.

Lastly, there was also some positive news from the National Federation of Independent Business, as their small business optimism index for June increased to the best level since February. The NFIB chief economist, Bill Dunkelberg, said “Small businesses are navigating the various federal and state policies in order to reopen their business and they are doing their best to adjust their business decisions accordingly. We’re starting to see positive signs of increased consumer spending, but there is still much work to be done to get back to pre-crisis levels.”

Digging Deeper Into Unemployment Figures

Another 1.3 million people filed for unemployment benefits for the first time during the week ending July 11, coming in slightly higher than expectations of 1.288 million new claims. Pennsylvania (+209K), California (+127K) and Illinois (+57K) reported the largest gains. Continuing claims, which measure people continuing to receive benefits, improved significantly from 18.06 million to 17.338 million.

But … are things really improving?

There are also PUA or Pandemic Unemployment Assistance Claims that are not captured in the headline figure, and those totaled 928,000 in the latest week. Continuing PUA Claims are now above 15 million, which is significant!

This makes the total number of people receiving some type of benefit around 32 million, meaning it’s possible that the unemployment rate is really over 20%. Because of this, unfortunately, it doesn’t appear that the situation is improving in any meaningful way when we look at the amount of people who are receiving benefits.

Home Builders Feeling Optimistic

The NAHB Housing Market Index, which is a real time gauge of builder confidence, increased 14 points, rising from 58 in June to 72 in July. All three components of the index increased, with current sales rising 16 points to 79 and sales expectations up 7 points to 75. It was especially encouraging to see buyer traffic jump 15 points to 58, moving from contraction territory (below 50) to expansion (above 50).

Housing Starts, which measure the start of construction on new homes, rose 17.3% in June. This was in line with estimates and a nice move higher. Housing Starts are now down only 4% on an annual basis, which is significantly improved from down 23% in the

previous report. The gain was pretty much all in starts on single-family homes, which were up 17.2%.

Building Permits also saw an improvement from May to June, up 2.1%, though they are down 2.5% when compared to June of last year. Permits for single family homes also saw a big jump in June, up 11.8% from May.

The Latest on Consumer Inflation and Retail Sales

The Consumer Price Index (CPI), which measures inflation on the consumer level, came in at 0.6% in the month of June. While this increase ended three months of declines, the overall trend is that inflation remains tame. Of note, gasoline prices rose 12.3% in June, which was a big reason for the overall gain in inflation. The year-over-year reading increased from 0.1% to 0.6%.

Core CPI, which strips out food and energy prices, increased by 0.2% from May to June, while the annual reading remained stable at 1.2%. Within the reports, rents are rising 3.2% across the US, which is down from 3.5%.

There was some good news for retailers as sales increased by 7.5% in June, better than the expected 5.2% gain, while May’s sales figure was revised higher by 0.5% to 18.2%. Sales at clothing and accessory stores shut up a whopping 105.1% in June, while sales at electronics and appliance stores, and furniture and home furnishing stores also saw nice gains. 

What to Look for This Week

The second half of the week heats up with key housing reports. First up, the Federal Housing Finance Agency’s House Price Index for May and June’s Existing Home Sales will be released on Wednesday, followed by June’s New Home Sales on Friday. And as usual, weekly Initial and Continuing Jobless Claims will be important to monitor when the latest figures are reported on Thursday.

Technical Picture

Mortgage Rates Fall Below Three Percent!

July 16, 2020

Mortgage rates fell below 3 percent for the first time in 50 years. The drop has led to increased demand for refinancing of existing mortgages, as well as demand for new mortgages for those buying homes.

A quick word about these historically low interest rates. The lowest rates available almost always come at a cost of between 0.7 and 1 point. Often these “teaser” rates also have loan size limitations that require it be under the conforming loan limit, which is $510,400 here in the SF Bay Area. You’ll also need to have a credit score above 740 and maybe even above 760 to get access to these rates. Even then, it’s important to remember that rates can and do change every day!

Want to take cash out for home improvements, deb consolidation or put the kids through school, you can expect to see upward adjustments to your rate.

If you are buying an investment property or something other than a single family residence, there will be upward adjustments to the interest rate.

So, can you get one of those mortgages that start with an interest rate in the 2’s? You sure can but you’ll need to check all of the boxes to get that super low rate.

By way of example, if you borrowed the conforming loan amount of $510,400 (again, here in the SF Bay Area, as that limit changes from county to county). The difference in principal and interest payment between 2.99% and 3.25% is …$71 per month. Don’t misunderstand me, saving money on your home mortgage is important but if your rate is in the high 3s or low 4s, getting a mortgage 3.25% could save you between $175 and $225 per month. NOW THAT’S WORTH FOCUSING ON!

Everyone’s situation is different, and the calculations above are only illustrations and for discussion purposes only. They’re simply designed to get you thinking about your home finance.

Need to get pre-approved for a purchase? Looking to refinance to a lower rate and to tap into your home equity for any reason? Give me a call so we can discuss your specific situation. I’m happy to run some scenarios for you so you can see for yourself where you’ll save. When you call, we can talk about why it’s unlikely you’ll hang on to your loan for the full term and why that’s important in your decision making process.

Week of July 13th, 2020 in Review

The pandemic’s impact on unemployment continues, as another 1.3 million people filed for unemployment benefits for the first time during the week ending July 11. While continuing claims did improve significantly from the previous week, the headline numbers may not be telling the whole story, as highlighted below.   

Over in the housing sector, confidence among builders was on the rise in July, per the National Association of Home Builders Housing Market Index, which increased 14 points to 72. Housing Starts and Building Permits also improved from May to June, with significant increases in both for single family homes.  

June’s Consumer Price Index showed that consumer inflation rose after three previous months of declines, but the overall trend is that inflation remains tame. Meanwhile, Retail Sales came in stronger than expected last month while May’s figure was also revised higher.

There was also some good news from the manufacturing sector, as July’s Empire State Index showed that manufacturing activity in the New York region rose from essentially flat to 17.2. This is a big improvement from the -48 reading just two months ago. Meanwhile, the Philadelphia Fed Index showed a modest slowdown for manufacturing in that region in July, after a large expansion in June. However, July’s reading was higher than expected.

Lastly, there was also some positive news from the National Federation of Independent Business, as their small business optimism index for June increased to the best level since February. The NFIB chief economist, Bill Dunkelberg, said “Small businesses are navigating the various federal and state policies in order to reopen their business and they are doing their best to adjust their business decisions accordingly. We’re starting to see positive signs of increased consumer spending, but there is still much work to be done to get back to pre-crisis levels.”

Digging Deeper Into Unemployment Figures

Another 1.3 million people filed for unemployment benefits for the first time during the week ending July 11, coming in slightly higher than expectations of 1.288 million new claims. Pennsylvania (+209K), California (+127K) and Illinois (+57K) reported the largest gains. Continuing claims, which measure people continuing to receive benefits, improved significantly from 18.06 million to 17.338 million.

But … are things really improving?

There are also PUA or Pandemic Unemployment Assistance Claims that are not captured in the headline figure, and those totaled 928,000 in the latest week. Continuing PUA Claims are now above 15 million, which is significant!

This makes the total number of people receiving some type of benefit around 32 million, meaning it’s possible that the unemployment rate is really over 20%. Because of this, unfortunately, it doesn’t appear that the situation is improving in any meaningful way when we look at the amount of people who are receiving benefits.

Home Builders Feeling Optimistic

The NAHB Housing Market Index, which is a real time gauge of builder confidence, increased 14 points, rising from 58 in June to 72 in July. All three components of the index increased, with current sales rising 16 points to 79 and sales expectations up 7 points to 75. It was especially encouraging to see buyer traffic jump 15 points to 58, moving from contraction territory (below 50) to expansion (above 50).

Housing Starts, which measure the start of construction on new homes, rose 17.3% in June. This was in line with estimates and a nice move higher. Housing Starts are now down only 4% on an annual basis, which is significantly improved from down 23% in the

previous report. The gain was pretty much all in starts on single-family homes, which were up 17.2%.

Building Permits also saw an improvement from May to June, up 2.1%, though they are down 2.5% when compared to June of last year. Permits for single family homes also saw a big jump in June, up 11.8% from May.

The Latest on Consumer Inflation and Retail Sales

The Consumer Price Index (CPI), which measures inflation on the consumer level, came in at 0.6% in the month of June. While this increase ended three months of declines, the overall trend is that inflation remains tame. Of note, gasoline prices rose 12.3% in June, which was a big reason for the overall gain in inflation. The year-over-year reading increased from 0.1% to 0.6%.

Core CPI, which strips out food and energy prices, increased by 0.2% from May to June, while the annual reading remained stable at 1.2%. Within the reports, rents are rising 3.2% across the US, which is down from 3.5%.

There was some good news for retailers as sales increased by 7.5% in June, better than the expected 5.2% gain, while May’s sales figure was revised higher by 0.5% to 18.2%. Sales at clothing and accessory stores shut up a whopping 105.1% in June, while sales at electronics and appliance stores, and furniture and home furnishing stores also saw nice gains. 

What to Look for This Week

The second half of the week heats up with key housing reports. First up, the Federal Housing Finance Agency’s House Price Index for May and June’s Existing Home Sales will be released on Wednesday, followed by June’s New Home Sales on Friday. And as usual, weekly Initial and Continuing Jobless Claims will be important to monitor when the latest figures are reported on Thursday.

Technical Picture

The Fed’s ongoing purchases of Mortgage Backed Securities remain a stabilizing force in the markets. Mortgage Bonds continue to trade in the middle of the range between support at the 25-day Moving Average and overhead resistance at 103.219. This is a wide range, which means there can be significant price fluctuations as we have seen over the past week. However, there is also a rising trend line that Bonds are attempting to remain above, which should provide some near support.

The Fed’s ongoing purchases of Mortgage Backed Securities remain a stabilizing force in the markets. Mortgage Bonds continue to trade in the middle of the range between support at the 25-day Moving Average and overhead resistance at 103.219. This is a wide range, which means there can be significant price fluctuations as we have seen over the past week. However, there is also a rising trend line that Bonds are attempting to remain above, which should provide some near support.

Weekly Update – 6/25/2020

After the Great Recession, it took more than ten years for purchase demand to rebound to pre-recession levels, but in this crisis, it took less than ten weeks. The rebound in purchase demand partly reflects deferred sales as well as continued interest from prospective buyers looking to take advantage of the low mortgage rate environment.

A Word on Forbearance

Black Knight Financial Services, a data and analytics solutions firm serving the mortgage and title insurance industries, announced that forbearance requests are up 79,000 from last week. This erases roughly half of the improvement seen since the peak of these requests about three weeks ago and have been increasing every day for the past five business days. Currently, 4.68 million homeowners are in forbearance, representing approximately 8.8% of all active mortgages.

As a reminder, forbearance does not equal forgiveness. If you believe that you need forbearance, please contact your mortgage servicer (the name on your mortgage statement) and have a frank and honest discussion with them. Some folks believe that they’ll just tack on the missed payments to the end of the loan. Maybe. Be sure you understand what you are obligating yourself to before you decide. In some instances, the mortgage servicer or holder of your note will expect to be paid in full when you are ready to come out of forbearance. That could mean three months (or more), plus your current month’s payment, which could be several thousand dollars. And if you are thinking that you’ll just refinance into another loan, most lenders require 12 on time payments. If you’ve been in forbearance, your payments were not made on time. This might make refinancing difficult, if not impossible. Forbearance is an incredibly powerful tool and for those that truly need it, it can be a lifesaver. Just be sure you have something in writing and you are clear about your obligations before you choose this option.

Unemployment Claims on the Uptick

More people filed for unemployment than expected during the week ending June 20, with first-time filers totaling another 1.48 million people. This was higher than estimates and still reflects an estimated 16% unemployment rate.

The housing sector was also in the news, with sales of existing homes declining slightly more than expected from April to May. New Home Sales, meanwhile, increased 16.6% in May, though April’s figure was revised lower. There is an easy explanation for the difference between the two reports, as detailed below.

Inventory remains tight for both new and existing homes, which should be supportive of home prices.

Speaking of home prices, the FHFA (Federal Housing Finance Agency) released their House Price Index, which measures home price appreciation on single-family homes with conforming loan amounts. Home prices rose 0.2% in April and 5.5% year over year, down from 5.9% in the previous report.

Lastly, the final reading for first quarter GDP came in at the third worst reading ever, with second quarter’s reading expected to be much worse. There was some positive news, though, as orders for Durable Goods (which reflects new orders placed with domestic manufacturers for delivery of factory hard goods) were up 15.8% in May, which was much stronger than the 0.0% expected and also higher than the prior month’s -17.2% reading. And the Fed’s favorite inflation measure, Personal Consumption Expenditures, showed that inflation remained tame in May.

The Latest on Unemployment 

Another 1.48 million people filed for unemployment benefits for the first time during the week ending June 20, which was 100,000 more people than anticipated. California (+287K), Georgia (+124K) and New York (+90K) saw the largest gains.

Continuing claims, which measure people continuing to receive benefits, decreased by only 77,000 to 19.5 million people. This figure is backwards looking, so when we add the following two weeks of initial claims, there are roughly 22.5 million individuals receiving benefits. Note that this does not include anyone who returned to work within the last week.

If we factor in a similar number of people who returned to work from the previous week’s report, we estimate the unemployment rate to be around 16%. Although there has been a slight improvement in weekly claims, 1.48 million is still a huge number of people who have lost their jobs and are new filers for benefits.

The Skinny on May Home Sales

Existing Home Sales decreased by 9.7% from April to May, slightly worse than the 8.8% decline that was expected. Sales were also 26.6% lower when compared to May of last year.

Inventory remained tight with only 1.55 million units for sale in May. While this was 18.8% lower year over year, the number was 6.2% above the levels seen in April. At the current pace of sales, this represents a 4.8-month supply, below the 6-month level that’s considered normal. Low inventory should be supportive of prices, especially with demand remaining strong as evidenced by purchase application volume.

The median home price was reported at $284,600, up 2.3% year over year. Single family sales were down 9.4% from April to May. Condos, however, saw a much bigger drop of 12.8% and a whopping 41% decline from a year ago, confirming that people are looking for standalone homes. First time home buyers made up 34% of home sales.

Lawrence Yun, NAR’s chief economist, explained, “Sales completed in May reflect contract signings in March and April – during the strictest times of the pandemic lock down and hence the cyclical low point. Home sales will surely rise in the upcoming months with the economy reopening and could even surpass one-year-ago figures in the second half of the year.”

Meanwhile, sales of new homes rose 16.6% in May, much higher than the 1.6% increase that was expected. Sales were also up 12.7% when compared to May of last year. It should be noted that April’s sales figure was revised lower from 623,000 to 580,000, but even without the revision sales in May were up 8.5%.

Inventory of new homes on the market also remains tight, decreasing from 325,000 to 318,000, while the median new home price increased 4.9% to $317,900.

You may be wondering why sales of existing homes were down significantly while sales of new homes had a nice rebound. The answer is partly due to what each report is measuring. As noted above, May’s Existing Home Sales report measured closings in May, meaning those buyers were home shopping in March and April – the worst time for the pandemic. 

May’s New Home Sales report, on the other hand, measures contracts that were signed in May by people out shopping for homes throughout that month. The increase in states opening in May plus the high demand for housing helps explain the difference between the two reports.

The Scoop on GDP

The final or third look at first quarter GDP was reported at -5%, which was unchanged from the second reading and the third worst reading ever. Remember this is for the first quarter. The second quarter of 2020 will likely be much worse, with economists forecasting a much bigger GDP drop of around 30%.

Meanwhile, the International Monetary Fund projected global growth to be -4.9% in

2020, which is a drop of 2% from their previous forecast in April. Though the IMF projects a rebound of 5.4% in 2021, that will not recoup the loss that’s expected in 2020 because the recovery will be starting from a lower level.

The IMF said that $10.7 trillion in fiscal measures have been announced worldwide to fight the pandemic. As a result, global public debt is expected to reach an all-time high, exceeding 101% of GDP in 2020-21. That’s 19 percentage points above a year ago. This increase in global debt slows down the velocity of money and has a downward pressure on rates.

A Quick Update on Inflation

Personal Consumption Expenditures, the Fed’s favored measure of inflation, showed that inflation remains tame, as headline inflation increased 0.1% in May and fell from 0.6% to 0.5% year over year. The Core rate, which strips out volatile food and energy prices, also increased 0.1% in May and remained at 1.0% year over year.

Also of note, personal incomes fell 4.2% in May. Spending, meanwhile, increased by 8.2%, which was likely due to more states opening and the availability of places for people to spend money.

What to Look for This Week

The holiday-shortened week is jam packed with a wide range of reports. Housing news kicks off the week with May’s Pending Home Sales on Monday and the Case-Shiller Home Price Index for April on Tuesday. We’ll also get a read on June manufacturing numbers via the Chicago PMI on Tuesday and the ISM Index on Wednesday.

It’s also a busy week for the labor sector, as the ADP Employment numbers for June will be released Wednesday, while the latest weekly Initial Jobless Claims will be reported as usual on Thursday. The Bureau of Labor Statistics Jobs Report for June will also be delivered Thursday instead of its usual Friday release, as all markets will be closed on Friday in observance of the Independence Day holiday.

Technical Picture

The Fed continues to stabilize the markets with their ongoing purchases of Mortgage Backed Securities. After trading in a tight range between support at their 25-day Moving Average and resistance at their 50-day Moving Average, Mortgage Bonds were finally able to break free and move convincingly above their 50-day. Meanwhile, the 10-year Treasury broke beneath its 50-day Moving Average, with additional room to improve

While the rebound in the economy is uneven, one segment that is exhibiting strength is the housing market. Purchase demand activity is up over twenty percent from a year ago, the highest since January 2009. Mortgage rates have hit another record low due to declining inflationary pressures, putting many homebuyers in the buying mood. However, it will be difficult to sustain the momentum in demand as unsold inventory was at near record lows coming into the pandemic and it has only dropped since then.

Week of June 15th, 2020 in Review

The number of people filing for unemployment for the first time remains in the millions, with another 1.5 million individuals filing claims during the week ending June 13. While this was a decline from the previous week’s initial jobless claims, the figure did exceed estimates, and points to an estimated staggering 16% unemployment rate currently.

The housing sector saw some positive news, however, as the NAHB Housing Market Index confirmed that confidence among home builders has been on the rise in June. All three components of the index, including current sales conditions, future expectations and prospective buyer traffic saw improvement when compared to the readings in May.

Meanwhile, Housing Starts were up 4.3% in May, though this was much less than the 22% expected. Building Permits, on the other hand, were 14% higher, beating estimates of a 10% gain. Low home loan rates have helped the demand for housing, and the high number of building permits could lead to stronger readings in Housing Starts this summer. However, there is an important caveat to keep in mind, as noted below.

Retail Sales were also on the rebound in May, while manufacturing in both the New York and Philadelphia regions have seen big improvements in June. The Cass Freight Index, which measures freight activity, also showed some improvement in May. However, the uptick was less than anticipated due in part to the reopening schedule unfolding slower than anticipated. Cass Freight forecasts a return to 2019 freight activity levels in 2021.

Lastly, the Fed was in the news again, announcing that they would be buying corporate bonds on top of the exchange-traded funds they are already buying. The Fed will begin buying a broad and diversified portfolio of corporate bonds to support market liquidity and the availability of credit for large employers. The program will allow for the purchase of up to $750 billion worth of corporate credit with maturities of 5 years or less.

Fed Chair Jerome Powell testified on Capitol Hill that the program fulfills a pledge the Fed made previously, and he noted that the program is not an effort to take over the market. He reiterated that the Fed will adjust their bond buying based on market conditions.

Unemployment Figures Still Staggering

Another 1.5 million people filed for unemployment benefits for the first time during the week ending June 13. Though this was a decline from the previous week, the number of claims filed was 300,000 higher than estimates. California (+243K), Georgia (+131K) and New York (+96K) saw the biggest gains.

Continuing claims, which measure people who continue to receive benefits, decreased by only 62,000 to 20.5 million. This figure is backwards looking, so when we add the following two weeks of initial claims, there are roughly 23.5 million people receiving benefits.

In addition, when we factor in the amount of new and continuing claims and the number of people in the labor force, we estimate that the unemployment rate is currently 16%. And when we try to estimate how many new jobs the Paycheck Protection Program has temporarily created; we think that the unemployment rate could be closer to 19% without it.

Builder Confidence Rebounds in June

Builder confidence has been on the rebound in June, per the NAHB Housing Market Index. This real-time read on builder confidence increased by the largest one-month increase ever, rising 21 points from 37 in May to 58 in June (after plunging all the way to 30 in April).

There was improvement from May to June in all three components of the survey. Current sales conditions jumped 21 points to 63, future expectations were up by 22 points to 68 and prospective buyer traffic almost doubled from 22 to 43. Keep in mind that 50 is the baseline, with readings above 50 signaling expansion and below 50 contraction. So, while this was a good rebound, it’s still well below the numbers we were seeing just a few months ago before the pandemic, which were in the high 70’s. And prospective buyer traffic is still below the baseline reading and in contraction.

The NAHB noted the urban to suburban move being made by many, saying, “Builders report increasing demand for families seeking single family homes in inner and outer suburbs that feature lower density neighborhoods.”

The limited inventory of existing homes certainly helps the demand for new homes, as does low home loan rates. But there is a caveat, as the NAHB explained, “Elevated unemployment and the risk of new, local virus outbreaks remain a risk to the housing market.”

Construction Off to Slower “Start” Than Expected

Housing Starts were up only 4.3% in May, which was much less than the 22%

expected. They were also down 23% when compared to May of last year. Starts for single family homes were flat and saw no gain.

Building Permits, on the other hand, shot up 14%, which was better than the 10% increase expected (though they are still down 9% when compared to last May). Permits for single family homes were up 12%.

Many people thought Housing Starts would rebound sooner, but builders were not purchasing land because they thought that demand for housing would return more slowly. In addition, available labor and material costs were an issue. But with Building Permits on the rise, Housing Starts may really rebound in June and moving forward. Again, as noted above, low home loan rates will help with demand, but continued high unemployment and potential future outbreaks of the virus will also be a limiting factor.

Retail Sales and Manufacturing on the Upswing

Retail Sales in May were up 17.7% after falling 14.7% in April – more than double the expected 8% gain. Clothing and accessories stores reported a whopping 188% gain, while furniture stores (+89.7%) and sporting goods, hobby, musical instruments and bookstores (+88.2%) also saw big improvements. We will see how these figures continue to change and hopefully improve as states continue to reopen.  

Manufacturing in the New York region also saw a big improvement, as the Empire State Index rose from -48.5 to flat in June. The Philadelphia Fed Index was another positive sign for manufacturing in that region, with June’s reading reported at 27.5, greatly exceeding expectations of -22.7. 

Family Hack of the Week

Summer vacation plans have changed for many people this year, especially trips that involved long flights. If you’re considering a road or day trip, our friends at Real Simple offer these tips to help your family travel safely.

Before heading out, check for local, state and regional updates, as states and localities are in different phases of re-opening. Be prepared as well in case things change during longer trips.

Pack a kit for all members of your family, including gloves, hand sanitizer and masks (which are required in some places). Also, bring plenty of drinks, snacks and meals to limit any unnecessary stops. Experts recommend wearing gloves when pumping gas and throwing them away as soon as you’re done.

Choose outdoor activities and restaurants with outdoor seating, as they are great and safer options for your family to spend time together and also enjoy the summer weather.

If you’ll be staying overnight somewhere, don’t be shy about using antibacterial wipes on high-traffic surfaces like light switches, door handles, bathroom sinks and remote controls. And once you get home, disinfect anything you brought with you, including suitcase, coolers, backpacks and purses.

These tips will help your family enjoy outings safely this summer! 

What to Look for This Week

More housing news is on the way, as we’ll get the scoop on May’s Existing Home Sales on Monday and New Home Sales on Tuesday. The FHFA Home Price Index for April follows on Wednesday.

The end of the week is equally busy, with the revised reading for first quarter GDP, May Durable Goods Orders and the latest weekly Initial Jobless Claims all being reported Thursday. Friday brings the Fed’s favorite inflation reading, Personal Consumption Expenditures, along with Personal Income and Spending for May and Consumer Sentiment for June.

Technical Picture

The Fed continues to stabilize the markets with their ongoing purchases of Mortgage Backed Securities. Mortgage Bonds spent much of last week trading in a tight range between support at their 25-day moving average and resistance at their 50-day moving average. While the 50-day has proved to be a tough ceiling for Bonds to break above, this narrow range means a breakout one way or the other is coming.