Tech Volatility Drives Equities Lower as Housing Booms
This week on Wall Street was extremely choppy as a mix of tech rises and falls, paired with uncertainty about the future of the economy, resulted in continued volatility. September has not been kind to tech stocks as Facebook, Alphabet, Amazon and Netflix, along with Microsoft, have lost about 11% of their total value this month. All three major indices dropped on Wednesday with tech leading the way. Tesla dropped by more than 10% with Apple falling 20% from its peak this month.
Tech shares saw a rise on Thursday as Apple traded up 0.7%, only to end the day lower with stocks like Facebook trading 0.4% lower. The constant back and forth was only made choppier with the unknowns about COVID-19 and the pandemic response. Futures rose slightly Thursday evening only to dip again in early Friday trading with the Dow down about 136 points. If Friday ends in another loss, that will mark a fourth-straight losing week on Wall Street. The 10-year Treasury note yield was trading down Friday morning at 0.658%.
Thursday afternoon, House Democrats released a $2.4 trillion fiscal stimulus package in hopes they could reignite discussions with Republicans before the Nov. 3 election. A stimulus package is exactly what the Federal Reserve has pushed for in recent months as the country’s economy sluggishly tries to right itself. Fed Chair Jerome Powell testified before Congress this week, saying “A full recovery is likely to come only when people are confident that it is safe to reengage in a broad range of activities. The path forward will depend on keeping the virus under control, and on policy actions taken at all levels of government.”
Powell remains steadfast that the Fed will use all of the tools at its disposal to right the economy. He continued to stress that while the central bank has lending power, it does not have the crucial spending power that Congress can give to the American people.
As we approach the five week mark for the 2020 Presidential election, investors are expecting that any further fiscal stimulus will not come til at least after the Nov. 3 election and, more likely, not until 2021 if needed.
The weekly jobless claims report from the Labor Department did little to instill confidence for investors. The report shows 870,000 people filed initial jobless claims for the week. That number was slightly higher than what was expected by economists. Economists point to a mixed bag of some folks being incentivized by the lack of the $600 federal stipend, and others struggling to find work that matches their job skills while many businesses remain closed or at limited capacity. Continuing claims, meaning those occurring for two straight weeks or more, dropped to 12.58 million.
Home Sales Boom, Will There Be a Bust?
Sales for new and existing homes skyrocketed in August as incredibly low interest rates gave purchasers buying power and a lot of motivation. The Census Bureau’s report on newly built home sales was released on Thursday. It shows a 43% year-over-year increase in the sale of newly-built homes. On a monthly basis, newly built home sales increased by 4.3%. The seasonally adjusted, annual rate of more than 1 million newly built homes sales is a 14-year high.
Meanwhile, existing homes also saw an increase in sales in August. The National Association of Realtors data shows that existing home sales saw an increase for the third straight month, improving by 2.4% monthly in August. On an annual basis, existing home sales are up 10%. When you break it down and just look at single-family homes, sales are up 11% annually and 1.7% monthly.
The issue with both of these reports is the continued dearth of inventory. Right now, the supply for newly built homes and existing homes is 3.3 months and 3 months, respectively. Existing homes inventory is down almost 20% annually.
That clear demand mixed with a dwindling supply has pushed home prices higher on existing homes. The NAR’s report shows that the median price for an existing home across all four regions increased by 11.4% annually to $310,600. Meanwhile the median price for a newly built home was $312,800.
Interest rates are expected to stay at or below 3% for quite some time as the economy slowly builds itself back up out of the pandemic fallout. This week’s average for a 30-year fixed-rate mortgage was 2.9%, according to Freddie Mac.
The Mortgage Bankers’ Association Associate Vice President of Economic and Industry Forecasting, Joel Kan, says “Mortgage applications activity remained strong last week, even as the 30-year fixed-rate mortgage and 15-year fixed-rate mortgage increased to their highest levels since late August. Purchase applications were up over 25 percent from a year ago, and the demand for higher-balance loans pushed the average purchase loan size to another record high. The strong interest in homebuying observed this summer has carried over to the fall.” He continued on, saying “Despite the uptick in rates, refinance applications increased around 9 percent and were almost 86 percent higher than last year. Both conventional and government refinance activity, and in particular FHA refinances, picked up last week.”
Contributed by Greg Richardson, MAXEX Managing Director
Greg Richardson is Managing Director at MAXEX, LLC, based in Atlanta, GA. He has 30 years of experience in capital markets, including trading, banking asset and portfolio management, mortgage banking secondary marketing and accounting. MAXEX is the only platform in the mortgage industry to offer a centralized clearinghouse that enables buyers and sellers to trade anonymously with multiple counterparties using a single standardized