Mortgage Rates Drop to Lowest in History
For the first time in its history, Freddie Mac is showing an average 30-year fixed-rate mortgage below 3%. This week the average came in at an incredibly low 2.98%. According to the Mortgage Bankers Association, total mortgage application volume went up 5.1% week-over-week, with refinances seeing a 12% jump. According to the MBA, refinances are up 107% annually.
Purchase activity, although down weekly according to the MBA’s survey, has bounced back big time. Fannie Mae’s latest forecast notes, “We had expected a rebound in purchase activity to occur in May and June as shutdown measures began to be relaxed, but the magnitude to date has been remarkably strong. It is likely that many homebuyers who would have purchased a home in March or April have instead done so in more recent months. Additionally, some purchases may have been pulled forward due to low mortgage rates and continued social distancing measures leading to some households reassessing their current living arrangements.”
Delinquencies at a 21 Year High
Because of these factors, Fannie Mae revised up its forecast for Q2 existing home sales to 4.3 million annualized units from 4.1 million. The group also increased its forecast for Q3 sales to 5.4 million annualized units from 4.9 million.
However, the fallout from the pandemic is still building in the housing industry. CoreLogic’s latest report on delinquencies gives us an idea of how the next few months will play out. In April of this year, Americans had a 6.1% mortgage delinquency rate. That’s the highest its been since 2016. When you break it down to a 30-59 day delinquency rate, we see the highest percentage in 21 years at 4.2%. Mortgages that are past due by 60-89 days also went up by 0.1% annually. Remember, according to CoreLogic’s report, in March of this year we had just hit record lows for foreclosures and were in the middle of a 4-year decline in delinquencies.
President and CEO of CoreLogic, Frank Martell, summed up the report, saying, “As the true impact of the economic shutdown during the second quarter of 2020 becomes clearer, we can expect to see a rise in delinquencies in the next 12-18 months – especially as forbearance periods under the CARES Act come to a close.”
Jobless Claims are Over 1 Million+ for the Fourth Straight Month
Another round of disappointing jobs data killed a five-day winning streak for the Dow Jones. For the 16th straight week, initial unemployment claims came in above 1 million. This week’s total, according to the Labor Department, shows 1.3 million Americans filing initial claims. Continuing claims totaled 17.33 million for the week of July 4.
The Dow dropped 200 points on the news of jobless claims, with the S&P 500 losing 0.8% and the Nasdaq slipping 1.1%. The slide may have been worse but was bolstered by better-than-expected retail data. The Commerce Department’s report shows a 7.5% jump in retail sales, against expectations for a more modest 5% increase. This comes on the heels of May’s impressive 18.2% increase, due mainly to many businesses reopening during the pandemic. However, as with CPI, it’s likely we will see the numbers decrease in July’s report due to a resurgence of the virus and lockdowns being reinforced in many cities.
June was a good month for businesses with many reopening amid the pandemic. It’s likely we will see these numbers change when we see July’s report, but for June, consumer prices went up for the first time in three months. According to the Labor Department, the consumer price index increased by 0.6% month-over-month in June. That’s the largest monthly increase since August 2012. An increase in the prices of gasoline and food helped push the CPI upward. When you look at the core CPI, which excludes the volatile food and energy costs, you see a monthly increase of 0.2%. The core CPI had also dropped for three consecutive months for the first time since 1957.
June was not so kind to the federal government. On Monday, the Treasury Department reported that the monthly deficit hit $864 billion, a new record. The previous record was April 2020 with a monthly budget deficit of $738 billion. The deficit is due in large part to the trillions of dollars being spent on financial aid as we navigate the myriad effects of the pandemic. Right now, the U.S. is projected to hit a deficit of $3.7 trillion for the year. The previous deficit high was $1.4 trillion in 2009 as the U.S. climbed out of the Great Recession.
One silver lining came from Dallas Fed President Robert Kaplan. Kaplan predicts that we will see a 4.5%-5% contraction in our economy this year. But, Kaplan also said, “In ’21, we will see an above-trend growth, and we will continue to grind down the unemployment rate. I still believe if we follow these protocols, we would see a rebound from the deep hole we dug in the second quarter.” The protocols he’s referring to include wearing masks in public places. Kaplan went on to say, “The question is when you get to a normalized economy, and it’s going to depend on the path of the virus and how well we manage it, and the timing of the vaccine. I’m optimistic we will work our way through this. But it would be a lot less costly if we did a good job managing the virus.”
It is interesting to note that as we see an increase in cases of the virus, Treasury note yields fall. With the increase in cases this week, the yield on the 10-year Treasury note fell to 0.6037% Friday morning with the 30-year note also slipping to 1.2975%.
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