Wall Street Holds Out Hope for Stimulus
Wall Street was on the rise this week, banking on progress in a new round of stimulus talks in Washington D.C. President Trump said Thursday morning that legislators were “starting to have some very productive talks” about a new federal economic support plan to help the millions of Americans who are still unemployed. Trump’s comments on Wednesday about pushing through a new round of aid for airlines gave the markets a jolt resulting in a strong market rally with the Dow closing up 500 points, or 1.9%, pushing it to its best day since July. Right now investors are gaining confidence that no matter who wins the election, there will be some sort of federal fiscal stimulus in the coming months.
The hope helped Wall Street see more gains in Thursday trading, with airlines seeing the largest increase. That is until House Speaker Nancy Pelosi said in a press conference there would be no increased aid for airlines unless it was attached to a larger stimulus package. The Dow immediately dropped its 150 point gain and turned negative after Pelosi’s press conference. The market recovered at the end of trading as the Dow, Nasdaq and S&P closed higher at 0.43%, 0.5% and 0.8%, respectively.
Equity futures were on the rise in early Friday morning trading. Meanwhile treasuries have increased over the week with the 10 Year Treasury note trading at .78%. The yield curve continues to steepen with the 2 year/10 year Treasury yields spread of .62% as markets are starting to price in some successful fiscal aid measures.
Any sort of stimulus would be of relief for the millions of Americans who still find themselves unemployed due to the coronavirus pandemic. The latest jobs report from the Labor Department shows that 840,000 people filed initial unemployment claims last week, which was higher than the 820,000 estimate. Unemployment claims have not fallen below 800,000 since March. Continuing claims are continuing to decrease but still remain above 10 million. What’s more, there are still more than 25 million Americans claiming some sort of unemployment benefits.
Meanwhile, Federal Reserve Chair Jerome Powell continues to strongly voice the need for more Congressional financial aid in order to keep the economy on the right track for growth. Powell says that if Congress takes its foot off the gas now, it would “lead to a weak recovery, creating unnecessary hardship for households and businesses.” Powell added that the risk of overdoing it seems to be much smaller, for now. “Even if policy actions ultimately prove to be greater than needed, they will not go to waste,” Powell said in his remarks to the National Association for Business Economics. “The recovery will be stronger and move faster if monetary policy and fiscal policy continue to work side by side to provide support to the economy until it is clearly out of the woods.”
Update on Oil
OPEC released its annual World Oil Outlook this week outlining the groups medium- and long-term forecasts for the global economy, oil and energy demands. Long-term for OPEC means predicting production and demand out to 2045. While outlining an expected worldwide increase in demand of 10 million barrels per day, the report also shows a downward revision of about 1 million barrels per day compared to the previous forecast out to 2040.
COVID-19 has presented the oil industry with “an existential threat” as lockdowns and fear of contracting the disease has ground travel to a halt. The worry is that the changes in behavior now will carry over to the long-term travel habits thus the long-term demands for oil and gas production. The report also outlined an expected increase in solar energy demand by at least 6.6% per year on average through 2045.
Home Prices Rise, Forbearance Falls
Home prices are at their highest level of growth since June 2018. According to the latest CoreLogic Home Price Index, home prices increased by 5.9% annually (Aug. 2019-Aug. 2020) and nearly 1% from July to August of this year. However, the CEO of CoreLogic, Frank Martell, and his team don’t expect home price growth to continue at this pace through early 2021. Right now we are in a period where demand is high and inventory is excruciatingly low, leading to the rapid rise in home prices. As homebuilding activity increases, providing a spike in inventory, the HPI forecast predicts that prices will start to slow and decrease in early 2021.
The data also shows that not all housing markets are experiencing the same growth. For areas the hardest hit by lack of tourism due to the pandemic, like Las Vegas, home prices are expected to decline by 6.5% in August of next year.
As we’ve mentioned in previous weeks, the main thing helping the housing market push back against surging home prices are low interest rates. Once again, the Freddie Mac 30-year fixed-rate mortgage average came in below 3%, sitting at 2.87% this week. Freddie’s analysts seem to feel this could be the bottom as rates have flatlined over the last month. The analysts note that demand is “particularly strong in more affordable regions of the country such as the Midwest, where home prices are accelerating at the highest rates over the last two decades.”
On the flipside of the increase in demand are the issues of forbearance and mortgage delinquencies. The latest data from the Mortgage Bankers Association shows that the forbearance rate fell to 6.8% in September; its lowest rate since mid-April. That rate is still significantly higher than any pre-pandemic forbearance rate. Loans backed by Fannie Mae and Freddie Mac pulled down the overall rate as the forbearance rate for loans backed by Ginnie Mae actually went up to 9.16%.
A statistic that is also concerning is the number of homeowners who are going into a “needless mortgage delinquency.” The Urban Institute reported this week that around 400,000 mortgage borrowers neglected to file for forbearance and have become “needlessly delinquent” on their payments. The report states, “These borrowers may not know they are eligible for forbearance or do know but wrongly fear having to make ‘double payments’ when the forbearance period ends.”
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