Friday Wrap: Wall Street and Housing Impervious to Pandemic

Pandemic Sets New Records

The United States continues to set daily records for COVID-19 cases. The Ivy League announced this week that it would cancel all fall sports for 2020. Companies like Bed Bath and Beyond are planning to shutter hundreds of stores due to lost revenue as part of the pandemic fallout. And yet, this week, Wall Street still hit records.

Wall Street Rallies

On Wednesday, the Nasdaq hit a 25th record close for this year. Rallies by Apple, Amazon and Nvidia drove the Nasdaq to close at a record-high 10,492.50. Both the Dow Jones and S&P 500 also closed up on Wednesday ahead of the unemployment data.

The Dow and S&P fell Thursday as the Nasdaq continued its meteoric rise to yet another record high. Dow futures were down Friday morning with the 10-year Treasury note yield trading at 0.574%.

Mixed Employment Picture

For the 16th straight week, data from the Labor Department shows that more than 1 million Americans filed initial unemployment claims (1.314 million). Continuing claims, those made for at least two straight weeks, clocked in at 18.06 million. That’s a drop of nearly 700,000, which means people are getting back into the workforce. But is the rate of re-employment enough to make up the ground lost since March?

This week, the Bureau of Labor Statistics released its Job Openings and Labor Turnover Survey (JOLTS) report for May. It showed a record number of people were hired, with 6.49 million hires against 4.15 million separations. While that might present as a positive on the surface, there are issues as you dig deeper. For example, the report shows there are currently 5.4 million open jobs. A year ago, there were 7.3 million open jobs and a much lower rate of unemployment. That shows that companies are potentially contracting and eliminating jobs, not just making temporary changes.

It’s important to note that the portion of the CARES Act, giving those claiming unemployment due to the pandemic an extra $600 per week, is set to expire at the end of July. That money, along with the $1,200 stimulus check, was crucial for many families who suddenly found themselves furloughed or laid off. After the stimulus, consumer spending increased significantly, especially for those in the lower income brackets. Those people are the ones most affected by the coronavirus, but are also the top consumers, so they’re much more likely to put their stimulus dollars back into the economy. This is why many economists feel it is imperative to extend the coverage until there is more stability with regard to the spread of the virus.

There is another federal stimulus package called the HEROES Act, which would provide, in part, another round of stimulus checks. That Act passed the House of Representatives but stalled in the Senate. The Senate returns from its recess on July 17.

One other data point to look at this week is the producer price index from the Bureau of Labor Statistics. June’s PPI, released Friday morning, shows a 0.2% drop month-over-month with an annual drop of 0.8%. This went against economists’ expectations of a 0.4% gain month-over-month and a 0.2% annual decline. Excluding the volatile products like gas and energy, the core PPI showed a monthly increase of 0.3%, the biggest increase since January of this year.

Purchases Spike, Housing Cruises

Mortgage rates have dropped yet again. This week, the 30-year fixed-rate mortgage average from Freddie Mac went down to 3.03%. Remember, that is an average, which means there are plenty of buyers or refinancers getting rates under 3%.

Not surprisingly, the weekly index from the Mortgage Bankers Association shows purchase demand spiked by 5% week-over-week with a 33% annual increase. The unfortunate side effect for buyers is home prices are also increasing. According to Joel Kan, the MBA’s chief economist, “the average purchase loan size increased to $365,700,” as increased demand is stymied by persistent lack of inventory.

Fannie Mae’s Home Purchase Sentiment index revealed that more than 60% of Americans surveyed believe now is a good time to buy a home. The percentage who say it’s a good time to sell also increased. What’s even more interesting is the renters who were surveyed were also gung ho about purchases, according to Doug Duncan, Fannie Mae’s senior vice president and chief economist. “The share of renters who say it’s a good time to buy a home is now at its highest level in five years,” says Duncan, “suggesting favorable conditions for first-time home buying, consistent with the recent rebound in home purchase activity.”

The National Association of Realtors’ Vice President of Demographics and Behavioral Insights, Dr. Jessica Lautz, said Realtors are also seeing a new trend crop up related to who is buying. Lautz says single women are probably the largest demographic for homebuyers right now, but Realtors are starting to see roommates, not couples, who are going in on homes together to help save on costs.

Meanwhile, forbearances continue to trend downward. The MBA’s latest report shows the number of Fannie Mae and Freddie Mac loans in forbearance dropped by 9 basis points to 6.17% of total loans. Ginnie Mae loans have seen an 11 basis point decrease to 11.72% of total loans in forbearance. There is continued concern, however, that the end of the unemployment insurance stimulus in the soon-to-expire CARES Act will have a drastic effect on mortgage payments

Contributed by Greg Richardson, MAXEX Managing Director

Greg Richardson

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