Housing booming as Wall Street amps up volatility
In a word, housing is booming. Data released this week shows sales of newly-built homes at a 14-year high. The Census Bureau's August report shows an eye-popping 43% year-over-year increase in the sale of newly-built homes. Recently, the National Association of Realtors reported that sales of existing homes also increased in August. It is interesting to note that the median sales price for newly-built homes and existing homes are $312,800 and $310,600, respectively.
So where's the catch? Inventory. The Census Bureau's data shows that the supply of new homes is down to 3.3 months. That means that if we stayed at the current level of supply, we would run out of new homes to sell in 3.3 months. For existing homes, the NAR shows the supply at three months. That lack of supply, and increasing demand, have helped home prices accelerate at a faster pace.
Interest rates, although ticking up slightly, are still at incredibly low levels and continue to give buyers more buying power. This week's 30-year fixed-rate mortgage average went up slightly to 2.9%, according to Freddie Mac. Because rates are still extremely low, refinances are also coming in droves. Joel Kan, Associate Vice President of Economic and Industry Forecasting at the Mortgage Bankers' Association, 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, “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.”
Meanwhile, uncertainty continues to reign on Wall Street as markets head for their fourth straight week of losses. The tech drop carried through this week with Facebook, Apple and Tesla taking the brunt of the losses. The 10-year Treasury note yield was trading lower at 0.659% in Friday morning's session.
Unemployment claims came in worse than expected this week. According to the Bureau of Labor Statistics, 870,000 Americans filed initial unemployment claims with continuing claims dropping to 12.58 million. The $600 unemployment insurance bonus stipend, along with the $300 FEMA-backed stipend in some states, have both expired. Some economists feel that this is partly incentivizing people to go back to work. However, economists also feel that people are struggling to find work because the businesses which cater to their skill sets are still closed or working with a limited capacity of employees.
There is very slim hope of another stimulus package before the Nov. 3 Presidential election as House Democrats introduced a $2.4 trillion aid bill this week. This bill would reinstate unemployment insurance, give another round of stipend checks to Americans and contain provisions for more small business loans. Federal Reserve Chair Jerome Powell has been adamant throughout the pandemic that federal financial aid is what the country needs in order to move forward.
Testifying before Congress this week, Powell said, “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 stressed his stance that the central bank has lending power, not the crucial spending power that Congress can give to the American people.
Investors are expecting that any further fiscal stimulus will not come until at least after the Nov. 3 election and, more likely, not until 2021.
