Market volatility spurred by Congress, housing demand stays strong

The continued back and forth in Washington has pushed the stock market into continued volatility this week. President Trump's comments on Wednesday that legislators were “starting to have some very productive talks” about a new federal economic support plan spurred Wall Street to its best finish since July. The Dow closed up 500 points, or 1.9%, in hopes of a solution for the millions of Americans who are still unemployed due to the pandemic. That hope was short lived as House Speaker Nancy Pelosi said Thursday that there would be no standalone support for airlines, rather it would have to come in the form of a comprehensive stimulus plan. 

The Dow immediately dropped its 150 point gain and turned negative after Pelosi's press conference. Both the S&P 500 and Nasdaq lost their gains but remained up by 0.4% and 0.3%, respectively. 

Markets were poised to open slightly higher on Friday morning as investors digested conversations between Treasury Secretary Steven Mnuchin and Pelosi late Thursday that left the door open to a deal of some kind.

While the battle continues on Capitol Hill, the housing industry is forging ahead. The strong demand paired with increasingly low inventory has pushed prices much higher across the country. Home prices increased by 5.9% annually (Aug. 2019-Aug. 2020) and nearly 1% from July to August of this year, according to the latest CoreLogic Home Price Index. As homebuilding activity increases, providing a spike in inventory, the HPI forecast predicts that prices will start to slow and decrease in early 2021.

Interest rates continue to remain favorable for those looking to purchase or refinance. The 30-year fixed-rate mortgage average for Freddie Mac came in at 2.87% this week. Analysts at Freddie Mac 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.”

The weekly Mortgage Bankers Association survey shows refinance and purchase applications are up 50% and 21% from one year ago. Joel Kan, the MBA's Associate Vice President of Economic and Industry Forecasting, added, “The average loan size increased again to a new record at $371,500, as activity in the higher loan size categories continues to lead growth.” Kan went on to say, “There are signs that demand is waning at the entry-level portion of the market because of supply and affordability hurdles, as well as the adverse economic impact the pandemic is having on hourly workers and low-and moderate-income households. As a result, the lower price tiers are seeing slower growth, which is contributing to the rising trend in average loan balances.”

Of Note:

• • The latest jobs report from the Labor Department shows 840,000 people filed initial unemployment claims in the last week. 
  • Unemployment claims have not come in below 800,000 since March 2020.
  • Continuing claims remain above 10 million with at least 25 million Americans receiving some sort of unemployment benefits. 
  • 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. 
  • "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."