Federal Reserve Pumps The Brakes – Market Update

GDP Strong in 4th Quarter – Market Update - Quicken Loans Zing Blog

As with everything right now, it seems like it’s all about the ups and downs. On the bright side (fingers crossed), there could be some big news by the end of the day on getting baseball going and a little bit of summer normalcy. On the other hand, the unemployment rate is still high and the Federal Reserve says we’ve got a ways to go yet.

I hope everyone had a good weekend. Let’s get to it!

Headline News

Some of the economic analysis used in this report was provided by Econoday.1 Let’s run through it!

MBA Mortgage Applications

Mortgage applications were up 9.3% overall with a strong increase in refinance applications, which was up 11%. Meanwhile, applications to purchase homes were up 5% for the week and have now gone up 13% compared to the same time a year ago.

In this survey, the average rate for a 30-year conventional fixed mortgage was up a single basis point to 3.38% last week.

Consumer Price Index (CPI)

The CPI is one measure of inflation in the economy. As we talked about in the past, it’s a good thing if prices go up a little bit because it encourages people to spend their money now which keeps the broader economy going. However, it’s not looking too great right now.

Prices on the consumer side fell 0.1% in May, and that number was matched even when food and energy were taken out, so it can’t be completely blamed on low oil prices, although energy costs were down 1.8% for the month. The price of car insurance has gone down quite a bit as well. With many companies still having the majority of their workforce work from home, people aren’t driving as often. At least in theory, this means less accidents, and insurance companies have been pricing accordingly, with the cost of auto insurance down 8.9% after falling 7.2% in April. The cost of airfare was also down 4.9%.

The cost of shelter was up 0.2% for the month. The cost of rent and homeownership were both up 0.3%, but this was slightly upset by the fact that the cost of staying away from home went down 1.5%. The cost of food is up 0.7% overall and the expenses for eating at home were up 1%, largely thought to be because people are eating out less. Also, there may be some truth to talk of a run on meat as beef prices were up 10.8%. Finally, the cost of medical care was up 0.6% for the month after being up 0.5% each of the prior 2 months.

Overall inflation was up just 0.1% since last May, and up only 1.2% in core categories (excluding food and energy).

Jobless Claims

Initial jobless claims were down 355,000, still elevated at 1.542 million last week. Meanwhile, the 4-week moving average was down 286,250 to come in at 2.002 million.

On the continuing claims side, these were down 339,000 to settle at 20.929 million. Among those who qualify for unemployment insurance, this rate was down 0.2% to 14.4% of the workforce. This number isn’t falling as fast as might be hoped. On the continuing claims side, these were down 404,750 to come in at about 22.988 million.

Producer Price Index (PPI)

Prices on the production side were a little more encouraging from an inflation perspective. They were up 0.4% on the month but are still down 0.8% overall for the year. When food and energy were taken out, prices fell 0.1%, but have gone up 0.3% since last May. Meanwhile, when further removing retail and wholesale services, prices were up 0.1% on the month, but have fallen 0.4% on the year.

Energy prices were up 4.5% in May and food prices were up 6% as the government paid 9.8% more for the food it purchased. The energy price rise was also after a couple of deep declines. Meanwhile, the trade service prices for retail and wholesale were down 0.8% in May after a couple months of moderate rises.

Consumer Sentiment

Consumers were decidedly more optimistic in preliminary numbers for June as sentiment increased by 6.6 points to come in at 78.9. Expectations were up 7 points while the current conditions assessment was up 5.5 points.

Meanwhile, consumers continue to expect inflation to rise fairly rapidly despite the fact that the numbers have yet to bear that out. In the year ahead, expectations are up to 3%. Meanwhile, over the next 5 years, expectations for price increases are up 2.6%.

Mortgage Rates

Before we get to the actual numbers in terms of mortgage rates from last week, we should probably go over what’s been driving the markets since Wednesday. At the conclusion of its team meeting, the Federal Reserve poured a little cold water on market expectations for a V-shaped recovery. Saying there were just too many unknowns surrounding COVID-19, they said it could be a while before we get back to where we were and some jobs that existed before this might never return.

The Fed signaled it really didn’t have any intention of raising short-term interest rates for 2022. As we’ve discussed before, when traders feel less confident in the stock market, they end up investing in the bond market where mortgage-backed securities are sold. This has the impact of pushing mortgage rates down because of the yield doesn’t have to be as high if there’s more demand. It should be noted that because the data from Freddie Mac was collected before the announcement, the full impact of any rate drops wouldn’t show up in this data until next week.

The bottom line is that mortgage rates are really good right now. If you’re in the market to purchase or refi, it’s a great time to do so. Feel free to speak with one of our Home Loan Experts but your situation.

The average rate for a 30-year fixed mortgage with 0.9 points paid in fees was up 3 basis points to 3.21%, but it’s still down from 3.82% last year.

Meanwhile, looking at shorter terms, the average rate for a 15-year fixed mortgage with 0.8 points paid was 2.62% flat on the week and down from 3.26% a year ago.

Finally, the average rate on a 5-year treasury-indexed, hybrid adjustable rate mortgage (ARM) with 0.4 points paid was unchanged at 3.1%, down from 3.51% in May of last year.

Stock Market

Despite being up a bit on Friday, the stock market had its worst week since March. Wall Street was feeling less confident after the Federal Reserve posted its economic projections which included 9.3% unemployment through the rest of 2020 and projected unemployment of 5.5% through 2022.

The Dow Jones Industrial Average was down 5.55% on the week after closing at 25,605.54, up 477.37 points Friday. Despite rising 39.21 points to close at 3,041.31, the S&P 500 was down 4.78% for the previous 5 days. Finally, the Nasdaq finished at 9,588.81, down 2.3% on the week despite being at 96.08 points on the day.

The Week Ahead

Tuesday, June 16

Retail Sales (8:30 a.m. ET) – Retail sales measure total receipts from stores selling merchandise and related services to final consumers. Sales are measured by retail and food service stores. Data is collected from the Monthly Retail Trade Survey conducted by the U.S. Census Bureau.

Industrial Production (9:15 a.m. ET) – The Federal Reserve’s monthly index of industrial production – and the related capacity indexes and capacity utilization rates – covers manufacturing, mining, and electric and gas utilities.

Housing Market Index (10:00 a.m. ET) – The National Association of Home Builders (NAHB®) produces a housing market index based on a survey in which respondents from the organization are asked to rate the general economy and housing market conditions. The index is a weighted average of separate diffusion indexes, including present sales of new homes, sales of new homes expected in the next 6 months and traffic of prospective buyers in new homes.

Wednesday, June 17

MBA Mortgage Applications (7:00 a.m. ET) – The mortgage applications index measures applications to mortgage lenders. This is a leading indicator for single-family home sales and housing construction.

Housing Starts (8:30 a.m. ET) – A housing start is registered when the construction of a new residential building begins. The start of construction is defined as the beginning of excavation of the foundation for the building.

Thursday, June 18

Jobless Claims (8:30 a.m. ET) – New unemployment claims are compiled weekly to show the number of individuals filing for unemployment insurance for the first time. An increasing trend suggests a deteriorating labor market. The 4-week moving average of new claims smooths out weekly volatility.

The biggest data we get next week hits tomorrow in terms of retail sales. Other than that, there’s a little bit of housing data that will be coming. We’ll have it all covered in next week’s Market Update!

If movements in the mortgage market and the overall economy bore you to tears, we get it! Not to worry. We’ve got plenty of home, money and lifestyle content to send your way if you subscribe to our mailing list below. By this time next week, it will officially be summer! Here are some summer flowers for your yard and home. Have a great week!

1 Important Legal Notice: Econoday has attempted to verify the information contained in this calendar. However, any aspect of such information may change without notice. Econoday does not provide investment advice, and does not represent or warrant that any of the information is accurate or complete at any time. Copyright 2020 Econoday, Inc. All rights reserved.

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