Existing and New Home Sales both beat expectations in July. Consumer inflation also remains hot and Fed Chair Jerome Powell delivered some key remarks.
Sales of existing homes rose 2% from June to July, reaching an annual pace of 5.99 million units. Sales are also up 1.5% when compared to July of last year and are still at strong levels. Inventory is starting to increase, albeit slowly. There were 1.32 million homes for sale at the end of July. While this is up 7% from June, it is still 12% lower than the same time last year.
New Home Sales were also up 1% from June to July. While inventory remains tight, due in part to the cost, supply, and labor challenges builders have been facing, it was up 4% from June’s report and 7% from May’s, so certainly a move in the right direction.
Consumer inflation remains red hot, per Personal Consumption Expenditures (PCE), which is the Fed’s favored measure of inflation. On an annual basis, PCE and Core PCE (which strips out volatile food and energy prices) reached the hottest readings in 21 and 20 years, respectively.
Inflation is critical to monitor because rising inflation can have a big impact on Mortgage Bonds and the home loan rates tied to them. See our important explanation about this below.
Initial Jobless Claims did tick slightly higher to 353,000 in the latest week, but the number of people filing for unemployment for the first time still remains near post-pandemic lows. Overall, 12 million people are still receiving benefits throughout all programs, which is up 182,000 from the previous report. Economists and the Fed will be closely watching this data in the coming weeks when extended benefits expire nationwide in early September.
Also of note, the second reading on second-quarter GDP rose slightly to 6.5%, up from 6.4%. While this is a strong number, it is much lower than the initial projections of 9%.
Lastly, Fed Chair Jerome Powell delivered some important remarks at the Fed’s virtual Jackson Hole meeting. Read on for the details.
Existing Home Sales Remain Rock Steady
Existing Home Sales, which measure closings on existing homes, rose 2% from June to July, reaching an annual pace of 5.99 million units. Sales were also up 1.5% when compared to July of last year and are still at strong levels.
Inventory is starting to increase, albeit slowly. There were 1.32 million homes for sale at the end of July. While this is up 7% from June, it is still 12% lower than the same time last year.
The median home price was reported at $359,900, which is 18% higher than July of last year. Though the media might report this otherwise, it’s really important to understand that the median home price is not the same as appreciation. It simply means half the homes sold were above that price and half were below it.
First-time homebuyers accounted for 30% of sales, which is down from 31% in June. Cash buyers remained stable at 23% but this figure is still up big from just 16% last July. Investors purchased 15% of homes, up from 14% in the previous month.
What does this data suggest? Investors may be crowding out first-time homebuyers, as they are likely purchasing lower-priced homes that they can then rent out.
New Home Sales Nudge Higher
New Home Sales, which measure signed contracts on new homes, came in stronger than expectations. Sales rose 1% from June to July, reaching an annualized pace of 708,000. While this amount is down on a year-over-year basis given the spike in sales due to the pandemic last year, it’s not much lower than when sales were at a more normalized level pre-Covid.
Looking at inventory levels, there were 367,000 new homes for sale at the end of July. While this is still very tight, it is up 4% from June’s report and 7% from May, so certainly a move in the right direction.
The median home price was reported at $390,000, which is 18% higher than July of last year. As noted above, the median home price is not the same as appreciation but simply means half the homes sold were above that price and half were below it.
The increase in the median home price speaks to the difficulties builders are having with putting up lower-priced homes. Looking at the mix of sales, there were big increases in the number of sales on the higher end, which dragged the median home price higher.
Fed Talks Inflation and Tapering
Fed Chair Jerome Powell delivered remarks at the Fed’s virtual Jackson Hole meeting. In terms of the Fed’s dual mandate of price stability and maximum employment, he stated that “substantial further progress” has been met for inflation and that there has been clear progress toward maximum employment.
Powell also maintained his stance that inflation is temporary and found largely in a narrow group of goods and services impacted by the pandemic.
Powell noted that the Fed could begin tapering its ongoing purchases of Mortgage Backed Securities (MBS) and Treasures this year. Referencing the Fed’s July meeting, Powell said, “I was of the view, as were most participants, that if the economy evolved broadly as anticipated, it could be appropriate to start reducing the pace of asset purchases this year.”
He explained, “The intervening month has brought more progress in the form of a strong employment report for July, but also the further spread of the delta variant. We will be carefully assessing incoming data and the evolving risks.”
Inflation Remains Hot
Speaking of the Fed, their favored measure of inflation, Personal Consumption Expenditures (PCE), showed that headline inflation was up 0.4% in July, which was in line with expectations. However, on an annual basis, the index rose from 4% to 4.2% – the hottest reading in 21 years.
Core PCE, which strips out food and energy prices and is the Fed’s real focus, was up 0.3% in July. Year over year, the reading remained at 3.6% after the higher revision to the previous report, bringing it to the hottest reading in 20 years.
Rising inflation is always important to note since inflation erodes a Bond’s fixed rate of return. In other words, rising inflation can cause Bonds to worsen or lose value. This includes Mortgage Bonds, to which home loan rates are inversely tied. When Mortgage Bonds move lower, be it due to rising inflation or other reasons, home loan rates can move higher.
Though many factors influence the markets, inflation (and whether the rise is in fact transitory as the Fed maintains) remains crucial to monitor in the months ahead.
Initial Jobless Claims Tick Higher
The number of people filing for unemployment benefits for the first time rose slightly to 353,000 in the latest week, but this is still hovering near the post-pandemic low set in the previous report. California (+67K), Illinois (+22K), and Texas (+19K) reported the largest number of claims.
The number of people continuing to receive regular benefits moved marginally lower to 2.86 million while the number of people receiving extended benefits increased by 173,000.
Pandemic Unemployment Assistance Claims (which provide benefits to people who would not usually qualify) and Pandemic Emergency Claims (which extend benefits after regular benefits expire) were up by a combined 53,000.
All told, 12 million people are still receiving benefits throughout all programs, which is up 182,000 from the previous report. This data will be important to monitor in the coming weeks when extended benefits expire nationwide in early September.
Family Hack of the Week
Planning a picnic or barbecue this Labor Day weekend? This recipe for Italian Pasta Salad from our friends at Delish makes the perfect side for either occasion.
Cook one 16-ounce package of fusilli pasta according to the package instructions. In a large bowl, toss together the pasta, 8 ounces of mozzarella balls (halved), 4 ounces salami (quartered), 2 cups of baby spinach, 1 cup of cherry tomatoes (halved), 1 cup artichoke hearts (chopped), and 1/2 cup pitted black olives (sliced).
Next make the dressing by adding 1/3 cup extra-virgin olive oil, 2 tablespoons red wine vinegar, 1 garlic clove (minced), 2 teaspoons Italian seasoning, 1 tablespoon chopped parsley, and a pinch of red pepper flakes to a jar. Secure with a lid then shake to combine. Season with salt and pepper to taste.
Pour dressing over pasta, toss to combine and serve. The dressing can also be made ahead of time for added flavor.
What to Look for This Week
Housing news kicks off the week Monday when Pending Home Sales for July are reported. We’ll also get an update on home price appreciation on Tuesday via June’s Case-Shiller Home Price Index and the Federal Housing Finance Agency (FHFA) House Price Index.
Tuesday also brings an update on regional manufacturing when the Chicago PMI for August is delivered, while the ISM Index will be reported on Wednesday.
Key labor sector reports begin on Wednesday when the ADP Employment Report will give us an update on private payrolls for August. The latest Jobless Claims data will be reported as usual on Thursday, while Friday brings the highly anticipated Bureau of Labor Statistics Jobs Report for August, which includes Non-farm Payrolls and the Unemployment Rate.
After some initial volatility, Mortgage Bonds moved sharply higher following Fed Chair Jerome Powell’s dovish comments Friday morning. Mortgage Bonds ended the week battling with their 50-day Moving Average and if they’re able to break through, their next ceiling of resistance is at the 101.45 Fibonacci Level. The 10-year broke beneath its 50 and 200-day Moving Averages and has some room until support at the 25-day Moving Average.