The coronavirus mortgage rates changed as new reports were released. Though a lot is still uncertain, there were positive signs for the U.S. economy.
These include continual job recovery, retail sales, and the general housing market. In addition, available home inventory continues to rise and pandemic recovery looms.
Divided Government Means Steadiness Among the Coronavirus Mortgage Rates
During an uncertain week, mortgage markets held relatively steady. Investors worried about the 2020 election results. The Electoral College outcome of the election remains uncertain. However, all 50 states and Washington DC have now confirmed their election results.
They expected that the Democrats would control the House of Representatives. Conversely, investors also anticipated that Republicans would control the Senate. Mortgage markets generally view a divided government as good news.
This is because it is more challenging to pass large new programs, such as an additional stimulus package. Ultimately, bonds fund these programs. Since funding government spending increases the supply of bonds, a lower level is more favorable for mortgage rates.
Job Recovery Continuation Affects Coronavirus Mortgage Rates
A highly anticipated monthly labor market report revealed a rebound in jobs. This is after the partial shutdown led to unprecedented job losses nationwide. The trend saw a large jump in October and a smaller one in November, just before the beginning of the holiday shopping season.
In October, the economy gained 638,000 jobs. This number was close to expectations, though substantial, nonetheless. The hospitality and professional services industries were particularly strong in job growth.
Since April’s job losses, the economy has now recovered more than half of the 22 million jobs. With the holiday season looming, businesses are still creating more jobs.
Meanwhile, the key labor market data came in close to its target. During Thursday’s meeting, the Fed made no policy changes. Overall, mortgage rates remained near record-low levels.
Unemployment Rate Drops 1%
The big surprise was the shocking drop in the unemployment rate. From a level of 7.9% last month, it plunged to 6.9%. This is far below the consensus forecast of 7.7%.
The economy gained 245,000 jobs in November. Thus, the unemployment rate dropped an additional 0.2% to 6.7%.
State and local governments continually establish more COVID-19 precautions. This leads to uncertainty regarding the job market’s future, especially for the hospitality, entertainment, and food industries. As seen throughout the pandemic’s entirety, these industries are hurting.
The data on job gains comes from actual figures provided by large companies, while the unemployment rate is based on a household survey conducted by the Labor Department.
Job Gains and unemployment rates show similar results in the long run. That said, their levels of strength vary from month to month.
Job Recovery Impact on Coronavirus Mortgage Rates
Thursday’s Fed meeting produced no surprises and had no impact on coronavirus mortgage rates. As widely expected, Fed officials refrained from making any changes during the election uncertainty with financial markets performing smoothly. In fact, the statement released after the meeting was nearly identical to the prior one.
Investors will continue watching election results, coronavirus case counts, and progress on vaccines. It will be a light week for economic data. The JOLTS report, which measures job openings and labor turnover rates, was released on Tuesday. This will be covered in January 2021’s update.
The Consumer Price Index (CPI) will came out on Thursday. The Consumer Price Index looks at the price change for goods and services.
Vaccine Progress’ Effect on Coronavirus Mortgage Rates
With the election results mostly determined, the pandemic was the main focus for investors this week. Rising case counts offset the coronavirus vaccine progress. As a result, coronavirus mortgage rates saw little change while hovering near record-low levels.
Recently, Pfizer reported extremely positive trial data for a coronavirus vaccine. Investors anticipated a quicker return to the American pre-coronavirus lifestyle. Along with Pfizer, the FDA reviewed Moderna for a potential coronavirus vaccine.
As of early December, the vaccine has begun to be distributed in countries like England with the first doses being administered to those in high-risk demographics. The government, both state and federal, are now deciding how to best deliver the incoming supply of vaccines to those most in need. This could mean a longer wait for the general population and more time before COVID precautions are lifted in most states.
Though this is good news for the future, there is still no direct timeline for coronavirus vaccination approval. Along that vein, investors struggle from predicting future market activity.
An advisory committee of FDA officials and independent vaccine experts was held. The topic concerns whether or not to grant emergency use authorization to Pfizer for its vaccine candidate. If the decision passes a committee vote, the FDA will dictate the direction from there. The outcome will also be covered in January 2021’s update.
According to Health and Human Services Secretary Alex Azart, roughly 20 million people could be immunized by the end of December. This, of course, depends on the FDA’s say-so.
Rising Coronavirus Case Counts
In the short run, however, rising case counts in many regions could hamper economic growth as government officials continue to reinstate lockdown and quarantine guidelines that could see the closure of many different businesses, mainly in entertainment, hospitality, and the food industry.
Many cities across the country have already limited or closed in-person dining again. The more optimistic future outlook offset more pessimistic current conditions, and the net effect on mortgage rates was minor with mortgage rates staying steady at what are consistently becoming record lows.
The reduced economic activity resulting from the coronavirus has caused a significant decline in inflation. The Consumer Price Index (CPI) is a widely followed monthly inflation report that looks at the price change for goods and services. In October, core CPI was just 1.6% higher than a year ago. While this was up from recent levels of just 1.2%, it still was far below the readings around 2.3% seen during the first few months of the year.
Investors will continue watching coronavirus case counts, progress on vaccines, and election results. Since consumer spending accounts for over two-thirds of all economic activity in the US, the retail sales data is a key indicator of growth. Housing Starts will come out on Wednesday and Existing Home Sales on Thursday.
Home & Retail Sales Impact on Coronavirus Mortgage Rates
Investors were optimistic after hearing the recent news surrounding the coronavirus vaccine. However, rising coronavirus case counts increased their concerns about the short-term economy. These influences ultimately offset one other. The offset led to mortgage rates remaining near record-low levels.
Retail Sales Fall Short of Expectations
Following sharp declines in March and April due to the partial shutdown of the economy, retail sales have shown six straight months of gains, but the latest report fell short of expectations.
In October, retail sales increased just 0.3% from September. This is below the consensus increased forecast of 0.5%. In addition, September retail sales had lower revised results. Some investors worry about the pending holiday shopping season. Because of the pandemic, many may choose to stay home or spend less, overall.
Ultimately, many feel uncertain about the holiday retail market. Many states and cities are also upping their COVID restrictions again which could limit shopping and dining.
Black Friday, one of the biggest shopping days of the year, was quiet on the brick-and-mortar front but saw strong numbers via online shopping instead as retailers adapt to changing trends and the current pandemic climate.
We expect United States retail sales to rise 7.6% during the 2020 holiday shopping season.
Housing Market Trends
By contrast, housing has continued to exceed expectations. The spectacular housing market rebound progressed since the spring’s partial economic shutdown.
In October, existing home sales increased 4% from September. This is a 27% increase from one year prior. Also, the recent existing home sales data is a record since 2006. The median existing-home price was 16% higher than a year ago, at a new record of $313,000.
Inventory levels declined 20% from one year ago. This is the primary obstacle to stronger home sales activity. Along with this, the number of homes on the market was only at a 2.5-month supply across the country. 2.5 months is well below the 6-month supply, which is generally accepted as a healthy balance between home buyers and home sellers.
However, this week’s other housing market reports contained encouraging news as well. In October, single-family housing starts rose 6% from September to the highest level since 2007. In addition, the National Association of Home Builders (NAHB) housing index revealed that builder confidence surged to 90, far above the consensus of 85, and crushing last month’s record high.
Investors will continue watching coronavirus case counts, progress on vaccines, and government stimulus measures. Beyond that, they will also take new home sales, durable orders, and the core PCE price index into account.
New Home Sales and Their Impact on Mortgage Rates
The short holiday week was a relatively quiet period for mortgage rates. A large batch of economic reports on Wednesday had little impact, and rates remained near record-low levels.
Sales of new homes continued at a blistering pace in October. Although spring saw a partial economic shutdown, new home sales have maintained an annualized rate of around one million units for four straight months. These are the best levels since 2006.
Builders say that they are putting up new homes as quickly as possible, but that a lack of land, labor, and materials is limiting the pace of construction.
The reduced economic activity resulting from the pandemic has caused a decline in inflation, which has helped keep mortgage rates low. In October, the core PCE price index was just 1.4% higher than a year ago, down from an annual rate of increase of 1.5% last month. The Fed officials stated that their core PCE target is 2.0%.
FHFA Announces Conforming Loan Limits for 2021
On Tuesday, the Federal Housing Finance Agency (FHFA) announced that the baseline conforming loan limit for Fannie Mae and Freddie Mac mortgages in 2021 will increase by 7.5% from $510,400 to $548,250.
The new limit for most high-cost areas will be $822,375 or 150% of $548,250. With the continued strength in the housing market, this will be the fifth consecutive year of increases.
The New Baseline Limit
The Housing and Economic Recovery Act (HERA) requires an annual baseline adjustment. Fannie Mae and Freddie Mac use the adjustment to reflect the changes to the average cost of an American home. The FHFA published its third-quarter price index for 2020 which included estimates for the increase in home value in the United States over the last year.
According to the report, housing prices increased 7.42 percent which means the baseline maximum limit will increase in 2021 to the same percentage.
High-Cost Area Limits
When the local medium home value exceeds 115%, the maximum loan limit is higher.
HERA establishes the new maximum loan limit in those areas as a multiple of the area’s median home value and sets a ceiling on that limit of 150 percent of what the new baseline limit will be.
In high-cost areas, median home values generally increased in 2020 which will drive up the maximum loan limits in many areas around the country. The new limit for one-unit properties in high-cost areas will be $822,375.
Investors will continue watching coronavirus case counts, progress on vaccines, and government stimulus measures. Next month, MBSQuoteline will cover these figures on the number of jobs, the unemployment rate, and wage inflation.
Negative trends largely shaped 2020’s outlook. These included the COVID-19 numbers, a controversial election, and more potential lockdown measures. In spite of an uncertain 2020, we are seeing positive trends in major markets.
The United States has recovered some of the lost jobs. Retail sales rose both online and at brick-and-mortar locations. Home sales increased after a lackluster spring homebuying season. Finally, coronavirus mortgage rates are holding steady near record-lows.
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