Housing market stays hot
Weekly Bond Commentary
Economic data released last week confirm that the strong recovery from the early summer doldrums has slowed, but is still moving forward.
Probably the most surprising story continues to be the surge in the housing market. After rising nearly 25% in July, existing home sales rose another 2.4% in August to a six million annualized rate. That marks the strongest pace since 2006, even as prices jumped 11.4% from a year earlier. New home sales rose more than expected, to over one million annualized, and are on pace to far exceed 2019’s total. The inventory of new homes for sale fell from 3.6 months to 3.3 months, a sign of strength. Even though 30-year fixed mortgage rates have ticked a bit higher during September, they are just a hair above the all-time low reached on Sept. 10, using Freddie Mac data going back to April 1971. Consumers have shifted their spending priorities this year, as different parts of the economy continue to struggle with in-person interaction.
Consumer sentiment edged a bit higher in the midmonth University of Michigan survey, though it is still well below early 2020 levels. Consumers are more confident about current economic conditions and their expectations. Many cited positive recent economic developments, but they also lowered their expected income gains from 1.6% last month to 1.3% now, both well below the 2.3% gain at the start of the year. All this squares off against stubbornly high weekly jobless claims (870,000) and continuing unemployment claims (12.6 million), which equates to an unemployment rate just under 8%.
Financial markets were a little dyspeptic last week, mostly due to events in Washington. Probably the foremost concern is the failure to produce a stimulus package to help with the ongoing virus interruptions. With the elections fast approaching, hope for action is dwindling.