Since 2018 Jerome Powell has helmed the Fed, whose stated goal is to: promote maximum employment, stable prices, and moderate long-term interest rates. Traditionally the Fed looked to a single indicator – the unemployment rate. Powell has taken a more nuanced look at this and asked questions such as: why are black folks unemployed at 70% higher rate than white? And who isn’t being counted in the unemployment figures (showing that maybe 3.5% unemployment is misleading and not maximum employment)? He also believes the risk of a weak recovery to be greater than that of overheating. Finally he is not afraid to use all of the Feds tools when it comes to spending, nor is he concerned if inflation goes above 2% for a short period of time.
Rates fluctuated minorly this week and ended very slightly worse than where they started. Rates are at the same level as this time last year.
Inflation – the Personal Consumption Expenditures (PCE) showed inflation was up 0.4% in July and 4.2% year over year, the hottest reading in 21 years. The core rate (strips out food and energy and is Fed focus) is up 3.6% year over year – a 20 year high.
Jobs – the number of people filing for unemployment for the first time is up slightly from last week to 353K, hovering near post pandemic low set last week. Continuing claims remained at that 2.86M level. Approximately 12M individuals are receiving some type of unemployment benefits. Q2 GDP was revised from 6.5% increase to 6.4%.
New Home Sales – are down significantly from this time last year and are now similar to pre-pandemic levels. The Median home price in contract is $390K up 18% year over year. There is been a big increase of sales on the higher end, which drags up the median home price and speaks to the difficulties builders are having putting up lower priced homes. Remember that new constructions constitutes about 10% of the market.
Home Sales are up a steady 1.5% year over year. Inventory is slowly increasing, 1.32M homes were listed for sale in July which is up 7% from June but down 12% year over year. First time home buyers constitute 30% of sales while investors make up 15%.
Fed chair Jerome Powell indicated that tapering (in their purchase of MBS) may start by end of 2021 but noted there is ‘much ground to cover’ before considering rate hikes. He stated that ‘timing and pace of the taper is not a direct signal to timing of rate hikes.’ He thinks more progress needs to be made toward employment and that inflation is still found in a few narrow groups of goods and services.
Mortgage Applications to purchase homes increased by 3% last week and are down 16% from this time last year. Some of this decline is due to cash buyers who representing 23% of the market (up from 16% this time last year). Refinance applications increased by 1% and are up 3% year over year. Refinance is still making up 67% of the application pool.