10/24/2020
Housing Sector Shines
Increased expectations for additional government stimulus were modestly negative for mortgage markets this week, while strong housing data had little impact. Rates ended a little higher but remained near record low levels
The spectacular rebound in the housing sector from weakness during the spring due to the partial shutdown of the economy has continued. In September, Existing Home Sales increased 9% from August and were 21% higher than a year ago, at the best level since May 2006. The median existing-home price was 15% higher than a year ago.
Inventory levels were down 19% from a year ago and remained the primary obstacle to even stronger sales activity. The number of homes for sale was at just a 2.7-month supply nationally, well below the 6.0-month supply which is considered a healthy balance between buyers and sellers. However, Tuesday’s report on housing starts contained encouraging news in this area. In September, single-family housing starts rose 9% from August and were 22% higher than a year ago. Similarly, single-family building permits, a leading indicator of future construction, were 24% higher than a year ago.
Lawmakers continue to negotiate an additional government aid package, and most investors expect a deal either before or shortly after the election. Increased fiscal stimulus would be unfavorable for mortgage rates for two primary reasons. First, government spending boosts economic activity, which raises the outlook for future inflation. In addition, the supply of bonds increases to fund the spending, so yields must rise to entice investors to purchase more bonds.