10-Year Treasury Yield
The benchmark 10-year Treasury yield is trading at its highest level since January 2020 and there are only a few valid arguments for a looming retreat. Plans from the Biden administration for trillions more in federal stimulus spending, vaccine and economic growth optimism, and expectations for higher inflation mean that the yield is likely to continue to climb. Essaye said he expects the 10-year yield to climb through 2% over this summer and potentially to 2.25%, depending on the scope and passage of Biden's upcoming infrastructure package. The yield has not closed above 2% since July 2019. A significant decline in yields would have to be a historic "risk-off" event, Essaye said, speculating that Archegos Capital's sell-off impacting a large swath of the economy rather than the market value of a couple large banks, or the spread of vaccine-resistant COVID-19 strain would likely be the magnitude of an event needed to reverse the current upward trend in bond yields.
The 10-year Treasury yield settled at 1.73% on March 30, just below its recent high settlement of 1.74% on March 19. The yield was trading near 1.73% on March 31. The benchmark Treasury yield serves as both a broad indicator of investor confidence and a proxy for mortgage rates. Treasury yields move inversely to prices and a rising yield shows declining demand for government bonds, widely viewed as the safest investment. Rising bond yields tend to indicate a positive economic outlook and signal a move towards riskier investments, such as equities.
FHFA - Federal Housing Finance Agency House Price Index
House prices rose nationwide in January, up 1.0 percent from the previous month, according to the latest Federal Housing Finance Agency House Price Index (FHFA HPI®). House prices rose 12.0 percent from January 2020 to January 2021. The previously reported 1.1 percent price change for December 2020 was revised upward to 1.2 percent....
S&P Case Shiller Index
Home-price growth accelerated to a 15-year high in January 2021, as the supply of homes for sale dropped to a new low. The S&P CoreLogic Case-Shiller National Home Price Index, which measures average home prices in major metropolitan areas across the nation, rose 11.2% in the year that ended in January, up from a 10.4% annual rate the prior month. January marked the highest annual rate of price growth since February 2006. House-buying demand remains robust due to record-low interest rates and a desire for more space. Sales of previously owned homes, which make up the bulk of the housing market, rose in 2020 to their highest annual level since 2006, according to the National Association of Realtors....
Consumer Confidence
U.S. consumer confidence surged in March 2021 to the highest reading in a year, helped by increased vaccinations and more government economic support. The Conference Board said Tuesday its consumer confidence index rose to 109.7 in March, the best showing since it stood at 118.8 in March of last year as the pandemic was beginning to hit the United States. The index stood at 90.4 in February. The present situations index, based on consumers' assessment of current business and labor market conditions, rose to 110.0, up from 89.6 in February. The expectations' index, based on consumers outlook for income, business and labor market conditions six months into the future, also improved, rising to 109.6 in March, up from a reading of 90.9 in February.
MBA Purchase Applications and MBS
Mortgage rates are also playing a key role, one engineered by the Federal Reserve. While rates are rising slightly now, they are still near historic lows, having set more than a dozen new lows last year. Mortgage rates loosely follow the yield on the 10-year Treasury note, which has fallen dramatically during the pandemic. Mortgage rates are also influenced by the purchases and yields of agency mortgage-backed securities, or MBS. These purchases provide the mortgage market with liquidity. The Federal Reserve had been tapering its purchases of MBS in order to normalize the market after the last recession, but it turned that taper around last March with the onset of the pandemic. It now owns more than a third of the MBS market. At the start of 2019, the Fed held $1.6 trillion in agency MBS. It tapered that down to $1.37 trillion by mid-March of 2020. Then, when the economy and housing market were suddenly in Covid free fall, the central bank began buying more again. As of last week, the Fed held $2.2 trillion of agency MBS.....
ADP Employment Report
Private payrolls in March expanded at the fastest pace since September as anticipation of a strong economic rebound coupled with aggressive vaccination rates pushed companies to hire, according to a report Wednesday from payroll processing firm ADP. Companies added 517,000 workers for the month, a healthy spike from the 176,000 in February though just below the 525,000 Dow Jones estimate as well as some highly optimistic calls for the government’s nonfarm payrolls count. The February total was revised sharply higher from the originally reported 117,000. Even though it was a bit below expectations, the March total represented the biggest hiring burst since September’s 821,000. Importantly, the strongest job gains came from the leisure and hospitality sector, which took the biggest hit due to the government-imposed shutdowns associated with the Covid-19 pandemic. The sector added 169,000 new workers, part of a 437,000 increase overall in services-related jobs....
Pending Home Sales
Pending home sales, a measure of signed contracts on existing homes, fell 10.6% in February 2021 compared with January, according to the National Association of Realtors. Sales were 0.5% lower year over year. Sales are now varying dramatically by price point,\ because supply is so lean on the low end and more plentiful on the higher end. The U.S. housing market is suffering from its lowest supply in history, and that is taking an increasingly hard toll on sales. Pending home sales, a measure of signed contracts on existing homes, fell a wider-than-expected 10.6% in February compared with January, according to the National Association of Realtors. Sales were 0.5% lower year over year. “The demand for a home purchase is widespread, multiple offers are prevalent, and days-on-market are swift,” said NAR’s chief economist, Lawrence Yun. “But contracts are not clicking due to record-low inventory.”
Housing Market
One year after the Covid-19 crisis shut down and warped so much of American life, things are still unpredictable, but the outlook isn’t bright for housing. In fact, it looks like the perfect storm for a correction. Home prices are overheated, mortgage rates are rising, the supply of homes for sale is anemic and consumer confidence in the housing market is falling. No one could have predicted it. Not the economists, not the real estate agents, and especially not the nation’s homebuilders. But a pandemic caused an emotional run on housing unlike any other. Now, one year after the Covid-19 crisis shut down and warped so much of American life, things are still unpredictable, but the outlook isn’t bright for housing. In fact, it looks like the perfect storm for a correction. Home prices are overheated, mortgage rates are rising, the supply of homes for sale is anemic and consumer confidence in the housing market is falling. Pandemic-related mortgage bailouts are set to expire this summer. A year ago, home sales ground to a halt. No one wanted to buy or sell or even enter a home, given all the physical and economic uncertainty that Covid-19 brought. But just a few months later, housing hit the gas pedal, and prices followed. The frenzy was hugely emotional, as the nation saw most aspects of daily life suddenly confined to its properties. Space became a major asset. It was also fueled by very attractive mortgage rates, which set more than a dozen record lows. After plunging nearly 18% from March to April and another 10% from April to May, sales of existing homes shot back up nearly 21% in June, according to the National Association of Realtors.....
Jobless Claims
Applications for U.S. state unemployment insurance unexpectedly rose last week but remained near the lowest levels of the pandemic as the labor market meanders toward full recovery. Initial jobless claims in regular state programs increased to 719,000 in the week ended March 27, up 61,000 from the prior week, Labor Department data showed Thursday. Economists in a Bloomberg survey estimated 675,000 claims. The prior week’s figure was revised down to 658,000, which is below the Great Recession’s peak. Continuing claims -- an approximation of the number of people filing for ongoing state benefits -- fell to 3.79 million in the week ended March 20. To some extent, the decline in that figure reflects an improvement in the labor market, but millions of Americans have also exhausted those benefits and moved to federal programmmm First-time claims for jobless benefits were higher than expected last week, with 719,000 more workers heading to the unemployment line, the Labor Department reported Thursday. The total compared with the 675,000 estimate from Dow Jones and was above last week’s downwardly revised 658,000. While the number of weekly claims remains inordinately high by historical measures, the trend is falling now that the U.S. economy continues to reopen and nearly 3 million Americans are receiving vaccinations each day for Covid-19. Continuing claims, which run a week behind the headline number, fell by 46,000 to just below 3.8 million.
PMI Manufacturing Final
US: Markit Manufacturing PMI rises to 59.1 (final) in March from 58.6. Markit Manufacturing PMI in US improved modestly in March. The IHS Markit's Manufacturing PMI for the US rose to 59.1 (final) in March from 58.6 in February. This reading came in slightly better than the flash estimate of 59 and showed an ongoing expansion in the manufacturing sector's business activity at a strong pace. The fastest rates of increase for both new orders and prices were reported among producers of consumer goods..
ISM Manufacturing
A measure of U.S. manufacturing activity soared to its highest level in more than 37 years in March, driven by strong growth in new orders, the clearest sign yet that a much anticipated economic boom was probably underway. The Institute for Supply Management (ISM) said on Thursday its index of national factory activity jumped to a reading of 64.7 last month from 60.8 in February. That was the highest level since December 1983. A reading above 50 indicates expansion in manufacturing, which accounts for 11.9% of the U.S. economy. Economists polled by Reuters had forecast the index rising to 61.3 in March. The year-long Covid-19 pandemic has boosted demand for goods. Economic growth is expected take off this year, juiced up by the White House’s massive $1.9 trillion pandemic relief package and the reopening of nonessential businesses as more Americans are vaccinated against the coronavirus.
Construction Spending
National nonresidential construction spending declined 1.3% in February, according to an Associated Builders and Contractors analysis of data published today by the U.S. Census Bureau. On a seasonally adjusted annualized basis, nonresidential spending totaled $789.5 billion for the month. On a monthly basis, spending was down in 13 of 16 nonresidential subcategories. Private nonresidential spending was down 1.0%, while public nonresidential construction spending fell 1.8% in February. Nonresidential construction spending has declined by 6.1% from the same time last year.
Fixed Mortgage Rates
A few major mortgage rates inched up today. The average interest rates for both 15-year fixed and 30-year fixed mortgages both drifted higher. We also saw an upswing in the average rate of 5/1 adjustable-rate mortgages. Although mortgage rates are dynamic, they're lower than they've been in years. Because of this, right now is an ideal time for prospective homebuyers to get a fixed rate. But as always, make sure to first think about your personal goals and circumstances before buying a house, and shop around to find a lender who can best meet your needs.
Employment Situation
Nonfarm payrolls rose by 916,000 in March, while the unemployment rate declined to 6%. The job growth was well ahead of Dow Jones estimates for 675,000 and the fastest since August 2020. Gains were strongest in leisure and hospitality, while construction soared by 110,000. Revisions also added 156,000 jobs to the totals for January and February. Job growth boomed in March at the fastest pace since last summer as stronger economic growth and an aggressive vaccination effort contributed to a surge in hospitality and construction jobs, the Labor Department reported Friday. Nonfarm payrolls increased by 916,000 for the month while the unemployment rate fell to 6%.
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