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Record Highs And Lows In Abundance - Market Update

Kevin Graham10-Minute Read
January 12, 2021

Welcome to the first Market Update on Rocket Homes®. This is a monthly feature where we cover what’s going on in the real estate market as well as the broader economy to make sure we touch on all the important things impacting consumers.

Right now, we’ve got mortgage rates across the industry averaging record lows and the stock market at record highs. Let’s get into it!

Headline News

This section is put together with the help of analysis from our friends at Econoday.1 Let’s touch on some of the data that’s moving the markets.

Industrial Production

In the month of November, industrial production was up 0.4%, including a 0.8% uptick in manufacturing output. Capacity in factories was being utilized at a rate of 73.3%, which was up 0.5% in November.

Some of the big reasons for the gains included a 5.3% rise in vehicle production and a 2.1% growth in aircraft manufacturing. Mining was also up 2.3% in November.

Unfortunately, most of the categories in the report were negative. Machinery output was down 0.5% in what could be a bad sign for the patterns of business investment. Total production is still down 4.9% compared to February before COVID-19.

Looking at individual categories, vehicle production is down 0.4% since February while aircraft production was down 0.9%. Other areas have been more dramatically affected including machinery, which is down 3.5% production wise. Productivity and mining is down 12.8%.

Retail Sales

Retail sales were down 1.1% overall in November. Sales were down 0.9% when vehicles were excluded and 0.8% when further taking out gasoline. In a control group where prices aren’t as seasonally affected, sales were only down 0.5%. Still, this isn’t a good sign for the performance of the economy in the fourth quarter because November is typically a huge shopping season.

Vehicle sales were down 1.7% in November. Meanwhile, sales at clothing and apparel stores were down 6.8% and have fallen 16.5% since February. Meanwhile, restaurants were down 4% for the month and 18.6% over the same period. This sector has been the hardest hit by measures attempting to control the spread of the virus. Gas stations saw sales drop 2.4%. People weren’t doing as much traveling for the holidays.

Not every sector has been hurt. Building materials are up 1.1% in a sign that there’s demand specifically around home improvement right now. Supermarket sales are up 1.6% and 10.9% starting in March. Meanwhile, e-commerce sales were up only 0.2% for the month, but they’ve gone up 26.9% over the same time frame.

Housing Market Index

What goes up must eventually come down and builder sentiment in the housing market had been running at consecutive record highs for a while now. It was down slightly to 86 in December, but it’s still the second-highest rating for the index in the 35 years that it’s been around.

There were 4-point declines in each component, including present sales at 92, 85 for sales over the next 6 months and 73 for traffic. Traffic measures the number of prospective buyers going through new homes.

Econoday concludes this report with some speculation that a change in the White House could lead to some upward movement in mortgage rates that’s causing this slight decline in optimism. However, that remains to be seen.

Residential Construction

The Census Bureau releases a report every month regarding all three phases of residential construction. This is important to keep an eye on because housing supply has been an ongoing issue driving prices higher.

Starting with permits, these were up 6.2% to 1.639 million in November. This is 8.5% above the same time a year ago. It included a 1.3% uptick in single-family permits to 1.128 million. Meanwhile, there were 441,000 new authorizations for multifamily homes.

When it comes to housing starts, there was a 1.2% increase in the number of projects where ground was broken at 1.547 million. This is a 12.8% increase compared to last year. Single-family starts were up 0.4% at 1.186 million to go along with 352,000 multifamily starts.

Finally, the thing that has the most immediate impact on supply are housing completions. Unfortunately, these were down 4.8% from October to 1.323 million. This included a 0.6% downturn in single-family completions at 879,000. Meanwhile, 280,000 multifamily homes were completed in November.

Gross Domestic Product (GDP)

Gross domestic product looks at the total value of all goods and services produced within the country as a proxy for economic growth. The components include consumer spending, the amount of inventory built up by businesses, government spending and contributions from exports.

GDP increased by 0.3% to 33.4% growth in the third quarter, a big rebound coming out of lockdowns that led to contraction in the first and second quarter for the economy. Meanwhile, consumer spending was up 0.4% at 41%.

Consumer Confidence

Consumer confidence dropped to 88.6 in December from a prior level of 92.9. Furthermore, November numbers were revised downward. The present situation was down more than 15 points to 90.3. People wanted to able to travel due to the holidays and they couldn’t due to rising COVID-19 cases across much of the country.

However, in one piece of good news, expectations were up 3.2 points to 87.5. With vaccines on the way, people do expect this to end at some point. In the meantime, appliance purchases are up as people spend more time at home.

Existing Home Sales

For the first time in a while, existing home sales were down 2.5% in November to an annual rate of 6.69 million. Still, sales are up 25.8% over the same time a year ago.

The median price of an existing home was $310,000, up 14.6% from a year ago as inventory remains an issue. Supply was down 9.9% in October at 1.28 million. This is only enough to sustain the market for 2.3 months at the current sales pace.

Durable Goods Orders

New orders for durable goods were up 0.9% in November. When taking out transportation orders, these were up 0.4% and orders also increased 0.4% in core categories. Even better, gains in October were upwardly revised 0.5% to 1.8%.

Transportation orders were up 1.9% at $78.8 billion. Shipments were up 0.3% after having risen 1.5% in October and there was a decline in the number of unfilled orders. While this might sound like a good thing, it means that not enough orders are coming in to have to make new hires in order to cut into the backlog.

Personal Income And Outlays

Personal incomes were down 1.1% overall in November while expenditures fell 0.4%. Measures of inflation in this index were both flat while coming in up 1.1% overall since last November and rising 1.4% in core categories. Both are well below Federal Reserve 2% inflation targets.

COVID-19 was blamed for this in large part with a new variant of the virus seen as being much more transmissible. There was some optimism as Congress did agree on $600 in stimulus relief for Americans under certain income caps among other relief measures tied to the annual budget. That started hitting people’s accounts in early January.

FHFA House Price Index

Home prices were up 1.5% on transactions backed by conventional loans in October. That means prices are up 10.2% on the year. This is a double-edged sword: While good for home sellers, it may make potential buyers have to recalibrate what they think they can afford.

Consumer Sentiment

Consumer sentiment was down 0.7 points to end December at 80.7. The index, which is a combination of future expectations and a read on the current situation, is up from where it was in November, but it’s down from the highs of recent years as a result of COVID-19.

New Home Sales

New home sales were down 11.1% in November to come in at an annual rate of 841,000. This is still up 20.8% from the same time a year ago. It’s important to note that this report is typically very volatile and the estimates have a much higher margin of error than some other data we look at.

From a supply side, it’s very much a builders’ market, with supplies still sitting at a tight 4.1 months relative to the current sales pace. Still, while prices are higher, they haven’t seen the growth boom that we’ve seen on the existing home sales side. The median home price was $335,300, up from $328,000 in November of last year.

Case-Shiller House Price Index

In terms of monthly increases, prices were 1.6% higher on a seasonally adjusted basis, according to the Case-Shiller index in October. As opposed to the FHFA index, this takes a look at all of the home transactions in 20 cities and it’s a rolling 3-month average.

When taking out seasonal adjustment, prices were up 1.3% overall for the month and 7.9% for the year. Low mortgage rates have caused people to be willing to spend more on homes.

International Trade In Goods

On the goods side, the trade deficit between the U.S. and the rest of the world was $84.8 billion in November. There was a 2.6% increase in imports to go along with a 0.8% uptick in exports.

Looking at imports, there was a 6.7% increase in consumer goods. Meanwhile, car imports actually dropped 3.2%.

Looking at exports, there were gains across most of the major categories, but these were at least partially offset by lower exports of cars and capital goods.

Pending Home Sales Index

In something that’s probably not a good sign for December existing home sales numbers, pending home sales were down 2.6% to an index level of 125.7.

The National Association of REALTORS® tracks the number of homes under contract for sale, defined as having a purchase agreement in place. It’s a leading indicator for sales that often finalize in the next month.

ISM Manufacturing Index

The pace of manufacturing graphics oriented in December, up 3.2 points to 60.7. New orders came in at 67.9, a number that matches recent October highs and portends good things. Meanwhile, in this index, backlogs are growing, up 2 points at 59.1. Ordinarily, this would mean good things for hiring, but it appears that the growth is due to delivery and supply chain issues rather than in the need to ramp up capacity.

There’s been an increase in delivery times that’s led to a 6-point growth in the measurement at 67.6. Employment is growing at 51.5, but far slower than at levels that indicates a healthy labor force. Manufacturers are having a hard time finding labor due to various issues surrounding childcare and lockdowns.

Input prices are up at 77.6 as there are many items in short supply. This is the one metric that would support higher inflation forecasts. Meanwhile, production came in up 4 points at 64.8. Export orders remain strong at 57.5.

MBA Mortgage Applications

While mortgage applications have their ups and downs in weekly releases, the data we can see no doubt pants a hot housing market. Purchase applications are 3% higher than they were a year ago, but refinance applications are up 100%. People are really trying to take advantage of low rates.

To that end, with a 20% down payment and 0.35 points paid, the average rate was 2.86% for a 30-year fixed conforming loan. Meanwhile, jumbo loans with the same down payment and fixed term was 3.08% with 0.3 points paid.

International Trade

Overall international trade was up $5 billion to $68.1 billion. This is the highest it’s been since August 2006 and up 84.1% from before the virus in February. Imports were up 2.9%, which easily offset a 1.2% uptick in exports.

Most of the increase in the deficit was chalked up to an increase in the goods deficit, but there was also a small downturn in the services surplus.

Employment Situation

Businesses dropped 140,000 jobs from nonfarm payrolls in December despite the unemployment rate holding steady at 6.7%. There were 95,000 jobs cut in the private sector while the government slashed 45,000 jobs.

The labor force participation rate held steady at 61.5%. Average hourly earnings increased 0.8% for the month and have risen 5.1% compared to the same time a year ago. Unfortunately, this probably has less to do with wage prosperity and more to do with the fact that lower-paying jobs with the most potential exposure to the public are the ones being cut right now. Finally, the average workweek was 6 minutes shorter at 34 hours, 36 minutes.

Taking a look at individual sectors, there were 498,000 jobs dropped in leisure and hospitality. There were also decreases in private education jobs, professional and business services, and retail trade.

Manufacturing added 38,000 jobs. Construction also saw job increases.

Mortgage Rates

Mortgage rates hit fresh record lows on Thursday, down a couple of basis points to 2.65% for a 30-year fixed mortgage with a 20% down payment and 0.7 points paid. This is down from 3.64% last year, according to Freddie Mac.

Looking at shorter terms, the average rate on a 15-year fixed mortgage with 0.6 points paid was down a single basis point to 2.16%. This has fallen from 3.07% last year.

If you’re in the market to get a mortgage, and there’s really never been a better time for those who are financially ready. If you’d like to apply, you can do so online with our friends at Rocket Mortgage®. If you’re looking for a real estate agent to help with buying a home, we can help!

Stock Market

Since this is the first report appearing here, it’s probably not a bad idea to speak about the rules of engagement when it comes to our reporting on stocks. Rocket Homes® is part of Rocket Companies® (NYSE: RKT). Given this, we won’t be providing any information surrounding ourselves or any of the companies that are or could be perceived as our competition.

Additionally, nothing here should be perceived as giving stock advice. This is a rather general overview of the market movements.

On Friday, stocks hit record highs as prospects for more congressional stimulus outweighed a dismal jobs report in the minds of traders.

The Dow Jones Industrial Average finished the day at 31,097.97, up 56.84 points on the day and 3.5% for the month. Meanwhile, the S&P 500 was up 1.83% in the last 5 days after rising 20.89 points Friday to settle at 3,824.68. Finally, the Nasdaq rose 134.5 points Friday to close at 13,201.98, up 2.43% for the previous 5-day period.

If this market data isn’t your thing, check out our other content. Here’s a report on home decor and interior design trends for 2021.

1 Important Legal Notice: Econoday has attempted to verify the information contained in this calendar. However, any aspect of such information may change without notice. Econoday does not provide investment advice, and does not represent or warrant that any of the information is accurate or complete at any time. Copyright 2020 Econoday, Inc. All rights reserved.

Kevin Graham

Kevin Graham is a Senior Blog Writer for Rocket Companies. He specializes in economics, mortgage qualification and personal finance topics. As someone with cerebral palsy spastic quadriplegia that requires the use of a wheelchair, he also takes on articles around modifying your home for physical challenges and smart home tech. Kevin has a BA in Journalism from Oakland University. Prior to joining Rocket Mortgage he freelanced for various newspapers in the Metro Detroit area.