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Retail Sales Plummet, Housing Shows Some Promising Signs

Overview: The data released over the past week reflected the negative impact of the coronavirus on economic activity in April. Federal Reserve purchases of mortgage-backed securities continued to keep daily volatility in mortgage markets low, and rates again ended the week with little change.


Since consumer spending accounts for about 70% of all economic activity in the U.S., the monthly retail sales data is a key indicator of financial conditions. With much of the economy shut down due to the coronavirus in April, retail sales plunged a record 16% from March, which was even more than expected. The hardest-hit segment was clothing and accessories, with a massive decline of 79% from March, followed by electronics and appliances with a loss of more than 60%.

The latest data from the housing sector contained mixed news. In April, housing starts dropped by a record 30% from March to the lowest level since February 2015. Similarly, building permits fell 21% from March to the lowest level since January 2015. On the other hand, the sentiment index of builder confidence from the National Association of Home Builders (NAHB) rose to 37 from 30 last month. In addition, the Mortgage Bankers Association (MBA) reported that mortgage applications to purchase a home have increased for five straight weeks and are now at nearly the same level as they were one year ago. In short, there are encouraging signs that the worst is behind us and that conditions will continue to improve.

To provide relief for those hurt by the pandemic, the government initiated the mortgage relief program in late March to allow people to postpone making their mortgage payments. The program did not address some important questions, however, including how to qualify borrowers with loans that are in or had been in forbearance. On Tuesday, the Federal Housing Finance Agency (FHFA), the regulator of Fannie Mae and Freddie Mac, provided some additional clarity. It announced that borrowers in the forbearance program and those who have left it may now refinance or purchase a home with a new mortgage. The main condition to qualify is that the borrower must have made at least the last three consecutive months of payments, while previous guidelines required being current on their mortgage for at least a year.

Retail Sales (% change)

Week Ahead

May 21 — Existing Home Sales report

May 22 — Mortgage markets will close early

May 25 — Mortgage markets closed in observance of Memorial Day

May 26 — New Home Sales report

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