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Retail Sales, Housing Starts Rebound

Overview: Over the past week, a new fee on refinances was negative for mortgage rates, while stronger than expected retail sales and housing data caused little reaction. After reaching record-low levels earlier in the month, mortgage rates have moved higher.


Since consumer spending accounts for over two-thirds of all economic activity in the U.S., the retail sales data is a key indicator of growth. Due to the economic impact of the coronavirus, retail sales declined sharply in March and April. Since then, however, a strong recovery has taken place. In July, gains in sales continued with an increase of 1.2%, and the results for June also were revised significantly higher. Strength was seen in a wide range of areas, including electronics, appliances, and health products.

A rapid rebound in the housing sector has been encouraging as well. In July, housing starts surged 23% from June, far above the consensus forecast and the largest increase since 2016. Applications for building permits, a proxy for future construction, rose 19%, the biggest gain since 1990. In addition, the National Association of Home Builders (NAHB) housing index showed that builder confidence jumped from 72 to 78, also far surpassing expectations and matching the record high set in 1998.

On August 12, the Federal Housing Finance Agency (FHFA) unexpectedly announced that a new refinance fee of 0.5% will be assessed for cash-out and no-cash-out refinances sold to Fannie Mae and Freddie Mac after September 1. Lenders have varied in how rapidly they are passing along this fee to consumers, due to factors such as their current pipeline and their capacity to handle additional volume. Many members of the mortgage industry have expressed their opposition to this new fee.

Week Ahead

Looking ahead, investors will continue focusing on news about medical advances to fight the pandemic, government stimulus programs, Fed monetary actions, and the pace of the reopening of the economy. Beyond that, the focus will be on the housing data during a light week for economic reports. The Existing Home Sales report will be released on Friday, followed by the New Home Sales report on Tuesday.

Retail Sales (% change)

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