Overview: Over the past week, investor sentiment for the economic outlook remained very optimistic, which was negative for mortgage markets. The vaccine rollout and upcoming government stimulus spending are expected to cause a massive surge in economic activity. As a result, mortgage rates ended the week higher.
The housing sector continues to show impressive strength. In January, existing-home sales unexpectedly increased from December and were 24% higher than a year ago, near the best level since 2006. The median existing-home price was 14% higher than last year. January new-home sales far exceeded the consensus forecast and were up 19% from a year ago.
Inventory levels, however, were down 26% from the previous year and remained a major headwind to even stronger sales activity. The number of existing homes for sale was at just a 1.9-month supply nationally, well below the 6-month supply that is considered a healthy balance between buyers and sellers. Encouragingly, though, builders have been adding homes at the most rapid rate since 2006, and permits, a leading indicator of future construction, suggest that the pace may increase even further.
Twice per year, the head of the Federal Reserve testifies before Congress, and investors were eager to hear what Fed Chair Jerome Powell had to say on Tuesday. With some early signs of rising inflation beginning to appear in recent data, investors wondered whether Fed officials were feeling pressure to tighten monetary policy. However, Powell eased investor concerns in this area by stressing that accommodative policy will be needed for quite a while until “substantial further progress” has been made in achieving the Fed’s employment and inflation goals. He noted that another 10 million jobs still were needed just to recover the losses caused by the pandemic.
Existing-Home Sales (millions)
February 26 — Core Personal Consumption Expenditures (PCE) Price Index
March 1 — Institute for Supply Management (ISM) Manufacturing Index
March 3 — ISM Services Index
March 5 — Employment Report