There was no shortage of economic news this past week including a disappointing report on consumer spending, encouraging housing data, progress on a government stimulus deal, and a Fed meeting. These events had surprisingly little impact on mortgage markets, however, and rates remained near record low levels.
Following sharp declines in March and April due to the pandemic, consumer spending posted five impressive months of gains to reach record high levels. However, rising coronavirus case counts have halted its momentum during the crucial holiday shopping period. In November, retail sales fell 1.1% from October, which was far weaker than expected, and the October results were revised lower.
One of the few obstacles to the amazing performance of the housing sector in recent months has been a lack of inventory in many regions. The number of homes for sale is at just a 2.5-month supply nationally, well below the 6.0-month supply which is considered a healthy balance between buyers and sellers. However, the latest report on housing starts contained encouraging news in this area. In November, single-family housing starts were 22% higher than a year ago and at the best level since 2007.
Overall, Wednesday’s Fed meeting caused little change in the investor outlook for future policy, and the reaction in financial markets was minor. The statement released after the meeting was very similar to the prior one, although it did add more detail on the Fed’s plans for its massive asset purchase program. According to the statement, the Fed will continue to buy at least $80 billion in Treasuries and $40 billion in mortgage-backed securities (MBS) each month until “substantial further progress has been made” in achieving its employment and inflation goals.
Looking ahead, investors will continue watching Covid case counts, vaccine distribution, and negotiations for additional government stimulus. Beyond that, Existing Home Sales will be released on Tuesday and New Home Sales on Wednesday. The core PCE price index, the inflation indicator favored by the Fed, also will come out on Wednesday. Mortgage markets will close early on Thursday and will be closed on Friday for Christmas.
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