Rates pressed into further lows, with the 30-year fixed rate mortgage once again dropping below 3.0%. Meanwhile, the 15-year fixed rate mortgage moved up a few basis points from last week. This leads us to the current state of the matter: the 30-year mortgage sits at 2.94% while the 15-year mortgage is currently at 2.67%.
As the number of coronavirus cases continues to grow in CA, FL, TX, and AZ, other states on the brink of reopening are reconsidering easing their restrictions. Investors, who are daunted by this interruption in reopening plans, escalating hostility between the U.S. and China, and dismal bank stress test results, have largely backed off, taking a risk-off approach this week. Overall, however, with yesterday signifying the end of the quarter, this month has seen gains of 1.7%–6% across all three major indices.
Real Estate (and Breadsticks) are the New Measure of Economic Health
Throughout this pandemic, housing statistics in general have been stronger economic indicators than other traditional economic indicators. For example, while other data lagged behind reality, mortgage applications quickly recovered as COVID-19 cases started to plateau or drop. Based on this theory, that fact that pending home sales increased by an unheard of 44% in May demonstrates that, about a month ago, the economy was getting back on track. Similarly, the amount of people dining out has also been a reliable litmus for how well the economy is doing. Certain measurements such as number of reservations and walk-ins recorded by OpenTable or even Saturday night wait times for Olive Garden serve as proxies for dine-in demand as a whole, and thus can act as real-time indicators of consumer confidence.
Data from the food service industry and real estate market is valuable for determining how quickly consumer attitudes and the economy can shift. Case in point, the latest rise in U.S. cases has already had an effect on dine-in trends, particularly in those states hardest hit by the second wave of the pandemic, and may soon be reflected in housing data as well.
Consumers See Potential in the Job Market and Economy (but Not Much)
While one is more associated with job security and the other with household pocketbooks, both consumer confidence and consumer sentiment provide insight into how likely people are to spend money in the near future. If people believe there will be many jobs in the future, or that their personal income will grow, then they will be more likely to spend than save. And because consumer spending represents around 70% of the U.S. economy, this is a number that both investors and government bodies pay close attention to.
In June, both consumer confidence and sentiment increased, with the consumer confidence index even experiencing its largest jump since 2011. Consumer sentiment increased by 8.0 points to hit 78.1 while consumer confidence rose from 85.9 to 98.1. However, neither index managed to return to its 2019 levels. This tells us that while people are feeling more optimistic about the future, they don’t yet see a noticeable improvement in economic conditions. Considering only 52.8% of the population is employed, it should come as no surprise that consumers have tempered their expectations, even with another stimulus bill on the horizon.
The Rich Need More Room — How Million Dollar Homes are Making a Comeback
We mentioned last week that single-family homes in the neighborhood of $300K–$500K were seeing a spike in demand, which makes sense considering that most purchases in May were made by first-time home buyers. However, as months of stay-at-home orders drag on, the wealthy have also been on the prowl for second homes that are closer to metropolitan life, but still within driving distance of their primary homes. Places such as Greenwich, Connecticut; Palm Springs, California; and Hamptons, New York are seeing a 24%, 28%, and 72% increase in property viewings respectively.
Sellers are also starting to come back onto the market, leading to a rise in inventory. Where in previous months, the inventory of homes in the top 5% of the market was as much as 57.8% lower than in 2019, May has experienced only a 15.1% drop from last year. Prices of these luxury homes have also risen, as listing price entry points increased by 6.1% to $2.97 million from 2019. However, these high-end homes also take longer to sell (89 days for million dollar homes as opposed to less than a month for the average house on the market) and are more susceptible to bad news since they’re more often vacation homes than permanent residences.