May 27, 2020 - Market Update

What difference a day makes.  Investors shrugged off concerns with US/China relations, poor economic data and sub par earnings to focus on buying equities.  Germany announced plans to lift travel restrictions, Japan is ending the state of emergency and optimism in the US had investors scrambling to buy particularly in sectors hardest hit by the pandemic.  The Dow and S&P rallied by +2.2% (+529.95) and +1.2% (+36.32) respectively.  Renewed investor optimism in an economic recovery appear to be driven by easing of restrictions and ongoing stimulus from major economies.  Markets will however watch for new developments in Hong Kong and a U.S. reaction to the new national security laws in China as well and any vaccine related developments.

New Home Sales rose to a 623k annualized pace, decidedly beating market expectations of 480k.  Despite rising from a low base, the surprise to the upside indicates that housing may be performing well despite the high job losses due to the pandemic.  Markets will look forward to tomorrow’s  claims figures for further insight into the health of the economy.

Mortgage applications increased 2.7% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending May 22, 2020. The Refinance Index decreased 0.2%  from the previous week and was 176% higher than the same week one year ago. The Purchase Index increased 9% from one week earlier and was 9% higher than the same week one year ago. The refinance share of mortgage activity decreased to 62.6% of total applications from 64.3% the previous week.

The FHA share of total applications decreased to 11.2% from 11.5% the week prior. The VA share of total applications decreased to 12.4% from 13.4% the week prior. The USDA share of total applications decreased to 0.6% from 0.7% the week prior.

The Mortgage Bankers Association’s (MBA) latest Forbearance and Call Volume Survey revealed that the total number of loans now in forbearance increased from 8.16% of servicers’ portfolio volume in the prior week to 8.36% as of May 17, 2020. According to MBA’s estimate, 4.2 million homeowners are now in forbearance plans.  By investor type, the share of Ginnie Mae loans in forbearance increased relative to the prior week: from 11.26% to 11.60%.  The share of Fannie Mae and Freddie Mac loans in forbearance increased relative to the prior week: from 6.25% to 6.36%.

While the personal savings rate has skyrocketed from 7.5% in 12/19 to 13.1% in 3/20, and wage growth has jumped from 3%/year in 12/19 to 7.9%/year in 4/20, the two are unrelated. Wages are up because many low wage workers have lost jobs. Savings rates have risen because spending has fallen faster than income. Savings rates should be elevated for some time as was the case following the Great Recession.