Stocks, Bonds, and rates are responding to the tug-of-war playing out
between vaccine hopes and the rise in COVID-19 cases, along with
Pfizer was out this past week saying its vaccine has a 95%
effectiveness rate. Moreover, the firm says they will have 50 million
doses available before year-end and as much as 1.3 billion doses
available in 2021.
On top of this, Moderna has a very effective vaccine and there are
dozens of firms ready to deliver additional doses and therapeutics.
Stocks and rates have moved higher because both are forward-looking.
Yes, the rise in cases and hospitalizations is a concern, but at the
moment the markets are looking four to six months down the road and
there is hope that with a high vaccination rate we can return back to
normal sometime in 2021.2)
Single-family Housing Starts showed the highest reading since 2007!
Historically low interest rates and shifting demand to move to the
suburbs are the drivers.
The main challenge for builders is keeping up with the demand.
Available lots and decreased availability of supplies are headwinds for
One thing is for sure: If land and materials are scarce, expect new
home prices, currently averaging $326,000, to continue to climb.
Bottom line: Rates hit historic lows, as reported by Freddie Mac,
this week. With a vaccine and more stimulus on the way, it may be
difficult to see rates improve much, if at all. If you or someone you
know would like to talk about the incredible opportunity, please contact
Rocking the 80s
This past week, the U.S. 10-year Note yield, a proxy for long-term interest rates, climbed back above .80% for the first time since June. At the same time, mortgage-backed security prices, which determine home loan rates, declined to their lowest level since July, pushing mortgage rates higher.
Stimulus, Stimulus, Stimulus
With two weeks to go before the election, it's not a matter of if, but when a stimulus plan is coming. At the moment, it's looking like a plan of at least $2 trillion or more and the markets are preparing for the "future", which looks like further economic expansion and a growing threat of inflation -- both of which Bonds and rates hate.
In addition to the positive economic outcome stimulus provides, the new stimulus must be purchased by investors through Treasury auctions and the increased supply weighs on prices and drives yields/rates higher.
Don't Fight the Fed
This recent rise in rates has the Fed's attention. At the moment, the Fed is purchasing $120 billion worth of Treasuries and Mortgage Bonds each month to help pin down rates. Should Treasury yields continue to climb and drag Mortgage Bond prices lower still, causing home loan rates to rise, it is very likely that the Fed will step in and either buy even more Bonds and/or institute some sort of Yield Curve Control (YCC) to pin down long-term rates.
The Fed wants to further stimulate the economy by giving more and more people the ability to refinance or purchase a home, and much higher rates would prevent those efforts.
Bottom line: Rates are just above all-time lows, and as we are already starting to see, that they may not be for long. If you or someone you know would like to talk about the incredible opportunity for housing, please contact me.
In addition to the stimulus hopes, forthcoming election results, coronavirus cases rising around the globe, vaccine hopes, and more economies opening, there is a boatload of economic reports set for release next week that can move the markets.
There is also another round of Treasury supply hitting the Bond markets. It will be interesting to see if the recent increase in yields will be enough to attract investors.