For 17-straight weeks, the 30-year fixed-rate mortgage interest rate has averaged below 3%. This week the Freddie Mac 30-year fixed-rate mortgage average dipped to another historic low, the thirteenth this year, hitting 2.72%. Freddie Mac's Chief Economist Sam Khater cited weak consumer spending as the reason for the decline. 

Historically low rates giving buyers more spending power, combined with the COVID-related push to buy a home with more space instead of renting, have resulted in a surge of homebuying activity. According to data from the National Association of Realtors, October was the fifth straight month of increases in existing home sales. There was a 4.3% month-over-month increase with a whopping 26% annual increase. 

The NAR's report also outlines a record-low inventory of 2.5 months if we stay at the current sales pace. Not surprisingly, 72% of homes sold in October were listed for less than a month. The NAR's data also showed that the median price on an existing home jumped by 16% from this time last year, to $313,000.  

When you look at weekly mortgage activity, the Mortgage Bankers Association's latest data shows applications rising 4% for the week (seasonally adjusted). Annually, volume was up 26%. Refinances were up 98% annually.

Like the NAR's data mentioned, inventory is reaching critical mass. Without more homes coming to market, demand will force prices to continue their surge. One thing that might help is the construction of new homes. 

Buoying that hope is a report showing builder confidence reached an all-time high in November. The National Association of Home Builders and Wells Fargo Housing Market Index reached 90 points — the highest since its inception 35 years ago. This was also only the third time the index broke 80 (scale from 0-100). This index is important because it measures not only current single-family home sales, but expectations for the next six months. 

Investors weigh COVID, vaccine, and Washington D.C. 

This week the Dow Jones Industrial Average hit an all-time high of 29,950.44. The news of multiple, effective COVID-19 vaccines gave investors the confidence to help the Dow to its first record close since February of this year. The S&P 500 also had a record day on Monday, closing up 1.2% at 3,626.91. The vaccine news pushed investors toward what are called value stocks — the kinds of companies that produce goods and provide services. They've largely been down this year because they rely on a strong economy. 

The markets quickly came back down to Earth, recording two straight days of losses after the Dow and S&P hit record highs. An increase in COVID-19 cases, combined with reinstated lockdowns in some states, caused a 200-point drop in Dow futures Thursday overnight. Early Friday morning trading showed markets relatively flat.

Monday's highs almost pushed the 10-year Treasury note yield back over the 1.0% mark, but the subsequent selloff pulled it back down. Friday morning, the 10-year Treasury note yield was trading at 0.846%.

End of year deadlines spur battle between Fed and Treasury

Many crisis-era programs instituted by the Treasury Department and the Federal Reserve are due to expire at the end of 2020. This week, Treasury Secretary Steve Mnuchin sent a letter to Federal Reserve Chair Jerome Powell, outlining his plan for the next year. 

Under the $2 trillion CARES Act, $455 billion was allocated to the Treasury. That money was initially meant to be distributed to fund programs like the Main Street Lending Program and given to the Fed to purchase corporate bonds. As of Thursday this week, the Fed had made $5.4 billion in Main Street loans with the Municipal Liquidity Facility issuing $1.7 billion in loans.

So, in Mnuchin's letter, he requested that any unused funds be returned to the Treasury to be reallocated to Congress so it can redistribute as members see fit. Reportedly, Powell was blindsided by the request. 

The Fed rebutted that it would “prefer that the full suite of emergency facilities established during the coronavirus pandemic continue to serve their important role as a backstop for our still-strained and vulnerable economy.”

Mnuchin's plan allows for a 90-day extension to other programs involved, which include supplying cash to core financial markets, like those for short-term corporate credit. Mnuchin's letter implied that the lending programs, if needed again, could be reinstated upon request by the Fed with funding from the Treasury's own fund or newly allocated Congressional money. 

Of Note:

• Data from the Labor Department showed nearly 750,000 Americans filing initial unemployment claims this past week. That's the first increase in four weeks. 
• Continuing claims fell to 6.37 million.
• Retail sales rose by just 0.3% in October, with core retail sales rising by just 0.1%. September's revised numbers also show concern, with core sales rising just 0.9% as opposed to the previously reported 1.4%.

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There will be no Market Update next week! Happy Thanksgiving everyone!