Zillow Market Pulse: August 26, 2020

August 26, 2020

The July new home sales report continued a strong stretch of housing data. Consumer confidence continues to deteriorate after signs of improvement in the spring. And mortgage rates fell sharply as the FHFA delayed the rollout of a new policy.

New home sales continue strong stretch

• Sales of new homes rose 13.9% in July from June and 36.3% from July 2019
• New home sales through July are up 8.2% year-to-date compared to 2019

Consumer confidence is waning

• The Conference Board's Consumer Confidence Index fell 6.9 points in August from July to 84.8, its lowest level since 2014
• Consumer confidence has fallen 14% since June

Mortgage rates plummet as refinance fee rollout is delayed

• The FHFA announced that the implementation of their previously announced fee on mortgage refinances will be delayed until December 1st
• The news propelled mortgage rates downward for the week

So what? 

The July new home sales figures were the latest in a series of housing data that showed the industry is riding a positive wave. Even though the headline figure was likely inflated by seasonal adjustment factors that aren't as applicable this year than in the past, more new homes were sold in July than in June, showing that low mortgage rates, a shortage of existing homes up for sale and possibly changing preferences are buoying homebuyer demand into the summer months. However, even as the strong recovery of home sales continues, there are some hindrances looming. Despite the recent increase in home construction from builders bolstered by strong new home sales figures, sales of new homes will likely be constrained by a shortage of available homes at some point as builders race to get ahead of demand. Seasonal factors and, most notably, uncertainties brought upon by the enduring spread of the coronavirus could also hinder sales volume in the coming months. But for now, the housing market continues to blow past expectations and continue its strong 2020 well into the summer.

While the housing market continues to ride a strong wave of positive momentum, consumer confidence is waning. The Conference Board's Consumer Confidence Index decreased for the second straight month and below the series' level back in the pandemic's early days of April and May. In fact, the Index fell in August to its lowest total since May 2014. The report's forward-looking Expectations Index has retreated 20.9 points since June and now sits at its lowest level since 2016. Underlying measures reinforce the narrative as well. The report's so-called labor market differential, which measures the difference in the share of respondents who believe jobs are plentiful and the share who believe jobs are hard to get, fell to -3.7 in August from 2.2 in July. This gauge tends to map well to the overall employment situation in a given month, so the reduction (which followed four straight monthly improvements) does not bode well for the August jobs report next Friday. The share of respondents who plan to buy a home in the next six months also fell, but remains above levels from earlier in the spring and during previous recessions.

Mortgage rates fell sharply in recent days to end the week down, driven by a delay in the FHFA's new 0.5-percentage-point fee on some refinances. The FHFA announced its Adverse Market Refinance Fee, which applies to all mortgage refinances serviced by government entities, will be delayed to December 1, rather than September 1. After the surprise announcement of the policy a couple of weeks ago, lenders scrambled to increase fees on all mortgages – not just refinances – to account for the losses they were due to incur on loans in which rates were already locked in. The decision to delay the policy's rollout appears to have had the opposite effect, as rates immediately fell sharply on Wednesday following the news. The fee, of course, is still due to be implemented in the late fall, but the forewarning given to lenders this time around will likely mean that any future rate increases will be more gradual and weighted toward refinances, as the policy intends.

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