Economic update for the week ending February 27, 2021

by Marc Tahler

Stock markets dropped on fears of higher interest rates – As the economy appears to be recovering quicker than expected according to data and developments that are very positive, rising interest rates became a concern over the last two weeks. Stock markets reached record highs two weeks ago on news that COVID-19 cases were falling, the pace of vaccines had increased, retail sales rose sharply, corporate profits were strong, an unprecedented amount of additional stimulus will be added to the economy in the coming months, and the economy is finally beginning to re-open at a quicker pace than we have seen since the start of the pandemic. Unfortunately, all that optimism also has increased the risk of higher inflation and has lowered the demand for U.S. Treasury bonds. Treasury bonds pay low yields but are attractive when investors want to park money at low risk. Bond yields fell sharply from the start of the pandemic as investors rushed to safety, which lowered yields. Bond yields directly affect lending rates on every type of loan. Bond yields have increased to their highest level since last April, which has caused interest rates on all types of loans to increase. Higher borrowing costs lower profits. With investors uncertain about how much higher interest rates will rise, stock prices have dropped. The Dow Jones Industrial Average closed the week at 30,932.37, down 1.8% from 31,494.32 last week. It is up 1.1% year-to-date. The S&P 500 closed the week at 3,811.15, down 2.4% from 3,906.71 last week. It is up 1.6% year-to-date. The NASDAQ closed the week at 13,192.35, down 4.9% from 13,874.36 last week. It is up 2.3% year-to-date.

U.S. Treasury bond yields – The 10-year treasury bond closed the week yielding 1.44%, up from 1.34% last week. The 30-year treasury bond yield ended the week at 2.17%, up from 2.14% last week. We watch bond yields because mortgage rates often follow treasury bond yields.

Mortgage rates – The February 25, 2021, Freddie Mac Primary Mortgage Survey reported mortgage rates for the most popular loan products as follows: The 30-year fixed mortgage rate was 2.97%, up from 2.81% last week. The 15-year fixed was 2.34% up from 2.21% last week. The 5-year ARM was 2.99%, up from 2.77% last week.

U.S. existing single-family home sales – The National Association of Realtors reported that existing home sales increased to a seasonally-adjusted annualized rate of 6.69 million units. That’s an increase of 0.6% from the number of homes sold in December, and a 23.7% increase from the number of homes sold last January. The median price paid for a home in the U.S. in January was $303,900, up 14.1% from January 2020 when the median price was $266,300. There was just a 1.9-month supply of homes for sale compared to a 3.1-month supply one year ago.

California existing home sales – The California Association of Realtors reported that existing, single-family home sales totaled 484,730 on an annualized basis in January. That represented a year-over-year increase of 22.5% from the 395,700 annualized rate of homes sold in January 2020. The median price paid for a home in California was $699,890, up 21.7% from the median price of $575,160 last January. Inventory levels were lower than one year ago. There was just a 1.5-month supply of homes for sale in January, down from a 3.4-month supply one year ago. Below please find a graph of regional statistics for Southern California.

Published on 2021-02-26 22:21:16