Market Update 11/13/2020

New Thanksgiving recipe for increasing U.S. home sales 

• 1 part work-from-home  

• 1 part travel restrictions 

• 1 part social distancing  

• 1 part record-low home mortgage rates 

Mix evenly, then bake for 9 to 10 months and you end up with near record highs for U.S. existing home sales. 

Existing home sales have been on the rise. First time home buyers purchased nearly 2.2 million homes in October. Overall, October sales totaled 6.85 million homes, which was 26% higher than one year ago and a level not seen for nearly 15 years. According to the National Associate of Realtors, first-time home buyers accounted for 32% of the total purchases in October. This percentage is in line with the average; however, it is important to evaluate in absolute terms since this ratio is on a much larger total home sales number. Why the increase? We speculate that travel restrictions and social distancing practices throughout 2020 have led to more people “settling down” and buying a house. 

A work-from-home environment has enabled some people to office anywhere with a phone and internet connection. Perhaps this has led more people to relocate or buy a second home. Interestingly, the southern U.S. led all regions in home sales, accounting for 42% of the total.   

The fact is that mortgage interest rates remain near historic lows, making home ownership more attractive, especially when compared to renting. The current average 30-year fixed mortgage interest rate of 2.72% means that monthly payments are lower for today’s buyer than a year ago, when rates were at 3.68%. Put another way, for the same mortgage payment, homebuyers can now afford a higher priced home. 

Lower borrowing costs can spur economic activity, in addition to home buying, such as ongoing spending for furnishings, improvements, and repairs. 

Market Comments:  

• The U.S. stock market (S&P 500) declined about 0.70% on the week; technology and health care lagged, while energy and industrials outperformed 

• International stocks, both developed and emerging markets broadly, were up over 1% during the week 

• Third-quarter earnings update: 84% of S&P 500 companies have reported actual earnings greater than expectations; this is the highest since tracking began in 2008 (source: Factset, Inc) 

• 21 days – the average length of time a house remained on the market during October; a year ago the average was 36 days (Source: National Association of Realtors) 

• Electric car manufacturer, Tesla Inc. will be added as a constituent to the S&P 500 Index on December 21st; it is expected that Tesla will be the largest in market capitalization addition to the index in the last decade