Morning Commentary: The Housing Bounce

A daily summary and commentary of events and factors that affect the global markets, with a particular emphasis on the foreign exchange markets.

The Housing Bounce Share this story: Andrew Kositkun Foreign Exchange Head Trader

The recovery in housing has been nothing short of impressive with market data showing home sales in July running above February levels.  Nevertheless, things aren’t all positive in the housing market with an increasing number of homeowners falling into delinquency.  According to the Mortgage Bankers Association (MBA), the mortgage delinquency rate is currently around a 9-year high.  Sadly, this isn’t a surprising result given the rapid rise in unemployment and loss of salary income following the sizable pandemic shock.  What is unprecedented is the simultaneous strong bounce in housing demand and move higher in mortgage delinquencies, but such is the uneven nature of this recession.   Because of this unique backdrop, the rise in delinquencies is unlikely to usher in a wave of foreclosures like we saw during the Great Financial Crisis.  Homeowners have more equity in their homes due to the sharp run up in prices and larger required down payments.  Additionally, policy makers have already stepped up with programs to provide relief for homeowners under stress.  So while there will be pockets of stress in the housing markets, the reasons below argue for the durability of the housing recovery. An uneven recession: The shock disproportionally impacted lower income workers that are less likely to be homeowners.  55% of households earning less than $35K lost employment income vs. 40% of those earning more than $75K.  The median household income of recent homebuyers is $93K. Record low interest rates: Mortgage rates sit near record lows and it has been estimated that the average monthly mortgage payment has declined by $80/month. Low inventory: Even pre-pandemic, inventory levels were low with equity high and debt manageable.  Supportive monetary and fiscal policies: Forbearance programs reduced the potential stress from delinquencies.  HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT: Fiscal stimulus talks remain stalled with House Speaker Pelosi saying she would not agree to anything less than $2.2 trillion.  Conversely, Senate Republicans struggle to agree on the $1.5 trillion compromise from the Problem Solvers Caucus.   The US has announced that it will freeze TikTok’s app and ban some transactions over WeChat starting this Sunday.  The government will prohibit US to US transactions related to WeChat but the ban won’t impact activity in China.  President Trump has given until November 12 for national security concerns to be resolved.  If they are, the prohibitions may be lifted.    The UK and Europe are facing the possibility of additional measures to restrict movement as virus infection numbers increase.  Per news reports, the “R” (the virus reproduction rate) is rising and that has led scientific advisors to propose a two-week lockdown.  In the end, a rising “R” does present concerns, but the death rate is likely the ultimate decider on where more aggressive measures are adopted.  To this end, COVID-19 mortality rates remain relatively lower due to better treatment protocols, better awareness and different age distributions of infected people.    The EU should publish a document next week that outlines how it intends to grow its capital markets now that London is outside the bloc.  The European Commission will have to remove roadblocks related to conflicting national regulations and tax and insolvency policies.   Canada’s wholesale trade data beat expectations, but its retail sales print came in lower than expected.  Conversely, retail sales in the UK beat expectations, but this number was helped by some government programs that have since expired with other support programs, such as the jobs furlough program, set to expire soon.

If we can help you with any Foreign Exchange needs, please email foreignexchange@cnb.com or call (800) 447‑4133. Want to learn more about international finance, economics, and global events? Sign up for our other Foreign Exchange emails and videos!

Follow City National Bank on social media:

Non-deposit investment products: • Are not FDIC insured, • Are not deposits or other obligations of City National Bank and are not guaranteed by City National Bank, and • Are subject to investment risks, including possible loss of the principal invested. This report is for general information and education only and was compiled from data and sources believed to be reliable. City National Bank does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors as of the date of the report with no obligation to update or notify of inaccuracy or change. This report is not a recommendation or an offer or solicitation to buy or sell any financial instrument discussed. It is not specific investment advice. Financial instruments discussed may not be suitable for the reader. Readers must make independent investment decisions based on their own investment objectives and financial situations. Prices and financial instruments discussed are subject to change without notice. Instruments denominated in a foreign currency are subject to exchange rate and other risks. City National Bank (and its clients or associated persons) may engage in transactions inconsistent with this report and may buy from or sell to clients or others the financial instruments discussed on a principal basis. Past performance is not an indication of future results. This report may not be reproduced, distributed or further published by any person without the written consent of City National Bank. Please cite source when quoting.

Unsubscribe from this list  |  Update email preferences This message has been sent to bank@banking.offers.report. Please do not reply to this email. To ensure the delivery of future emails, please add foreignexchange@emails.cnb.com to your email address book or safe sender list. Copyright ©2020 City National Bank – All Rights Reserved. 350 South Grand Avenue, 12th Floor, Los Angeles, CA 90071 City National Bank is a subsidiary of Royal Bank of Canada. TERMS & CONDITIONS  |  PRIVACY STATEMENT NMLSR ID# 536994 | City National Bank Member FDIC