Jobless Claims Still Staggering While Home Prices Continue to Appreciate

The economic calendar was relatively quiet, but there was important news to note about unemployment, housing and the Fed.

Jobless Claims Remain High, With Caveat

Another 840,000 people filed for unemployment benefits for the first time during the week ending October 3, which is still a very high number of new claims. An additional 11 million people are continuing to receive benefits after their initial claim has been filed, which is an improvement of roughly 1 million people.

In addition, 11.4 million people are receiving Pandemic Unemployment Assistance (PUA), which people can apply for when their regular unemployment benefits expire. PUA benefits are also for people who would not typically be approved for unemployment, like gig workers and contractors.

All in all, the total number of individuals receiving some kind of unemployment benefits is at 25.5 million, which improved by 1 million. By comparison, there were 1.4 million people receiving some type of unemployment benefits during this same week last year.

It's important to note that California did not report due to an internal review they conducted to try and flush out some fraud they were experiencing, which means these numbers need to be taken with a grain of salt. California makes up 20% to 25% of claims due to its large population, so the numbers could have been much better or worse depending on how California did.

The bottom line is that the lack of people working will continue to pressure supply chains. And with the economy becoming busier, this will only add to higher inflation. More about why this matters below.

Home Prices Continue to Appreciate

CoreLogic released their Home Price Index report for August, which showed that home prices increased nearly 1% from July and they're up 5.9% compared to August of last year. Idaho, Arizona and Maine experienced the strongest price growth in August, up 10.8%, 9.7% and 9.6%, respectively.

CoreLogic also forecast that home prices will rise 0.2% in the year going forward, which is a decline from the 0.6% increase forecasted in the previous report. However, keeping this in perspective, CoreLogic had forecasted only a 0.1% monthly gain for August and the data came in at 1%, and the same thing happened last month as well. In addition, not too long ago CoreLogic forecasted a 6.6% decline in home prices in the year going forward, which they have revised significantly to now a positive 0.2% gain. With demand for housing so high, appreciation should continue.

"The imbalance between homebuyer demand and for-sale inventory is particularly acute for lower-priced homes,” noted Dr. Frank Nothaft, chief economist at CoreLogic. “Because of this imbalance, homes priced more than 25% below the median were up 8.6% in price over the last year, compared with the 5.9% price increase for all homes.”

Fed Strategy and Inflation

The minutes from the Fed's September 15-16 meeting were released on Wednesday and they showed that several Fed officials balked at the new interest rate strategy to keep the Fed Funds Rate at zero through 2023, in part because the guidance could limit the central bank’s flexibility. Note that the Fed Funds Rate is the rate banks use to lend each other money overnight and it is not the same as home loan rates.

These Fed members also argued that by influencing the market’s view about the future path of short-term interest rates, “such guidance could contribute to a buildup of financial imbalances that would make it more difficult for the Fed to achieve its objectives in the future.”

In addition, a few Fed officials argued against the strategy for different reasons. They wanted the Fed commitment to keep the Fed Funds Rate near zero to be even stronger and less qualified. They wanted the Fed to say that the policy rate would remain near zero until inflation had moved above 2% for some time.

Remember rising inflation is especially important to monitor, as inflation reduces the value of fixed investments like Mortgage Bonds. And since home loan rates are tied to Mortgage Bond performance, if Bonds worsen or lose value as they can when inflation rises, then home loan rates can increase as a result.