Monday Market Update – 08/15/2022

Mortgage Rates Jump Up

August 11, 2022

The 30-year fixed-rate went back up to well over five percent this week, a reminder that recent volatility remains persistent. Although rates continue to fluctuate, recent data suggest that the housing market is stabilizing as it transitions from the surge of activity during the pandemic to a more balanced market. Declines in purchase demand continue to diminish while supply remains fairly tight across most markets. The consequence is that house prices likely will continue to rise, but at a slower pace for the rest of the summer.

Primary Mortgage Market Survey®

U.S. weekly averages as of August 11, 2022
Average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage. Visit the following link for the Definitions. Borrowers may still pay closing costs which are not included in the survey.

Opinions, estimates, forecasts, and other views contained in this document are those of Freddie Mac’s economists and other researchers, do not necessarily represent the views of Freddie Mac or its management, and should not be construed as indicating Freddie Mac’s business prospects or expected results. Although the authors attempt to provide reliable, useful information, they do not guarantee that the information or other content in this document is accurate, current or suitable for any particular purpose. All content is subject to change without notice. All content is provided on an “as is” basis, with no warranties of any kind whatsoever. Information from this document may be used with proper attribution. Alteration of this document or its content is strictly prohibited. ©2022 by Freddie Mac.

Week of August 8, 2022 in Review

Both producer and consumer inflation were cooler than estimates last month, while Initial Jobless Claims moved higher once again. Here are last week’s key headlines:

Consumer and Producer Inflation Cooler Than Expected in July

The Consumer Price Index (CPI), which measures inflation on the consumer level, showed that inflation was flat in July. This was lower than the 0.2% increase that was expected. Note that a flat or 0.0% reading doesn’t mean inflation fell in July, but rather there was no increase in inflation in July from June. On an annual basis, inflation declined from 9.1% to 8.5%, also lower than estimates. Core CPI, which strips out volatile food and energy prices, also came in below estimates.

Of note within the report, rents rose 0.7% last month and are now up 6.3% year over year. While this data has started to increase, the CPI report is still not capturing the double-digit year over year rent increases other rent reports like Apartment List and CoreLogic are showing. Energy prices fell 4.6%, bringing the annual gain to nearly 33%. Gasoline prices declined 7.7% in July but they are up 44% year over year. Food costs climbed another 1.1% in July, bringing the year-over-year gain to almost 11%.

The Producer Price Index (PPI), which measures wholesale inflation, also fell 0.5% in July, coming in much lower than the 0.2% gain expected. The drop in gasoline prices accounted for much of the decline in this headline reading. On a year over year basis, PPI declined from 11.3% to 9.8%. Core PPI, which again strips out volatile food and energy prices, came in below estimates with a 0.2% increase. The year over year figure fell from 8.2% to 7.6%.

What’s the bottom line? To help cool inflation the Fed has been hiking its benchmark Fed Funds Rate, which is the interest rate for overnight borrowing for banks and it is not the same as mortgage rates. So far this year, we have seen 25, 50, 75 and 75 basis point hikes at their March, May, June and July meetings, respectively.

July’s cooler than expected inflation readings mean the markets are now betting that the Fed may hike the Fed Funds Rate by 50 basis points rather than 75 at their meeting on September 21. The Fed will be closely watching August’s inflation and employment reports when they’re released in early September ahead of its meeting, as these will also play an important role in their decision.

Decline In Import Prices Also Signals Cooling Inflation

Import prices were down 1.4% last month, which is the first decline since December and another sign that inflation is at least starting to subside a bit. A big reason for this is how strong the dollar is comparatively to other currencies. Because of the strength in the dollar, we are importing less inflation.

So, why is the dollar strong compared to other currencies?

The Fed has had the first jump on hiking rates, and they have done more hikes than many other countries so far. However, it’s unclear how long this will last, as other central banks are beginning to catch up and do more rate hikes.

Inflation Remains Top Problem for Many Small Businesses

The National Federation of Independent Business Small Business Optimism Index was reported at 89.9 for July, up a touch from the 89.5 print seen in June that was the lowest since January 2013. Among the takeaways, 37% of small business owners reported that inflation remained their top problem. This is the highest level since 1979, so July’s cooler than expected inflation readings could be welcome news.

In addition, owners expecting better business conditions over the next six months rose nine points from June’s record low to a net negative 52%. Previously this year, expectations for better business conditions had deteriorated every month from January to June.

What’s the bottom line? Bill Dunkelberg, NFIB’s chief economist, noted that, “The uncertainty in the small business sector is climbing again as owners continue to manage historic inflation, labor shortages, and supply chain disruptions.”

Initial Jobless Claims Continue to Tick Higher

Initial Jobless Claims increased by 14,000 in the latest week, as 262,000 people filed for unemployment benefits for the first time. However, the number of Initial Claims filed in the prior week was revised lower by 12,000, which tempers some of the latest increase. Continuing Claims, which measure people who continue to receive benefits after their initial claim is filed, rose 8,000 to 1.428 million, reaching a high not seen since the beginning of April.

What’s the bottom line? The 4-week average of Initial Jobless Claims moved up once again to its highest level since late November. The trajectory higher is likely to continue, given the announcements of significant layoffs from several public companies, which means we will eventually see a higher unemployment rate. This report can be the “canary in the coal mine” to show that the job market is starting to soften.

Family Hack of the Week

Back to school season is in full swing. These hacks courtesy of can help you save time and stay organized all year long.

Create a homework station complete with pencils, paper, folders, erasers, highlighters, calculators and more supplies your kids will need for assignments in the year ahead. This can minimize clutter throughout your home as well as save time by preventing hunts through the house for needed items.

Snack stations can also save time after school as well as when packing lunches. Add perishable snacks like grapes or carrots into sealable plastic bags and keep them in a specific drawer in your fridge, along with cheese sticks and yogurts. You can also create a snack station for pantry items where you can keep single-serving bags of pretzels, juice boxes, granola bars or cookies.

DIY cereal stations for kids are great for making mornings easier. Prefill plastic containers with your kids’ favorite cereal, fill a jug with a spigot with milk and keep spoons in an easy to reach place so they can grab their own breakfast each day.

What to Look for This Week

Housing news dominates the headlines this week, beginning Monday with the National Association of Home Builders Housing Market Index, which will give us a near real-time read on builder confidence for this month. On Tuesday, Housing Starts and Building Permits for July will be released. July’s Existing Home Sales follows on Thursday.

Over in the manufacturing sector, August’s data for the New York and Philadelphia regions will be reported on Monday and Thursday, respectively. July’s Retail Sales data will be released on Wednesday, while the latest Jobless Claims follows as usual on Thursday. It will be important to see if these reports show more signs that the economy is slowing.

Technical Picture

Mortgage Bonds are continuing to trade in a narrow range between support at the 25-day Moving Average and overhead resistance at the 100-day Moving Average. Going back to mid-June, Bonds have created a pennant formation, which is narrowing and squeezing Bonds. Oftentimes, Bonds will break out of these types of patterns in the direction of the previous trend, which was higher. The 10-year is in a similar position but reversed since we are looking at the yield.

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