Mortgage Rates Inching Toward Seven Percent

Incoming data suggest that inflation is softening, falling to its lowest annual rate in more than two years. However, increases in housing costs, which account for a large share of inflation, remain stubbornly high, mainly due to low inventory relative to demand and that’s posing some challenges in the housing market.

For the first time in nearly a year, the average sale-to-list price ratio in the United States has surpassed 100%, indicating that homes are selling for more than their asking prices since August of 2022. It’s mostly attributed to low inventory levels and demand.

Lack of inventory, high home prices, and mortgage rates hovering around 7%, are posing challenges for first time homebuyers, who are getting squeezed on affordability. Move up buyers are feeling it too and in no hurry to swap out a rate with 2 or a 3 on the front of it for something in the 6’s or higher.

That lack of inventory is to blame on both fronts. There are opportunities to help though. Educating our clients around the idea of a “blended rate” for all of their debt, not just their low rate mortgage could help them see that moving up, retiring those high interest rate debts like, credit cards, home equity lines of credit, student loans and car payment, could save them money each month and provide a pathway to home that is more suitable for their needs today.

Mortgage rates increased early last week to their highest level since November 2022, breaking seven percent only to see a rally in the market for mortgage backed securities on the improving inflation data mentioned above. A friendly reminder that as rates come down, demand for the limited supply of housing will likely continue to push prices up. Getting a fully underwritten pre-approval now could save some disappointment later. Have someone you would like get pre-approved? Please call me today! 650-207-4364 or you can reach me by email here.

Primary Mortgage Market Survey® U.S. weekly averages as of 07/13/2023

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Week of July 10, 2023 in Review

There was welcome news as June brought big drops in consumer and wholesale inflation. Plus, several indexes showed that home prices are appreciating nationwide, providing opportunities right now for buyers to build wealth through homeownership. Read on for these stories and more:

  • Consumer Inflation Makes Meaningful Move Lower
  • Huge Progress in Wholesale Inflation
  • Home Price Appreciation Continues Higher
  • Holiday Impact on Unemployment Filings

Consumer Inflation Makes Meaningful Move Lower

June’s Consumer Price Index (CPI) showed that inflation rose 0.2%, with this monthly reading coming in just below estimates. On an annual basis, CPI fell sharply from 4% in May to 3% last month, reaching its lowest level in more than two years. Core CPI, which strips out volatile food and energy prices, increased 0.2% while the annual reading declined from 5.3% to 4.8%.

What’s the bottom line? Declining costs for used cars and airfares helped inflation last month, while stubbornly high shelter costs remained a key contributor.

Inflation has declined sharply from the 9.1% peak seen in June 2022, and it continues to make meaningful progress lower with the headline reading now all the way down to 3%. Easing inflation is welcome news as it signifies a break from price increases for some goods and services. Lower inflation also typically helps both Mortgage Bonds and mortgage rates improve over time. In fact, Mortgage Bonds had a strong rally last Wednesday after this report was released.

Huge Progress in Wholesale Inflation

The Producer Price Index (PPI), which measures inflation on the wholesale level, increased by 0.1% in June, coming in just below expectations. On an annual basis, PPI fell from a downwardly revised 0.9% to only 0.1%, which is the lowest level in almost three years. Core PPI, which also strips out volatile food and energy prices, rose by 0.1%, with the year-over-year reading dropping from 2.6% (also downwardly revised) to 2.4%.

What’s the bottom line? This latest PPI report is another encouraging sign that inflation is easing, with June’s 0.1% year-over-year reading a sharp drop from last year’s 11.7% peak. Plus, PPI tends to lead the way for CPI, which suggests further good progress moving forward.

The Fed must be pleased with both the CPI and PPI readings for June, as they started hiking their benchmark Fed Funds Rate (which is the overnight borrowing rate for banks) last year to slow the economy and help curb runaway inflation. While the Fed is still expected to hike at their meeting later this month, the real question is what will they do at the following meeting in September?

Home Price Appreciation Continues Higher

CoreLogic’s Home Price Index showed that home prices nationwide rose for the fourth straight month, up 0.9% from April to May. Prices were also 1.4% higher when compared to May of last year. CoreLogic forecasts that home prices will rise 1% in June and 4.5% in the year going forward.

Black Knight also reported strong growth in May, with home prices up 0.7% from April. Their index has seen prices rising since January at an accelerating pace. Meanwhile, Zillow’s latest Housing Market Report showed that home values rose 1.4% in June, which was a very strong gain and followed an equal 1.4% rise in May.

What’s the bottom line? Black Knight’s Vice President of Enterprise Research, Andy Walden, explained that home values have erased the losses from the second half of 2022 and have now set a new all-time high. “There is no doubt that the housing market has reignited from a home price perspective,” said Walden. “Firming prices have now fully erased the pullback we tracked through the last half of 2022 and lifted the seasonally adjusted Black Knight HPI to a new record high in May.”

Based on the price gains that have been reported so far this year, CoreLogic’s index is on pace for 10% appreciation in 2023, with Zillow also at a very strong 9.4% pace and Black Knight at a 5% pace. These gains are a far cry from the housing crash that many media pundits forecasted and show that opportunities exist right now to build wealth through homeownership and appreciation.

Holiday Impact on Unemployment Filings 

 jobless claims (11)

Initial Jobless Claims fell by 12,000 in the latest week, with 237,000 people filing for unemployment benefits for the first time. Continuing Claims rose by 11,000, with 1.729 million people still receiving benefits after filing their initial claim. While this latter metric is well above the low of 1.289 million seen last September, it has trended downward since April as some people have found new employment while others have seen their benefits expire.

What’s the bottom line? While the decline in Initial Claims appears to show a strong labor market, the measured week included July 4 and this likely impacted the data as people often put off filing during holiday weeks. We saw a similar dynamic when Initial Claims declined in the week encompassing the Juneteenth holiday, only to see them rise the following week. Note that Continuing Claims measured the week before Independence Day, so they were unaffected by the holiday.

What to Look for This Week

Housing data will be plentiful, starting Tuesday with an update on home builder sentiment for this month from the National Association of Home Builders. June’s Housing Starts and Building Permits follow on Wednesday, while Existing Home Sales releases on Thursday.

Also ahead, look for July’s manufacturing data for the New York and Philadelphia regions on Monday and Thursday, respectively. June’s Retail Sales will be reported on Tuesday and the latest Jobless Claims on Thursday.

Technical Picture

After a strong rally last week, Mortgage Bonds gave back a bit of their gains on Friday, ending the week testing a floor of support at their 25-day Moving Average. The 10-year has broken above its 25-day Moving Average, with the next ceiling at the 3.908% Fibonacci level.

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