Primary Mortgage Market Survey® U.S. weekly averages as of August 17, 2023

Last week saw a dip in both stock and bond markets, driven by positive economic news. This could lead to the Federal Reserve maintaining higher interest rates for an extended period. Though it dropped below 4.3 percent, the 10-year U.S. Treasury yield marked its fifth consecutive week of rising rates, showing the unpredictable nature of rate predictions.

This week: Federal Reserve Chair Powell will speak at the end of the week, while in Jackson Hole at the annual symposium. He will likely highlight progress in curbing inflation, while emphasizing the importance of remaining vigilant to current economic conditions–leaving room for more rate hikes. He’s expected to reiterate the Fed’s commitment to maintaining a 2 percent inflation target and addressing the market’s projected rate hikes for the upcoming year.

As the Federal Reserve focuses on stabilizing prices and employment, mortgage rates in the U.S. have surged to a 20-year high, affecting home sales and refinancing. Nevertheless, potential home buyers are still active, particularly in the new home market. Builders are offering incentives to move inventory despite the elevated mortgage rates. Building permits for new homes also saw an increase in July.

Concerns over data from China, coupled with a more hawkish stance from Fed officials, have prompted a reassessment of the economic landscape. This contributed to recent turmoil in the Treasury bond market, pushing 10-year yields close to their highest levels since 2007. The delayed impact of monetary policy on the economy, among other factors, has sparked a debate on the current risks in the bond market.

Misjudging the timing of interest rate hikes could lead to persistently high rates, potentially resulting in a more significant economic decline and inflation than expected. The futures market suggests that the first rate cut might not occur until 2024. The Fed’s July meeting minutes highlighted the ongoing risks of inflation, indicating the need for further tightening. The messaging itself could be just as important as any actions, as interest rate markets adjust to an extended period of higher rates.

Bottom line: The rising yields are raising concerns among investors due to past experiences where such increases caused disruptions in the market. Although the 10-year yield remains below the Fed’s short-term rates, some experts anticipate further rate hikes. Bond yields continued their upward trend, with the recent Federal Open Market Committee (FOMC) minutes hinting at potential additional rate hikes. While investors are assessing how rising yields might affect stock values, the housing market could experience more immediate impacts. 30-year fixed-rate mortgages have crossed the 7 percent mark due to recent developments, reaching their highest point in over two decades.

• Current Mortgage Rates Data Since 1971xlsx

Week of August 14, 2023 in Review

Despite ongoing challenges facing home builders, construction activity picked up last month. Plus, the minutes from the Fed’s July meeting provided some hints about what’s next for rate hikes. Here are the latest headlines:

• Strong Summer for Housing Starts
• Understanding the Decline in Home Builder Confidence
• Are More Fed Rate Hikes Ahead?
• Initial Jobless Claims Remain Tame
• What an Important Recession Indicator Is Saying

Strong Summer for Housing Starts

Home construction picked up in July as Housing Starts, which measure the start of construction on homes, were up 3.9% from June. Starts for single-family homes also saw improvement, as they were 6.7% higher from June to July. Building Permits, which are indicative of future supply, were relatively flat last month. Permits for single-family homes rose 0.6% from June to the highest level in a year.  

What’s the bottom line? The last three months have brought the highest number of Housing Starts so far this year. While this is a step in the right direction, more inventory is needed to meet demand.

When we look at new supply that will be coming to market (around 1.45 million homes annualized per the latest Housing Starts total) and subtract roughly 100,000 homes that need to be replaced every year due to aging, we’re well below demand as measured by household formations that are trending at 2.07 million. Even looking at future supply (Building Permits at 1.44 million annualized), we’re still lower than where we need to be.

This ongoing disparity between supply and demand is a key reason why home values continue to rise and why now provides great opportunities to take advantage of appreciation gains.

Understanding the Decline in Home Builder Confidence

The National Association of Home Builders (NAHB) Housing Market Index, which measures builder confidence, fell six points to 50 in August. However, this latest reading follows seven consecutive monthly increases and confidence remains right at the breakeven level between expansion and contraction.

What’s the bottom line? The NAHB cited several reasons for the decline in sentiment this month, including rising mortgage rates, high construction costs stemming from a lack of workers, a shortage of buildable lots, and ongoing shortages of distribution transformers (which are crucial for converting voltage in transformer lines to appropriate household levels). Record high heat may have also deterred some potential buyers from home shopping, thereby impacting builders’ perception of buyer traffic. 

Are More Fed Rate Hikes Ahead?

The minutes from the Fed’s July meeting showed that the Fed no longer believes that our economy will enter a recession, but they do see downside risks to growth. The Fed also believes there are upside risks to inflation, as the minutes showed they are not yet sure they have won the battle on inflation and more rate hikes may be ahead.

What’s the bottom line? Remember, the Fed has been hiking its benchmark Fed Funds Rate (which is the overnight borrowing rate for banks) to try to slow the economy and curb inflation. July’s hike of 25 basis points was their eleventh since March of last year.

All eyes are now turned to September 20, which is when the Fed’s next rate decision will be announced. Inflation, labor sector and other economic data released in the coming weeks will play a key role in this decision. The minutes did show that the Fed feels the labor market needs a “balancing of demand and supply.” In other words, they may want to see weaker headline job figures before calling it quits on rate hikes.

Initial Jobless Claims Remain Tame

One area of the labor sector still not showing sustained weakness is unemployment claims. The number of first-time filers fell by 11,000, with 239,000 Initial Jobless Claims reported in the latest week. Initial Claims have remained relatively tame after topping 260,000 for the first three weeks of June. which suggests that employers are trying to retain their workers. This trend coincides with recent reporting that many businesses are struggling to find qualified workers for their positions.

Meanwhile, Continuing Claims rose by 32,000, with 1.716 million people still receiving benefits after filing their initial claim. This number has been trending lower since topping 1.861 million in early April, reflecting a mix of people finding new jobs and benefits expiring.

What’s the bottom line? With the Fed focused on employment data, this was an important real-time report because it includes the sample week that the Bureau of Labor Statistics will use in the modeling for their job growth estimates. Again, the Fed will be closely analyzing this headline job growth figure when August’s Jobs Report is released on September 1.

What an Important Recession Indicator Is Saying

The Conference Board reported that Leading Economic Indicators (LEI) fell 0.4% in July, which is the sixteenth consecutive month of declines. The LEI tracks where the economy is heading, and it “continues to suggest that economic activity is likely to decelerate and descend into mild contraction in the months ahead,” explained Justyna Zabinska-La Monica, Senior Manager, Business Cycle Indicators. 

What’s the bottom line? Despite the Fed’s belief that we can avoid a recession, the Conference Board is standing by their forecast that our economy will enter “a short and shallow recession in the Q4 2023 to Q1 2024 timespan.” Yield curve inversions, near record high credit card debt, and the lag effect of the Fed’s rate hikes are additional reasons why a recession may not be off the table just yet. 

While a recession is not a great thing for the economy, one positive aspect is that periods of recession are always coupled with lower interest rates.

What to Look for This Week

More housing data is ahead, as July’s Existing and New Home Sales will be reported on Tuesday and Wednesday, respectively. Look for the latest Jobless Claims figures as usual on Thursday.

Investors will also be watching closely as economists, central bankers and policy makers from around the world join the Fed for its Jackson Hole Economic Symposium, which starts on Thursday.

Technical Picture

Mortgage Bonds ended last week trading in a range with support at 97.563 and resistance at 97.984. The 10-year remains below the 4.33% ceiling, which is the high from October and a very important technical level. Yields ended last week around 4.25% and are also overdue for some relief.

For the third straight week, mortgage rates continued creeping up and are now just shy of seven percent. There is no doubt continued high rates will prolong affordability challenges longer than expected, particularly with home prices on the rise again. However, upward pressure on rates is the product of a resilient economy with low unemployment and strong wage growth, which historically has kept purchase demand solid.

Primary Mortgage Market Survey® U.S. weekly averages as of August 10, 2023

• Current Mortgage Rates Data Since 1971xlsx

Week of August 7, 2023 in Review

Crucial inflation data sparked volatility in the markets, while another home price index report shows the opportunity that exists in homeownership. Read on for these stories and more:

• Is Consumer Inflation Rearing Its Head Again?
• Wholesale Inflation Hotter Than Expected
• Home Price Appreciation Heading Higher
• Is the Rise in Initial Jobless Claims a New Trend?

Is Consumer Inflation Rearing Its Head Again?

July’s Consumer Price Index (CPI) showed that inflation rose 0.2%, with this monthly reading coming in just below estimates. On an annual basis, however, CPI increased from 3% to 3.2% last month, though this is still near the 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 4.8% to 4.7%.

Declining costs for used cars and airfares helped inflation last month, as did moderate readings for shelter, gasoline and food.

What’s the bottom line? While annual inflation did move in the wrong direction, this notch higher is partly due to a slightly negative figure from last July, which was removed from the rolling 12-month calculation and replaced with last month’s 0.2% reading. Inflation has made significant progress lower after peaking at 9.1% in June 2022. Easing inflation is welcome news as it signifies a break from price increases for some goods and services. Plus, lower inflation also typically helps both Mortgage Bonds and mortgage rates improve over time.

Wholesale Inflation Hotter Than Expected

The Producer Price Index (PPI), which measures inflation on the wholesale level, increased by 0.3% in July, coming in just above expectations. On an annual basis, PPI rose from 0.2% to 0.8%. Core PPI, which also strips out volatile food and energy prices, rose by 0.3%, with the year-over-year reading remaining at 2.4%.

What’s the bottom line? While annual PPI also moved higher in the wrong direction, it was coming from a very low level and remains extremely muted, well below last year’s 11.7% peak.

There has been mixed chatter from the Fed regarding whether they will hike rates again at their meeting on September 20. Remember, the Fed 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. The Fed will be closely watching upcoming CPI and PPI readings for August (releasing September 13 and 14) and their favored inflation report Personal Consumption Expenditures (July’s data releases August 31) as they weigh this decision.Home Price Appreciation Heading Higher

Black Knight’s Home Price Index hit an all-time high in June, with “nearly every major market experiencing month-over-month growth.” Home prices rose 0.7% in June and they are now up 0.8% on an annual basis, with appreciation at 2.9% through the first six months of this year. At this pace, prices are on track to appreciate 5.8% in 2023.

What’s the bottom line? The latest rise in home prices reported by Black Knight mirrors the strong growth that’s also been noted by Case-Shiller, CoreLogic, Zillow and the Federal Housing Finance Agency in their respective indexes. These gains are a far cry from the housing crash that many media pundits had forecasted and show that opportunities exist right now to build wealth through homeownership and appreciation.

Is the Rise in Initial Jobless Claims a New Trend?

After staying below 230,000 for three straight weeks, Initial Jobless Claims rose by 21,000, as 248,000 people filed for unemployment benefits for the first time. Continuing Claims fell by 8,000, with 1.684 million people still receiving benefits after filing their initial claim. This latter metric has been on a downward trend from the high of 1.861 million reported in early April, reflecting a mix of people finding new jobs and benefits expiring.

What’s the bottom line? Initial Jobless Claims have remained relatively low of late due to the difficulty hiring that many businesses are reporting. After all, businesses that can’t find qualified workers certainly aren’t going to lay off the ones they have. For example, the National Federation of Independent Business noted that 92% of small businesses looking to hire last month could not find qualified workers for their positions. We’ll have to see if this latest Initial Jobless Claims report is a one-off jump or the start of a new trend higher reflecting some of the weakness we are seeing in the labor market.

Family Hack of the Week

It’s National Peach Month. This easy Peach Cobbler from the Food Network is a classic summer dessert your friends and family will love. 

Preheat oven to 325 degrees Fahrenheit. Add 4 cups sliced and peeled peaches to a 9×9-inch baking pan. In a medium bowl, mix 1 cup all-purpose flour, 3/4 cup granulated sugar, 1 teaspoon baking powder and 1/2 teaspoon Kosher salt. Add 1/2 cup milk and 4 tablespoons melted unsalted butter; mix well. Pour batter evenly over peaches.

In a small bowl, mix 1/4 cup sugar, 1 tablespoon cornstarch and 1/2 teaspoon salt. Sprinkle over the batter. Evenly pour 1/2 cup boiling water over cobbler.

Bake until golden brown and bubbling, approximately 50 minutes. Enjoy topped with your favorite whipped cream or vanilla ice cream.

What to Look for This Week

Important housing reports are ahead, starting Tuesday with an update on home builder sentiment for this month from the National Association of Home Builders. July’s Housing Starts and Building Permits follow on Wednesday.

Look for August’s manufacturing data for the New York and Philadelphia regions on Tuesday and Thursday, respectively. July’s Retail Sales will also be released on Tuesday and the latest Jobless Claims on Thursday.

Plus, the minutes from the Fed’s July meeting will be released on Wednesday and these always have the potential to add volatility to the markets.

Technical Picture

Mortgage Bonds ended last week trading in the middle of a very wide range between support at 97.984 and overhead resistance at 98.716. Bond prices are susceptible to whipsaws when in such a wide range like this. The 10-year ended last week above support at 4.09%. The next ceiling is at 4.23% if yields continue to worsen.

The combination of upbeat economic data and the U.S. government credit rating downgrade caused mortgage rates to rise this week. Despite higher rates and lower purchase demand, home prices have increased due to very low unsold inventory.

• Current Mortgage Rates Data Since 1971

Primary Mortgage Market Survey® U.S. weekly averages as of August 3, 2023

Week of July 31, 2023 in Review
Conflicting data begs the question – what’s really going on in the job market? Plus, low housing supply is having a clear impact on home prices. Read on for these stories and more:

▪ Where Are Job Gains Really Coming From?
▪ Leisure and Hospitality Continues to Boost Private Payrolls
▪ Initial Jobless Claims Remain Tame
▪ Impact of Work from Anywhere on Job Openings
▪ Tight Supply Adding Pricing Pressure to Housing

Where Are Job Gains Really Coming From?

The Bureau of Labor Statistics (BLS) reported that there were 187,000 jobs created in July, which was weaker than estimates. Job growth in May and June was also revised lower, subtracting 49,000 jobs in those months combined. The unemployment rate fell from 3.6% to 3.5%.

What’s the bottom line? The headline job number comes from the report’s Business Survey, which is based predominantly on modeling and estimations. In fact, one of the biggest reasons we saw job gains last month was the birth/death model, where the BLS estimates new business creation relative to closed businesses and how many jobs this created. In July, this modeling added 280,000 jobs but it’s hard to believe that many businesses were started last month in the current economic climate, especially given the cost of capital.

Job gains are clearly slowing, as job growth in June (185,000) and July (187,000) were the two lowest levels reported since December 2020. Plus, a deeper look at the data shows that part-time workers increased by 972,000, while multiple job holders rose by 118,000, meaning some people are having to pick up second jobs to get by. Full-time workers also fell by 585,000.

Average weekly hours also declined slightly, which is important because one of the ways businesses cut costs is to cut the number of hours worked. This caused average weekly earnings, which is a good reflection of take-home pay, to only increase 0.1% from June.

Overall, this data suggests underlying weakness in the job market and economy in general.

Leisure and Hospitality Continues to Boost Private Payrolls

The ADP Employment Report showed that private payrolls were much stronger than expected in July, with 324,000 jobs created. Annual pay for job stayers increased 6.2% and job changers saw an average increase of 10.2%. While these pay gains are still high, they have been moderating over the last year.

Leisure and hospitality once again led the way with 201,000 job gains (more than quadruple any other sector), while manufacturing was a weak spot, shedding jobs for the fifth straight month. This correlated with July’s ISM Index, as their survey of purchasing and supply executives nationwide showed a “slowdown in hiring, with attrition, freezes and layoffs actively in place.”

What’s the bottom line? The high level of leisure and hospitality job gains may not continue to bolster the overall private payroll total for much longer, as we have now eclipsed the number of employees in this sector pre-Covid. Plus, the BLS Jobs Report only showed 17,000 leisure and hospitality job gains in July, while the latest Job Openings and Labor Turnover Survey (JOLTS) showed that leisure and hospitality job openings fell to their lowest level since March 2021. The data combined suggests softer job growth in this area to come.

We have seen large discrepancies in the BLS and ADP Employment Reports in recent months, which may be due to issues with seasonal adjustments. This will be something to watch closely heading into the fall.

Initial Jobless Claims Remain Tame

Initial Jobless Claims rose by 6,000 in the latest week, as 227,000 people filed for unemployment benefits for the first time. While this number can be volatile from week to week, first-time filers have remained under 230,000 for the last three weeks after topping 260,000 in the first three weeks of June. This tamer level of Initial Claims shows that employers are still clearly trying to retain their workers.

Meanwhile, Continuing Claims rose by 21,000, with 1.7 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 declined from the high of 1.861 million reported in early April, reflecting a mix of people finding new jobs and benefits expiring.

Impact of Work from Anywhere on Job Openings
The latest Job Openings and Labor Turnover Survey (JOLTS) showed that job openings declined from 9.62 million in May to 9.58 million in June, as they continue to trend lower since peaking in March 2022. Note that job openings are still elevated compared to pre-Covid levels, but the reported total is likely overstated.

As work from anywhere became more common during Covid, the frequency of seeing the same job listing posted in multiple states has increased. This has added a new dynamic to the JOLTS data and is certainly a factor in the larger number of openings that we are now seeing when compared to before the pandemic.

Tight Supply Adding Pricing Pressure to Housing
CoreLogic’s Home Price Index showed that home prices nationwide rose for the fifth straight month, up 0.5% from May to June. Prices were also 1.6% higher when compared to June of last year. CoreLogic forecasts that home prices will rise 0.6% in July and 4.3% in the year going forward.

Zillow also reported that home values have increased 4.8% this year. They’re forecasting that home values will rise 6.3% from June 2023 to June 2024, and predicting that 48 of the nation’s 200 largest markets will see increases of 7% or more.

What’s the bottom line? The latest rise in home prices reported by CoreLogic and Zillow echoes the strong growth seen in other appreciation indexes, including those released by Case-Shiller, Black Knight, and the Federal Housing Finance Agency. Tight supply is a key factor impacting prices, with CoreLogic’s Chief Economist, Selma Hepp, explaining that “the continued imbalance between buyers and sellers continues to pressure home prices.” This is why homeownership remains a good investment and opportunity for building wealth through real estate.

What to Look for This Week
Crucial inflation reports are ahead, starting with June’s Consumer Price Index on Thursday. Look for the Producer Price Index on Friday, which will give us news on wholesale inflation.

Also of note, Tuesday brings the NFIB’s report on confidence among small business owners for July. The latest Jobless Claims will be reported as usual on Thursday. Investors will also be closely watching Wednesday’s 10-year Note and Thursday’s 30-year Bond auctions for the level of demand.

Technical Picture
Mortgage Bonds rebounded last Friday after testing support at 98.089 and then breaking back above resistance at 98.716. If they can maintain this level, the next ceiling is the 25-day Moving Average. The 10-year broke beneath an important floor of support at 4.09%. If yields can stay under this level, there is a path down towards 4%.

Mortgage Rates Fall After Fed Announcement Last Week but Rates Move Back to 9-Month Highs

Mortgage rates inched up slightly after a significant decline over the last couple of weeks. Higher interest rates will keep some borrowers on the sidelines as their affordability is stretched. However, overall U.S. consumer confidence is unwavering, surging to a two-year high in the Conference Board’s Consumer Confidence Index for July 2023. Rising consumer confidence often leads to greater spending, which could drive more consumers into the housing market.

Primary Mortgage Market Survey® U.S. weekly averages as of July 27, 2023

• Current Mortgage Rates Data Since 1971​xlsx

Week of July 24, 2023 in Review

It was a jam-packed week, complete with a Fed rate hike, welcome news of cooling inflation, and more evidence that low housing inventory is impacting sales and appreciation. Here are the details:

• Is the Latest Fed Rate Hike the Last?
• Inflation Moving Lower Step by Step
• Housing Supply “Critical to Expand,” Says NAR
• Low Inventory Heightens Demand for New Homes
• Home Prices Turning Higher

Is the Latest Fed Rate Hike the Last?

In a unanimous decision, the Fed hiked their benchmark Fed Funds Rate by 25 basis points at their meeting last Wednesday, bringing it to a range of 5.25% to 5.5%. The Fed Funds Rate is the interest rate for overnight borrowing for banks and it is not the same as mortgage rates. When the Fed hikes the Fed Funds Rate, they are trying to slow the economy and curb inflation.

This was the Fed’s eleventh hike since March of last year, though they chose not to hike at their meeting in June to give themselves more time to assess incoming data.

What’s the bottom line? In his press conference following the meeting, Fed Chair Jerome Powell was noncommittal regarding whether the Fed would hike at their next meeting on September 20. However, he sounded less hawkish (hawks are policy makers who favor higher interest rates to keep inflation in check), leaving the door open for a pause in September after previously signaling two hikes were left.

The Fed will be closely monitoring economic data before making their rate decision in September, including a few reports that were released after their meeting last week. The first reading of second quarter GDP showed that the economy grew at a stronger than estimated 2.4% annualized pace, while the latest Jobless Claims figures continue to reflect strength in the labor market. Plus, June’s Personal Consumption Expenditures (which is the Fed’s favored measure of inflation) provided more evidence that consumer inflation is cooling, as detailed below.

Inflation Moving Lower Step by Step

June’s Personal Consumption Expenditures (PCE) showed that headline inflation increased 0.2%, while the year-over-year reading fell all the way from 3.8% to 3%. Core PCE, which strips out volatile food and energy prices, also rose by 0.2% in June with the year-over-year reading down from 4.6% to 4.1%.

What’s the bottom line? While inflation is still elevated, it has made a big improvement from the 7% peak seen last year and is now less than half that amount at 3% on the headline reading. This welcome news not only signifies lower costs for some goods and services, but lower inflation also typically helps both Mortgage Bonds and mortgage rates improve over time.

Housing Supply “Critical to Expand,” Says NAR

Pending Home Sales rose 0.3% from May to June, beating estimates and marking the first increase since February. While sales were down almost 16% from a year earlier, this correlates to the lack of inventory, which is about 14% lower over the same period.  Pending Home Sales is a critical report for taking the pulse of the housing market. The data is considered a forward-looking indicator of home sales because it measures signed contracts on existing homes, which represent around 90% of the market.

What’s the bottom line? Lawrence Yun, chief economist for the National Association of REALTORS� (NAR), explained, “The presence of multiple offers implies that housing demand is not being satisfied due to lack of supply. Homebuilders are ramping up production and hiring workers.” Quite simply, if there were more homes listed for sale, we’d have a much higher rate of signed contracts.

Low Inventory Heightens Demand for New Homes

New Home Sales, which measure signed contracts on new homes, fell 2.5% from May to June to a 697,000-unit annualized pace. However, this decline follows the large uptick in May and signed contracts for May and June are at the highest levels over the last year. 

What’s the bottom line? The lack of existing homes for sale is heightening the demand for new homes, but the available supply of new construction remains below healthy levels. Of the 432,000 new homes for sale at the end of June, only 72,000 were completed, with the rest either not started or under construction. This ongoing dynamic of high demand relative to low supply will continue to be supportive of home prices, making homeownership a good investment and opportunity for building wealth through real estate.

On that note, the median sales price was $415,400, which was down from $432,700 a year ago. Despite what the media might suggest, this figure is not the same as appreciation but represents the mid-price and can be skewed by the mix of sales among lower-priced and higher-priced homes. Multiple appreciation reports show that home prices are rising again, as noted below.

Home Prices Turning Higher

The Case-Shiller Home Price Index, which is considered the “gold standard” for appreciation, showed home prices nationwide rose 0.7% from April to May after seasonal adjustment, marking the fourth consecutive month of accelerating gains. Prices were 0.5% lower when compared to May 2022, though this is partly because home prices rose much more sharply in the first half of 2022 than they have so far this year.

The Federal Housing Finance Agency (FHFA) also released their House Price Index, which revealed that home prices rose for the fifth straight month, up 0.7% from April to May. Prices also rose 2.8% from May 2022 to May 2023.

Note that FHFA’s report measures home price appreciation on single-family homes with conforming loan amounts, which means it most likely represents lower-priced homes. FHFA also does not include cash buyers or jumbo loans, and these factors account for some of the differences in the two reports.

What’s the bottom line? “The rally in U.S. home prices continued in May 2023,” explained S&P DJI Managing Director Craig J. Lazzara, who added that “the ongoing recovery in home prices is broadly based.” The latest numbers from Case-Shiller and FHFA follow the strong home price growth that has also been reported by CoreLogic, Zillow and Black Knight in their respective indexes. The data combined shows that home prices are clearly moving upward.

What to Look for This Week

Look for important updates on the labor sector starting Tuesday with news on job openings via the JOLTS report for June. Wednesday brings ADP’s Employment Report for July, which measures private payrolls while the latest Jobless Claims will be reported on Thursday. The biggest headline comes Friday with July’s Jobs Report from the Bureau of Labor Statistics, which includes Non-farm Payrolls and the Unemployment Rate.

Technical Picture

Mortgage Bonds tested overhead resistance at 99.234 last Friday. If Bonds can break convincingly above this level, there is room to the upside before the next ceiling at their 25-day Moving Average. The 10-year is back under 4% and has room to move lower until reaching support at 3.90%. 

Primary Mortgage Market Survey® as of July 20, 2023

With the Federal Reserve’s benchmark rate expected to climb to a range of 5% to 5.25%, the financial landscape is shifting rapidly. This anticipated hike will be the 11th since March 2022. The Fed continues to fight (some say overly aggressive) persistent inflation, which continues to hover above the 2% target. But what does this mean for you and your clients? Well, 77% of Americans already feel the pinch, with 61% reporting a financial blow. From credit cards to mortgages, car loans to student loans, and even savings accounts, the ripple effects of this rate hike could be significant. For instance, with rates now above 25% on most credit cards, holders could shell out an additional $1.72 billion on interest this year alone! As a result, new homebuyers may find their purchasing power dwindling, and car loans are becoming pricier (a client of mine told that a family member recently borrowed for a used car at a rate exceeding 12%. Even the realm of education isn’t immune, with new federal student loans set to see an interest rate of 5.50%. One small bit of grace is that savers will see top-yielding online savings account rates soar to over 5% — something not seen since the 2008 financial crisis. As guides and consultants, it’s crucial to stay informed and prepared to share data and facts to our clients. Need some ammunition for those conversation? Let’s talk. Please feel free to call me at 650.207.4364 so we can make sure your clients stay informed.

• Current Mortgage Rates Data Since 1971​xlsx

Week of July 17, 2023 in Review

Tight housing inventory continues to impact sales, home prices and confidence among home builders. But opportunities remain for buyers to benefit from appreciation gains. Read on for these stories and more.

• Existing Home Sales Constrained by Tight Supply
• Home Builder Confidence Edged Higher This Month
• Can’t Get Enough New Home Inventory
• Unemployment Claims Remain Volatile

Existing Home Sales Constrained by Tight Supply

Existing Home Sales fell 3.3% from May to June to a 4.16-million-unit annualized pace, per the National Association of REALTORS(NAR). Sales were also 18.9% lower than they were in June of last year. This report measures closings on existing homes, which represent around 90% of the market, making it a critical gauge for taking the pulse of the housing sector.          

What’s the bottom line? Tight supply played a key role in the pace of sales, per NAR’s Chief Economist Lawrence Yun, who noted that, “The first half of the year was a downer for sure with sales lower by 23%. Fewer Americans were on the move despite the usual life-changing circumstances. The pent-up demand will surely be realized soon, especially if mortgage rates and inventory move favorably.”

Existing Home Sales fell 3.3% from May to June to a 4.16-million-unit annualized pace, per the National Association of REALTORS(NAR). Sales were also 18.9% lower than they were in June of last year. This report measures closings on existing homes, which represent around 90% of the market, making it a critical gauge for taking the pulse of the housing sector.          

What’s the bottom line? Tight supply played a key role in the pace of sales, per NAR’s Chief Economist Lawrence Yun, who noted that, “The first half of the year was a downer for sure with sales lower by 23%. Fewer Americans were on the move despite the usual life-changing circumstances. The pent-up demand will surely be realized soon, especially if mortgage rates and inventory move favorably.”

In fact, total existing housing inventory at the end of June equaled 1.08 million homes, well below normal with just 3.1 months’ supply available at the current sales pace. Redfin’s Housing Report for June further reiterated the tight supply we’re seeing, with active and new listings down 15% and 31% year-over-year, respectively. Yun added that, “There are simply not enough homes for sale. The market can easily absorb a doubling of inventory.”

Despite these supply constraints, demand among buyers remains strong as evidenced by how quickly correctly priced homes are selling. Homes stayed on the market on average for 18 days last month, while 76% of homes sold in June were on the market for less than a month. By comparison, this is up from 65% back in March.

Very tight inventory and strong demand puts upward pressure on home prices. Zillow, Black Knight and FHFA are already reporting record high home values in their indexes, showing why now remains a great opportunity to build wealth through homeownership. 

Home Builder Confidence Edged Higher This Month

The National Association of Home Builders (NAHB) Housing Market Index, which measures builder confidence, rose one point to 56 in July. This latest reading marks the seventh straight increase, with builder sentiment now at the highest level since June 2022 and firmly in expansion territory over the breakeven level of 50.

What’s the bottom line? Low existing home inventory continues to boost optimism among home builders, as it is keeping the demand for new homes “solid” per the NAHB. Among the components of the index, current and future sales expectations are well in expansion territory at 62 and 60, respectively. Buyer traffic moved three points higher to 40, which is a big recovery from the low of 20 seen late last year as this gauge moves closer to the 50 breakeven level.

Can’t Get Enough New Home Inventory

Despite rising confidence among builders, home construction slowed down in June as Housing Starts, which measure the start of construction on homes, fell 8% from May. However, this number can be volatile from month to month and the pullback in June followed a big uptick in May’s construction activity.

Building Permits, which are indicative of future supply, also declined 3.7% from May to June. On a positive note, permits for single-family homes rose 2.2% from May to the highest level since June of last year.  

What’s the bottom line? The housing sector remains undersupplied and not enough inventory is heading to the market. Housing Completions fell by 3.3% last month, with single-family completions down by 2.8%. When we look at new supply that will be coming to market, which is currently around 1.4 million homes annualized, and subtract roughly 100,000 homes that need to be replaced every year due to aging, we’re well below demand as measured by household formations that are trending at 1.5 million.

As noted above, this ongoing disparity between supply and demand is a key reason why home values continue to rise and why now provides great opportunities to take advantage of appreciation gains.

Unemployment Claims Remain Volatile

Initial Jobless Claims fell by 9,000 in the latest week, as 228,000 people filed for unemployment benefits for the first time. Continuing Claims rose by 33,000, with 1.754 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 declined from the high of 1.861 million reported in early April, reflecting a mix of people finding new jobs and benefits expiring.

What’s the bottom line? Initial Jobless Claims are volatile from week to week, but economists had expected first-time filings to rise since the previous report encompassed a holiday week. Plus, Initial Claims have declined to tamer numbers over the last month after topping 260,000 for the first three weeks of June. Employers are still clearly trying to retain workers.

Yet, there has also been a clear slowdown in the pace of hirings in the private sector. Last year, private sector job gains averaged 376,000 a month but we’ve seen this number decline to 215,000 a month over the last six months and 196,000 over the last three months.

What to Look for This Week

This week is full of potentially market-moving news. The Fed’s two-day meeting begins Tuesday, with their Monetary Policy Statement and press conference coming on Wednesday. June’s reading of the Fed’s favored measure of inflation, Personal Consumption Expenditures, will also be reported on Friday.

In housing news, look for an update on home price appreciation for May when the Case-Shiller Home Price Index and the Federal Housing Finance Agency House Price Index are reported on Tuesday. June’s New and Pending Home Sales follow on Wednesday and Thursday, respectively.

Also on Thursday, the latest Jobless Claims will be reported along with June’s Durable Goods Orders and the first look at GDP for the second quarter.

Technical Picture

Mortgage Bonds tested the ceiling at their 25-day Moving Average on Friday but were rejected lower. The 10-year also tested support at its 25-day Moving Average and was able to move higher. If yields continue to move higher, the next ceiling is at the 3.9% Fibonacci level.

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.

• Current Mortgage Rates Data Since 1971​xlsx

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

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 

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.

Homeowners and Buyers Navigating the Housing Market Rollercoaster Again with Rising Home Prices, Affordability Woes, and Mortgage Rates on the Rise

The housing market is experiencing a resurgence, with rising home prices, concerns about affordability, low inventory levels, and the challenge of balancing high interest rates and increased demand. The market continues to show signs of strength, and builders are working to address the shortage of available homes–though, there is no real way for them build fast enough to get us out of the shortage any time soon. The real worry is the potential for sellers to hold onto their sub-3.5 percent mortgages for too long. That could lead to a widespread reheating of home prices across the U.S. That’s a very real possibility as interest rates are forecast to come down towards the end of 2023 and into the first quarter of 2024.

Mortgage Rates Continue to Climb

Primary Mortgage Market Survey® U.S. weekly averages as of July 6, 2023

Mortgage rates continued their upward trajectory again this week, rising to the highest rate this year so far. This upward trend is being driven by a resilient economy, persistent inflation and a more hawkish tone from the Federal Reserve. These high rates combined with low inventory continue to price many potential homebuyers out of the market. As you’ll see in the commentary below, the Fed is looking to hike again at the end of the month. This, despite the possibility that core inflation may hit a 12 month low next week. We can only hope that report keeps pause the Fed has taken in effect after we get an update on the state of inflation Wednesday morning with the release of June’s Consumer Price Index (CPI). Truth is that we’ll need to see more than just one positive report before we’re on a path to lower interest rates.

• Current Mortgage Rates Data Since 1971​xlsx

Week of July 3, 2023 in Review

After the Independence Day fireworks, labor sector reports added some sparks to the markets. Plus, the minutes from the Fed’s latest meeting revealed what might be in store for rate hikes. Read on for these stories and more:

• Job Numbers Powered by Part-time Workers
• What Caused the Surge in June’s Private Payrolls?
• What Unemployment Claims Suggest
• Are More Rate Hikes Ahead?

Job Numbers Powered by Part-time Workers

The Bureau of Labor Statistics (BLS) reported that there were 209,000 jobs created in June, which was weaker than estimates of 240,000. Job growth in April and May was also revised lower, subtracting 110,000 jobs in those months combined. The unemployment rate declined slightly from 3.7% to 3.6%, though it’s still above April’s reading of 3.4%.

What’s the bottom line? There are two reports within the Jobs Report and there is a fundamental difference between them. The Business Survey is where the headline job number comes from, and it’s based predominately on modeling and estimations. The Household Survey, where the Unemployment Rate comes from, is considered more real-time because it’s derived by calling households to see if they are employed.

The Household Survey has its own job creation component, and it showed that there were 273,000 job creations in June. However, jobs are still running negative in this survey over the last two months, as May’s data showed 310,000 job losses. June’s report also showed sizeable increases in multiple job holders, people working part-time for economic reasons, and people who could only find part-time work, suggesting some underlying weakness in the job market and economy overall.

What Caused the Surge in June’s Private Payrolls?

Private payrolls were much stronger than expected last month, as the ADP Employment Report showed that there were 497,000 jobs created in June. Annual pay for job stayers increased 6.4% and job changers saw an average increase of 11.2%. While these pay gains are still high, they have been declining over the last year.

Leisure and hospitality once again led the way with 232,000 job gains, which was more than double the growth reported in any other industry sector. Construction followed with 97,000 new jobs, reflecting the growing confidence among home builders as they’ve ramped up production to meet buyer demand.

What’s the bottom line? The high level of leisure and hospitality job gains may not continue to bolster the overall private payroll total for much longer. We have now eclipsed pre-Covid levels with 16.7 million employees in this sector versus 16.2 million in April 2019. Plus, the BLS Jobs Report only showed 21,000 leisure and hospitality job gains in June, while the latest Job Openings and Labor Turnover (JOLTS) report showed a sizable drop (108,000) in leisure and hospitality job openings. The data combined suggests softer job growth in this area to come.

Nela Richardson, chief economist for ADP, added, “Consumer-facing service industries had a strong June, aligning to push job creation higher than expected. But wage growth continues to ebb in these same industries, and hiring likely is cresting after a late-cycle surge.”

What Unemployment Claims Suggest

Initial Jobless Claims rose 12,000 in the latest week, with 248,000 people filing for unemployment benefits for the first time. Note that this increase was likely due in part to understated initial claims in the previous week, which had a shortened filing time due to the Juneteenth holiday.

Meanwhile, Continuing Claims declined by 13,000, with 1.72 million people still receiving benefits after filing their initial claim. While this metric is well above the low of 1.289 million seen last September, it has been steadily declining since April and is now at its lowest level since February. Based on the job growth numbers from ADP, this decline could be partly attributed to people finding new employment, and partly due to benefits expiring.

Are More Rate Hikes Ahead?

The minutes from the Fed’s June meeting showed that the Fed is planning additional hikes to their benchmark Fed Funds Rate this year. This is the interest rate for overnight borrowing for banks and it is not the same as mortgage rates. When the Fed hikes the Fed Funds Rate, they are trying to slow the economy and curb inflation.

The minutes also showed that members decided against a hike at their meeting in June, citing concerns over economic growth, so they could have more time to assess incoming data. However, some participants indicated that they favored a 25-basis point hike last month. 

What’s the bottom line?  Interestingly, the Fed wants to continue hiking even though inflation is coming down and their base case is still for a mild recession later this year. If they believe we are going to enter a recession, do they really need to continue hiking the Fed Funds Rate?

What to Look for This Week

Crucial inflation reports are ahead, starting with June’s Consumer Price Index on Wednesday. Look for the Producer Price Index on Thursday, which will give us news on wholesale inflation.

Also of note, Tuesday will bring an update on housing appreciation data via CoreLogic’s Home Price Index for May. The NFIB will also release June’s report on confidence among small business owners. The latest Jobless Claims will be reported as usual on Thursday.

Investors will also be closely watching Wednesday’s 10-year Note and Thursday’s 30-year Bond auctions for the level of demand.

Technical Picture

Mortgage Bonds ended last week trading in a wide range, with support at 97.563 and overhead resistance at 98.716. The 10-year tested the 4.066% ceiling of resistance last Friday for the second day in a row, which is holding for now. If yields are rejected lower, there is a lot of room for improvement before the next level of support at the 3.908% Fibonacci level.

Inflation is the supervillain of Mortgage Bonds, eroding their fixed rate of return. But there’s hope as inflation dropped in May, and June’s data might lower it further but the Fed delivered some bad news today about another possible rate hike in July. The housing market continues to face inventory shortages, dampening housing demand despite high buyer interest. The rise in signed contracts for new homes indicates a need for more supply. Home prices remain supported due to high demand and low supply. Median sales prices can be misleading, as they don’t necessarily reflect appreciation. Jobless claims saw a drop, but the 4-week average rose to its highest level since November 2021.

Mortgage Rates Move Up Modestly

Primary Mortgage Market Survey® U.S. weekly averages as of June 29, 2023

Mortgage rates have hovered in the six to seven percent range for over six months and, despite affordability headwinds, homebuyers have adjusted and driven new home sales to its highest level in more than a year. New home sales have rebounded more robustly than the resale market due to a marginally greater supply of new construction. The improved demand has led to a firming of prices, which have now increased for several months in a row.

• Current Mortgage Rates Data Since 1971​xlsx

Week of June 26, 2023 in Review

Annual consumer inflation declined in May per the Fed’s favored measure. Plus, the tight supply of existing homes remains a key dynamic in the housing sector, impacting signed contracts and home prices. Read on for details:

• Inflation Making Slow Progress Lower
• Tight Inventory Preventing “Housing Demand from Being Fully Realized”
• New Home Sales Soar in May
• Spring Brings More Monthly Home Price Gains
• Surprising Drop in Unemployment Claims

Inflation Making Slow Progress Lower

The Fed’s favorite measure of inflation, Personal Consumption Expenditures (PCE), showed that headline inflation increased 0.1% in May. The year-over-year reading fell from 4.3% to 3.8%, which is a significant improvement at nearly half the 7% peak reached last year.

Core PCE, which strips out volatile food and energy prices, rose by 0.3%. While the annual reading ticked lower from 4.7% to 4.6%, core inflation has seen a slower decline from its 5.4% peak.

What’s the bottom line? Inflation is the arch enemy of fixed investments like Mortgage Bonds because it erodes the buying power of a Bond’s fixed rate of return. If inflation is rising, investors demand a rate of return to combat the faster pace of erosion due to inflation, causing interest rates to rise like we saw throughout much of last year.

While inflation moved lower in May, June’s data could bring even more progress. PCE is a rolling twelve-month report, meaning that if we add the previous 12 monthly readings and account for rounding and compounding, we come up with the year-over-year figure. When the data for this June is released on July 28, it will replace the headline inflation reading for June 2022, which was elevated at 1%. If we see another 0.1% reading for this June like we just did for May, year-over-year inflation would drop to around 2.8%.  

Tight Inventory Preventing “Housing Demand from Being Fully Realized”

Pending Home Sales fell 2.7% from April to May, which was a larger decline than economists had forecasted. The West, Midwest and South all saw a drop in contract signings on a monthly basis, with only the Northeast posting gains in May. Overall, sales were down 22.2% when compared to May of last year.

Pending Home Sales are a crucial measure for taking the pulse of the housing market. The data is considered a forward-looking indicator of home sales because it measures signed contracts on existing homes, which represent around 90% of the market.

What’s the bottom line? Lawrence Yun, chief economist for the National Association of REALTORS�, explained, “The lack of housing inventory continues to prevent housing demand from being fully realized.” And there is demand among buyers, as he noted that we’re seeing “approximately three offers for each listing.” Quite simply, if there were more homes listed for sale, we’d have a much higher rate of signed contracts.

New Home Sales Soar in May

New Home Sales, which measure signed contracts on new homes, rose 12.2% from April to May to a 763,000-unit annualized pace. Sales were 20% higher than a year ago, and at their best level since February 2022. 

What’s the bottom line? The rise in signed contracts for new homes correlates with the low level of existing homes that are listed for sale. This has helped boost confidence among homebuilders, which is a positive sign as more new homes are needed to meet the overall demand among buyers. While there were 428,000 new homes for sale at the end of May, only 69,000 (or 16%) were completed, with the rest either not started or under construction, meaning that available supply was below normal levels.

This ongoing dynamic of high demand relative to low supply will continue to be supportive of home prices.

On that note, the median sales price was $416,300, which was down from $450,700 a year ago. However, this figure is not the same as appreciation but represents the mid-price and can be skewed by the mix of sales among lower-priced and higher-priced homes. Recent appreciation reports from Case-Shiller and the Federal Housing Finance Agency have shown that home prices are rising again on a monthly basis, as detailed below.

Spring Brings More Monthly Home Price Gains

The Case-Shiller Home Price Index, which is considered the “gold standard” for appreciation, showed home prices nationwide rose 0.5% from March to April after seasonal adjustment, marking the third consecutive month of gains. Prices were 0.2% lower when compared to April 2022, though this is partly because home prices rose much more sharply in the first half of 2022 than they have so far this year.

The Federal Housing Finance Agency (FHFA) also released their House Price Index, which revealed that home prices rose for the fourth straight month, up 0.7% from March to April. Prices also rose 3.1% from April 2022 to April 2023.

Note that FHFA’s report measures home price appreciation on single-family homes with conforming loan amounts, which means it most likely represents lower-priced homes. FHFA also does not include cash buyers or jumbo loans, and these factors account for some of the differences in the two reports.

What’s the bottom line? The uptick in appreciation over the last few months suggests we’re past the inflection point and home prices are on the rise again. “The U.S. housing market continued to strengthen in April 2023,” confirmed S&P DJI Managing Director Craig J. Lazzara, who added that “the ongoing recovery in home prices is broadly based” with prices just 2.4% below their peak from June 2022. This is a far cry from the housing crash of 20% that some in the media have forecasted. 

Surprising Drop in Unemployment Claims

Despite declining in the latest week, Unemployment Claims remain elevated among both first-time and continuing filers. There were 239,000 Initial Jobless Claims reported, down 26,000 from the previous week. Continuing Claims came in at 1.742 million, which was a decline from 1.761 million the week beforehand.

What’s the bottom line? While Initial Jobless Claims saw a large drop after three straight weeks of remaining above 260,000, the measured week included the Juneteenth holiday, so the shortened filing time may have impacted the data. The 4-week average of Initial Claims, which smooths out some of the weekly fluctuation, actually rose to its highest level since November 2021 at 257,500.

Continuing Claims are also significantly above the low point of 1.289 million filers seen last September, though they have declined from highs reached earlier this spring, due in part to benefits expiring for some people. Overall, this data reflects the challenges many are facing as they search for new employment.

What to Look for This Week

After the market closures on Tuesday in honor of Independence Day, labor sector reports will dominate the headlines. On Thursday, look for the latest Jobless Claims data and ADP’s Employment Report for June, which will provide an update on private payrolls. Friday brings June’s Jobs Report from the Bureau of Labor Statistics, which includes Non-farm Payrolls and the Unemployment Rate.

Also, the minutes from the Fed’s June meeting will be released on Wednesday and these always have the potential to be market moving.

Technical Picture

Mortgage Bonds ended last week in a wide range between support at 99.125 and overhead resistance at 99.845. The 10-year tested an important overhead ceiling at 3.85%, which held last Thursday and Friday. If yields can remain beneath this level, there is a lot of room for them to move lower.

About 63% of homeowners with mortgages saw a $1 trillion increase in equity from Q4 2021 to Q4 2022. This rise in equity may be the answer for borrowers who have racked up debt or would like to upgrade thier living quarters. The combination of low interest rate mortgages and pent-up demand from the pandemic may have prompted some individuals to live beyond their means. Rising debt and the impact of higher interest rates set by the Fed have begun to challenge some homeowners. Now, with credit card rates exceeding 25% and elevated rates on car loans, home equity lines of credit, and student loans, some homeowners are beginning to feel overwhelmed by debt. However, there’s an opportunity to utilize that homeowner’s equity to alleviate monthly cash outflows. Additionally, those who feel confined by low-rate mortgages but wish to upgrade to a better school district, a nicer home, or make improvements have the potential to benefit from a cashing out and listing their home for sale–retiring high interest rate debt and moving to their dream home.

Want to review your clients’ specific situation? I would be honored to help. Call me anytime at 650-207-4364 or send me an email to: chris@yourlenderchris.com

Mortgage Rates Manage Slight Decline

Primary Mortgage Market Survey® U.S. weekly averages as of June 22, 2023

Mortgage rates slid down again this week but remain elevated compared to this time last year. Potential homebuyers have been watching rates closely and are waiting to come off the sidelines. However, inventory challenges persist as the number of existing homes for sale remains very low. Though, a recent rebound in single-family housing starts is an encouraging development that will hopefully extend through the summer.

• Current Mortgage Rates Data Since 1971​xlsx

Week of June 19, 2023 in Review

Tight inventory continued to impact sales of existing homes last month, while home builders responded with an uptick in construction to help meet buyer demand. Don’t miss these details:

• Existing Home Sales Edge Higher Even with Tight Inventory
• Home Builder Confidence Continues to Rise
• Home Construction Surged in May
• New Trend Reached in Jobless Claims?
• Recession Signals Flashing

Existing Home Sales Edge Higher Even with Tight Inventory

Existing Home Sales rose 0.2% from April to May to a 4.30-million-unit annualized pace, per the National Association of REALTORS� (NAR). However, sales were 20.4% lower than they were in May of last year. This report measures closings on existing homes, which represent around 90% of the market, making it a critical gauge for taking the pulse of the housing sector.   

What’s the bottom line? Tight supply played a key role in the pace of sales, per NAR’s Chief Economist Lawrence Yun, who noted that, “Newly constructed homes are selling at a pace reminiscent of pre-pandemic times because of abundant inventory in that sector. However, existing-home sales activity is down sizably due to the current supply being roughly half the level of 2019.”

In fact, total existing housing inventory at the end of May equaled 1.08 million homes, well below normal with just 3 months’ supply available at the current sales pace.

Despite ongoing tight supply, demand among buyers remains strong as evidenced by how quickly correctly priced homes are selling. Homes stayed on the market on average for 18 days last month, down from 22 days in April. Plus, 74% of homes sold in May were on the market for less than a month, which is up from 73% in April and 65% in March.

Also of note, the median existing home price fell 3.1% to $396,100 from a year earlier, though does not mean home prices are declining. The median home price simply means half the homes sold were above that price and half were below it, and this figure can be skewed by the mix of sales among lower-priced and higher-priced homes. Actual appreciation numbers are higher, not lower, on a year-over-year basis and are showing acceleration according to key reports from Case-Shiller, CoreLogic and the Federal Housing Finance Agency.

Home Builder Confidence Continues to Rise 

The National Association of Home Builders (NAHB) Housing Market Index, which is a near real-time read on builder confidence, rose five points to 55 in June. Any reading above 50 on this index, which runs from 0 to 100, signals expansion while readings below 50 signal contraction. June’s reading marks the sixth straight month this measure has increased and is the first time that sentiment has moved into positive territory since last July.

All three components of the index (which include current sales conditions, sales expectations for the next six months, and buyer traffic) posted gains, with both current and future sales above 60 for the first time in a year.

What’s the bottom line? The NAHB noted that the lack of existing home inventory, improving supply chains, and solid demand among buyers are key factors in the rising optimism among home builders. NAHB Chief Economist Robert Dietz added, “A bottom is forming for single-family home building as builder sentiment continues to gradually rise from the beginning of the year.”

Home Construction Surged in May

Construction of new homes continued to increase this spring, with Housing Starts rising 21.7% from April to May. This data measures when excavation actually begins for a home’s foundation or footing. Building Permits, which are more indicative of future supply, rose 5.2% for the month. Starts and Permits for single-family homes also increased in May, though at a smaller percentage than they did for multi-family units.

What’s the bottom line? NAHB Chair Alicia Huey said, “Mirroring rising builder sentiment, single-family permits and starts increased in May as builders boosted production to meet unmet demand.” Yet, while single-family starts and permits have risen since the beginning of the year, they are still significantly lower than they were a year ago. 

Overall, the housing sector remains undersupplied and not enough inventory is heading to the market. With single-family homes remaining in high demand among buyers, the imbalance between supply and demand should continue to be supportive of prices. 

New Trend Reached in Jobless Claims?

Unemployment Claims remain elevated among both first-time and continuing filers. There were 264,000 Initial Jobless Claims reported in the latest week, matching the number of people from the previous week after that data was revised slightly higher. Continuing Claims came in at 1.759 million, though this was a slight decline from 1.772 million the week beforehand.

What’s the bottom line? Initial Jobless Claims have remained above 200,000 each week since February, with claims staying over 260,000 for the last three weeks, suggesting that these latest figures are a trend rather than an outlier. Continuing Claims are also significantly above the low point of 1.289 million filers seen last September, though they have declined from highs reached earlier this spring, due in part to benefits expiring for some people. Overall, this data reflects the challenges many are facing as they search for new employment.

Recession Signals Flashing

The Conference Board released their Leading Economic Index (LEI), which is a composite of economic indexes that can signal peaks and troughs in the business cycle. May brought a 0.7% decline, marking the fourteenth consecutive month of contraction and pointing to “weaker economic activity ahead,” said Justyna Zabinska-La Monica, Senior Manager, Business Cycle Indicators. The last time this index fell for fourteen straight months was in 2007, before the great recession.

There are also signs of stalling economic conditions overseas, as the Global Purchasing Managers’ Index (PMI) showed that Japan is clearly in contraction while Australia, the Eurozone, and the United Kingdom all slowed and are just above contraction territory.

What’s the bottom line? The globe is interconnected, and economies of different countries rely on each other for trade. As a result, recessions tend to be globally synchronized because loss of demand in one country tends to pull activity in other areas down. While there is usually an average of 50% of global economies in a recession at the same time, certain circumstances like the COVID pandemic can lead to a larger level of synchronicity. This ongoing situation remains important to monitor in the months ahead.

What to Look for This Week

More housing reports are ahead, with May’s New and Pending Home Sales releasing on Tuesday and Thursday, respectively. We’ll also see an update on home price appreciation for April when the Case-Shiller Home Price Index and the Federal Housing Finance Agency (FHFA) House Price Index are reported on Tuesday.

Look for the latest Jobless Claims on Thursday while Friday brings a crucial update when the Fed’s favored inflation measure, Personal Consumption Expenditures, is reported for May.

Technical Picture

Mortgage Bonds rebounded on Friday and ended last week battling a dual ceiling comprised of the 99.845 Fibonacci level and 25-day Moving Average, which Bond prices have gravitated towards over the last three weeks. The 10-year moved lower on Friday and has room to improve further before reaching the important 200-day Moving Average at 3.67%.

Hold onto your avocado toast, folks! In a not-so-scientific, but eye-opening LinkedIn survey, a sharp-witted acquaintance of mine posed a few questions about home ownership. As a result of his survey, I found in my own research, a whopping 28 million Americans are itching to become homeowners. Meanwhile, the number of available houses for sale is as scarce as a parking spot in front of a trendy café. Even if we assume only a fraction of these eager buyers are qualified, we’re still left with a glaring shortage of properties.

So, for those of your clients waiting for prices to drop, you might consider a confab with them because it’s gonna be a while! With the demand-supply mismatch, any dream discount is probably sunbathing in a remote tropical paradise. For the hopeful few waiting for interest rates to hit rock bottom, please remind them that once those rates go down, it’ll be like ringing the dinner bell for a bunch of frenzied buyers. Remember your ECON 101: competition creates upward pressure on prices when supply is scarce. Oh, and or all the miracle-seekers out there, let’s face it, hope alone won’t make those housing dreams come true.

Now, let me hit you with a some fact sprinkles on top: Did you know that real estate is the magical ingredient behind the net worth of the wealthiest folks? Yep, those homeowners have a jaw-dropping 40 times the net worth of us mere renters. So, if you’re wondering whether the real estate business is worth sticking around for, think of those 28 million eager buyers who can’t wait to get their hands on a house. And get ready for some real excitement, because Gen Z, the millennials’ successors, are about to join the party too. It’s time to buckle up and enjoy this wild ride in the real estate market! Want to get your clients pre-approved? I would be honored to help. Call me anytime at 650-207-4364 or send me an email to: chris@yourlenderchris.com

Here’s what I wrote about his impromptu survey on LinkedIn last week (see below).

Yes, I know this is not scientific and yes, it’s a super small sample. BUT it is representative of much of what I hear when I speak to referral partners and borrowers.

SO, let me throw some FACTS at you:

– 28 Million people in the United States want to buy houses. TODAY!

– There are currently less than 600,000 actively listed homes in the United States.

– Even if (as a friend pointed out) only a fraction of those 28 million were qualified to purchase (let’s just use 10% for argument’s sake), there is STILL NOT ENOUGH INVENTORY TO MEET DEMAND.

Let me say this another way: The 50% of you waiting for a price drop may be waiting for a while (read: given the imbalance in supply versus demand, your discount likely isn’t coming).

– For the small percentage of you waiting for interest rates to drop, it’s possible. However, will prices remain steady or will a bunch of buyers rush in from the sidelines when rates move down?

ECON 101: – Competition creates upward price pressure when supply is short.

– For those of you waiting on a miracle? HOPE IS NOT A STRATEGY!

Here are a couple more tidbits to chew on:

Net worth is the sum of all that you own minus all that you owe. In the United States:

• Top 1% of net worth holders have $10.8 million in net worth
• Top 2% of net worth holders have $2.4 million in net worth
• Top 5% of net worth holders have $1 million in net worth
• Top 10% of net worth holders have $800,000 in net worth

Where does 60%+ of this net worth come from? REAL ESTATE

Homeowners have 40 times the net worth of renter ($255,000 on average versus $6,300)

For those of you wondering if the business is worth hanging around for, there are 28 million people that want to buy houses (see above). By the time we reach 2025, Gen Z, who currently make up 30 percent of the world’s population and are expected to account for 20 percent of the workforce. And despite what you may have heard about them and avocado toast, THEY WANT TO BUY HOUSES TOO. Hang on, it’s about to get fun.

Sources:

https://www.nerdwallet.com/…/mor…/2023-home-buyer-report

https://fred.stlouisfed.org/series/ACTLISCOUUS

https://www.cnbc.com/…/average-net-worth-homeowners…/

https://www.afire.org/of-note/the-millennial-effect/

https://www.kiplinger.com/personal…/605075/are-you-rich

https://cabcollects.com/building-a-multigenerational…/

Mortgage Rates Continue to Come Down

Primary Mortgage Market Survey® U.S. weekly averages as of June 15, 2023

Mortgage rates decreased slightly this week in anticipation of the pause in rate hikes by the Federal Reserve. As inflation continues to decelerate, economic growth is slowing and the tightening cycle of monetary policy is reaching its apex, which means mortgage rates are expected to decrease later this year and into next.

• Current Mortgage Rates Data Since 1971​xlsx

Week of June 12, 2023 in Review

Following its string of aggressive rate hikes, the Fed left their benchmark Fed Funds Rate unchanged at their latest meeting. Plus, there were more signs of declining inflation and rising unemployment claims. Here are last week’s headlines:

• Fed Skips Hike to Fed Funds Rate
• Annual Consumer Inflation Hits 2-Year Low
• Another Big Decline in Annual Wholesale Inflation
• Job Search Challenges Remain

Fed Skips Hike to Fed Funds Rate

After ten rate hikes since March of last year, the Fed left their benchmark Federal Funds Rate unchanged at a range of 5% to 5.25% at their meeting last Wednesday. The Fed Funds Rate is the interest rate for overnight borrowing for banks and it is not the same as mortgage rates. When the Fed hikes the Fed Funds Rate, they are trying to slow the economy and curb inflation.

What’s the bottom line? The Fed kept the Fed Funds Rate unchanged to give themselves more time to assess incoming data. In his press conference following the meeting, Fed Chair Jerome Powell stressed that the Fed is “strongly committed” to returning inflation to their 2% target as measured by the Core Personal Consumption Expenditures Index.

Powell also noted that “nearly all Committee participants view it as likely that some further rate increases will be appropriate this year to bring inflation down to 2 percent over time.” Upcoming labor and inflation data will be key factors in whether the Fed chooses to hike the Fed Funds Rate at its next meeting on July 25-26.

Annual Consumer Inflation Hits 2-Year Low

Consumer inflation rose 0.1% in May per the Consumer Price Index (CPI), with this headline reading coming in just below estimates. On an annual basis, CPI fell sharply from 4.9% in April to 4% last month, reaching its lowest level since April 2021. Core CPI, which strips out volatile food and energy prices, increased 0.4% while the annual reading declined from 5.5% to 5.3%.

Stubbornly high costs for shelter and used cars were key contributors to inflation last month, with shelter in particular accounting for over 60% of the total increase in Core CPI per the Bureau of Labor Statistics.

However, shelter costs have been falling in more real-time data. For example, Apartment List’s latest Rent Report showed that year-over-year rent growth decelerated to just 0.9% in May, the lowest level since March 2021. These declines are not fully reflected in the CPI report yet but should add more downside pressure to inflation once they are.

 What’s the bottom line? Inflation has declined sharply from the 9.1% peak seen last June and is now less than half that amount at 4% on the headline reading. While inflation is still elevated, signs of easing inflation are welcome. Declining inflation not only signifies lower costs for some goods and services, but lower inflation also typically helps both Mortgage Bonds and mortgage rates improve over time.

Another Big Decline in Annual Wholesale Inflation

The Producer Price Index (PPI), which measures inflation on the wholesale level, decreased by 0.3% in May, coming in below expectations. On an annual basis, PPI saw a sharp decline from 2.3% to 1.1%, which is the lowest level since December 2020. Core PPI, which also strips out volatile food and energy prices, rose by 0.2% with the year-over-year reading dropping from 3.2% to 2.8%.

What’s the bottom line? Annual wholesale inflation readings have also made significant improvement as they continue to move lower in the right direction. At its peak last March, PPI was at 11.7% year-over-year and it is now at 1.1%, which is a decline of 10.6%!

Job Search Challenges Remain

Initial Jobless Claims remained elevated in the latest week, as 262,000 people filed for unemployment benefits for the first time. This matched the number of filers reported in the previous week after that data was revised slightly higher. The number of people still receiving benefits after their initial claim is filed also remained elevated with 1.775 million Continuing Claims reported.

What’s the bottom line? There is a clear upward trend in unemployment claims, with Initial Claims remaining above 200,000 each week since February and the latest reading the highest seen since November 2021. The 4-week average of Initial Claims, which smooths out some of the weekly fluctuation, also rose to its highest level since last August at 247,000.

Continuing Claims are also nearly 500,000 higher than the low point of 1.289 million filers seen last September, reflecting the challenges many people are having as they search for new employment.

With the Fed focused on employment data, this was an important real-time report showing that the labor market is weakening. And while Retail Sales rose unexpectedly last month, it will be important to see if rising layoffs will limit consumer spending this summer.

What to Look for This Week

Housing reports will dominate this week’s calendar, starting Monday with an update on builder confidence this month from the National Association of Home Builders. May’s Housing Starts and Building Permits follow on Tuesday, while Existing Home Sales releases on Thursday.

The latest Jobless Claims will also be reported as usual on Thursday.

Technical Picture

Mortgage Bonds were able to close above support at the 25-day Moving Average last Friday. The 10-year remains in a very wide range between support at 3.65% and overhead resistance at 3.85%.