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%.

The cost of borrowing money to buy a house went up a little bit today. It’s now at the highest level it’s been in almost two weeks, despite what the weekly survey shows below (remember that is a look back, as is the week in review section below). This happened because the bond market, where lenders get the money to lend to people, didn’t do well this morning. So, lenders had to raise their rates. But as the day progressed, things got better, and some lenders were able to reprice for the better. Just goes to show that when you or your clients ask us about interest rates, we often will reply with a “It depends” comment. We’re not blowing off the question. There’s just too many variables to evaluate to just give you a blanket number. Every borrower will have a different interest rate based on their FICO, down payment amount, loan size and type of home they wish to purchase. If you or your clients are interested in learning more about what rates are available to them, please contact me. I am happy to provide some counseling and education.

All of this movement doesn’t really matter compared to what might happen in the next two days. Tomorrow, the Consumer Price Index (CPI) that will come out. It’s a big deal because it can make mortgage rates swing wildly. Wednesday, we’ll find out what the Federal Reserve will pause or raise the overnight rate. Right now, the gurus think they will pause any hikes–for now.

If the CPI is really high, it could change what people think about the Fed’s decision. But even then, the Fed’s own prediction about interest rates will likely have a bigger impact on mortgage rates and the bond market.

While elevated rates and other affordability challenges remain, inventory continues to be the biggest obstacle for prospective homebuyers. If only we could free up some inventory from some of those “Accidental Landlords and “Household Hostages”.

Redfin’s chief economist Daryl Fairweather told Fortune that high rates are constricting activity. “They’re looking at their monthly payment, which is quite low if they locked in a 3% mortgage rate compared to what their monthly payment would be if they sold and bought again, which would be quite high given how high mortgage rates are,” Fairweather said. “And it just makes a lot of sense for them to hold on to that low interest rate.”

But here’s the thing, the Fed has been raising the overnight rate, which impacts things like Home Equity Lines of Credit, Credit Cards, Student Loans, Personal Loans, Car Loans and other consumer revolving debt, which has led to higher monthly cash outflows for folks carrying these debts. For some, it might just be in their best interest to cash out, pay off these higher payment debts and get the home they want, even if it means a higher interest rate and monthly housing payment. Doing the math to determine monthly cashflow could help tell the story and could give some of these “hostages” a reason to move. Remember rates are temporary, even if you lock one in for 30 years. Very few of us hold a mortgage for its duration.

Want to run some scenarios for your clients? I can generate a blended interest rate review and debt consolidation evaluation that could help you uncover a listing. Call me! 650-207-4364, I’d love to help show you how that analysis works!

• Current Mortgage Rates Data Since 1971​xlsx

Week of June 5, 2023 in Review

Updates on home price appreciation, rising jobless claims and recession chatter overseas capped an otherwise quiet week. Read on for these stories:

• More Signs of Home Price Strength
• Has the Job Market Reached a Turning Point?
• Why Recession Talk from Europe Matters Here

More Signs of Home Price Strength

CoreLogic’s Home Price Index showed that home prices nationwide rose by 1.2% from March to April and they were 2% higher when compared to April of last year. April marks the third consecutive month of nationwide price increases per CoreLogic’s Index, after prices also rose 1.6% in March and 0.8% in February. CoreLogic forecasts that home prices will rise 0.9% in May and 4.6% in the year going forward, up from the 3.7% annual increase they forecasted just two months ago.

What’s the bottom line? Home prices have reached an inflection point with gains occurring across much of the country. CoreLogic’s Chief Economist Selma Hepp explained, “While mortgage rate volatility continues to cause buyer hesitation, the lack of for-sale homes is putting firm pressure on prices this spring, leading to above-average seasonal monthly gains and a rebound in home prices in most markets.”

Meanwhile, Zillow’s Housing Market Report showed that home prices climbed 1.4% from April to May. Black Knight also reported that home prices rose 0.5% in April, with Vice President of Enterprise Research Andy Walden noting that, “April marked the fourth consecutive month of home price gains, which are now almost universally rising across the country again on a seasonally adjusted basis.”

Has the Job Market Reached a Turning Point?

Initial Jobless Claims surged by 28,000 in the latest week, with 261,000 people filing for unemployment benefits for the first time. This is the highest level in 20 months and this number has been trending higher, with Initial Jobless Claims topping 200,000 every week since the start of February.

Meanwhile, the number of people still receiving benefits after their initial claim is filed remains elevated with 1.757 million Continuing Claims reported. This is well above the low of 1.289 million seen last September and this upward trend shows the difficulties many people are having as they search for new employment.

Why Recession Talk from Europe Matters Here

Statistics agency Eurostat reported that the euro zone economy entered a recession in the first quarter of this year. This news comes after negative revisions to Germany’s and Ireland’s first quarter Gross Domestic Product (GDP), which pushed the 20-member bloc to a negative 0.1% first quarter GDP reading after a previous reading of 0%. Economists also noted they aren’t optimistic about growth in Europe the remainder of the year.

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

Inflation will be one of the top stories, with May’s Consumer Price Index releasing on Tuesday. Look for the Producer Price Index on Wednesday, which will give us news on wholesale inflation.

The Fed will also make headlines as their two-day meeting begins Tuesday, with their Monetary Policy Statement and press conference coming on Wednesday.

Also of note, Tuesday brings a read on confidence among small businesses last month from the NFIB. On Thursday, look for May’s Retail Sales, June’s manufacturing data for the New York and Philadelphia regions, and the latest Jobless Claims.

Technical Picture

Mortgage Bonds were able to break above the ceiling of resistance at the 99.845 Fibonacci level on Friday, with the next ceiling at the 25-day Moving Average. Bonds have traded sideways over the past two weeks, so Tuesday’s CPI data could be market moving. The 10-year tested the ceiling at 3.773% on Friday and was rejected to the downside. The next level of support is at the 3.644% Fibonacci level.

Mortgage Rates Jump Up, Current Owners Reluctant to Trade Up and First Timers Hesitant

TL:DR

Rising mortgage rates, driven by a strong economy and anticipated rate hikes, are dampening purchase demand. The “mortgage lock-in effect” and limited inventory are contributing to a slower housing market. Homeowners with low-rate mortgages are reluctant to sell, creating a scarcity of available homes. Rising rates and elevated prices further impede the market, disrupting the behavior of move-up buyers. Salespeople should consider the broader financial picture for clients, as factors like credit card debt and loans impact their overall interest rate. Moving up may help pay off expensive debt and save on monthly expenses. Industry professionals can educate clients on options for improving their financial position.

A Deeper Dive

Mortgage rates jumped this week, as a buoyant economy has prompted the market to price-in the likelihood of another Federal Reserve rate hike. Although there has been a steady flow of purchase demand around rates in the low to mid six percent range, that demand is likely to weaken as rates approach seven percent.

The housing market is grappling with the effects of the “mortgage lock-in effect,” limited inventory, and reduced purchasing power. Current homeowners with lower rate mortgages are less inclined to sell, resulting in a scarcity of available homes. This, coupled with rising rates and elevated home prices, has noticeably slowed down the market and disrupted the usual behavior of move-up buyers. As the market continues to evolve, buyers and industry professionals alike need to navigate these challenges and explore alternative solutions to ensure a resilient housing sector.

One thing for us to consider, as sales people, is that there is more to consider than the sweetness of the low rate that our clients have on their mortgage. With rates being steadily raised by the Fed over the last year, things like credit card debt, Home Equity Lines of Credit, car loans, student loans, have all gotten more expensive. When you factor in a 24% credit card, a 9-10% HELOC, a car loan at 6% and other credit that is sensitive to rate hikes buy the Fed, a homeowners “blended” interest rate (i.e., the combined rate across all debts), could actually be higher than they realize. Moving up could allow them leverage the equity in their home to pay off that expensive revolving and installment debt AND get them the home they’ve been wanting. It might even save them on their monthly outflow despite interest rates being higher. Take a look at these charts showing how we are living more on credit and saving less. Some of our clients need our expertise in educating them on their options.

Bonus? In addition to retiring that high interest debt and saving on monthly cash flow, there is a possibility that moving up could improve their long term financial position – leading to increased net worth. Everyone’s situation is different and the only way to determine if there is an opportunity to help is have that conversation with your sellers.

For first time homebuyers, it is still a good time to buy a house, despite higher rates. Rents will continue to rise and locking in a housing payment creates stability that will lead to wealth creation. For first time buyers, the goal is to get in and get on the appreciation train BEFORE it leaves the station. Don’t wait! Looking to get pre-approved? Start here!

• Current Mortgage Rates Data Since 1971​xlsx

Primary Mortgage Market Survey® U.S. weekly averages as of June 1, 2023

Week of May 29, 2023 in Review

While job growth in May looked strong on the surface, a deeper look at the data shows underlying weakness in the labor sector. Plus, the latest home price appreciation data shows the opportunities that exist for buyers. Here are the details:

• Conflicting Job Numbers
• Leisure and Hospitality Jobs Boost Private Sector Employment
• Unemployment Claims Remain Elevated
• Home Prices Continue to Rebound

Conflicting Job Numbers

The Bureau of Labor Statistics (BLS) reported that there were 339,000 jobs created in May, which was much larger than estimates. Job growth in March and April was also revised higher, adding 93,000 additional jobs in those months combined. The unemployment rate rose from 3.4% to 3.7%.

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 derived by calling households to see if they are employed, so it’s a bit more real-time.

The Household Survey has its own job creation component, and it showed that there were 310,000 job losses, which is a stark contrast to the headline job growth number.  

In addition, one of the biggest reasons we saw job gains in the Business Survey was the birth/death model, where the BLS estimates hiring from new business creation relative to closed businesses. The problem with this modeling is it overestimates during the inflection point of a downturn (like we’re in right now) and underestimates at the inflection of an upturn after a recession.

In May, this modeling added 231,000 jobs but it’s hard to believe that many businesses were created last month in the current economic climate where there is less lending from banks.

Leisure and Hospitality Jobs Boost Private Sector Employment

Private payrolls were much stronger than expected last month, as the ADP Employment Report showed that there were 278,000 jobs created in May. Annual pay for job stayers increased 6.5% and job changers saw an average increase of 12.1%. While these figures are still high, they reflect a year-long slowdown and lower wage-pressured inflation.

What’s the bottom line? ADP noted that “gains in private employment were fragmented last month.” Leisure and hospitality once again led the way with 208,000 job gains, which was more than double the growth reported in any other industry sector. However, these job gains may not continue to bolster the overall private payroll total for much longer.

In April 2019, there were 16.2 million leisure and hospitality employees and there are now 16.5 million after last month’s gains, meaning we have eclipsed where we were pre-Covid.

Unemployment Claims Remain Elevated

Initial Jobless Claims rose 2,000 in the latest week, with 232,000 people filing for unemployment benefits for the first time. Again, this reflects 232,000 new filers and we have seen Initial Jobless Claims top 200,000 every week since the start of February.

Meanwhile, the number of people still receiving benefits after their initial claim is filed remains elevated with 1.795 million Continuing Claims reported. This is well above the low of 1.289 million seen last September and this upward trend shows the difficulties many people are having as they search for new employment.

Home Prices Continue to Rebound

The Case-Shiller Home Price Index, which is considered the “gold standard” for appreciation, showed home prices nationwide rose 0.4% from February to March after seasonal adjustment. Home prices were also 0.7% higher when compared to March 2022, though this annual reading is a decline from the 2.1% gain reported in February.

The Federal Housing Finance Agency (FHFA) also released their House Price Index, which revealed that home prices rose 0.6% from February to March. This follows the 0.1% monthly gain reported in January and the 0.7% gain in February. Prices rose 3.6% from March 2022 to March 2023, though this was a slight decline from the 4.2% annual increase reported in February.

These figures differ in part because 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.

 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 modest increases in home prices we saw a month ago accelerated in March 2023,” explained S&P DJI Managing Director Craig J. Lazzara, who added that prices are now only 3.6% below their peak from June 2022. This is a far cry from the housing crash of 20% that some in the media have forecasted and shows the opportunity that remains for homebuyers to start building wealth through real estate.  

Home Hack of the Week

The official start of summer is just a few weeks away. These quick and easy seasonal tips will ensure your home is ready for the warmer weather.

Your air conditioner is the last thing you want to fail when you really need it. If you haven’t scheduled a service call for your unit yet this year, now is the perfect time to do so.

Clean your ceiling fans with a damp rag to make sure they don’t spread any allergens when you’re ready to use them. Also, make sure they’re set to spin counterclockwise to provide cool air during the summer months.

Check playgrounds and other outdoor sports equipment for any cracks or warping that may have occurred during the winter months. Double check fences as well for any rotten or sagging areas. If you have an electric fence for pets, check the batteries.

Keep your garage safe for kids and pets by storing gasoline for your lawnmower or grill, paint and any other chemicals out of their reach.

Check and replace any outdoor light bulbs, especially around your porch and deck if your family enjoys spending time outside in the warm evenings. As an added bonus, consider adding string lights for both extra light and ambiance.

What to Look for This Week

The economic calendar is fairly quiet, but we will see more housing appreciation data when CoreLogic’s Home Price Index for April is released on Tuesday. The latest Jobless Claims data will also be reported on Thursday.

Technical Picture

Mortgage Bonds moved lower on Friday following the BLS Jobs Report, and they ended last week battling support at the 99.845 Fibonacci level. The 10-year was able to break above overhead resistance at the 3.644% Fibonacci level. The next ceiling is all the way up at 3.786%.

Mortgage Rates Continue to Increase

Primary Mortgage Market Survey® U.S. weekly averages as of May 25, 2023

The U.S. economy showed continued resilience which, combined with debt ceiling concerns, led to higher mortgage rates this past week. Dampened affordability remains an issue for interested homebuyers and homeowners seem unwilling to lose their low rate and put their home on the market. If this predicament continues to limit supply, it could open up an opportunity for builders to help address the country’s housing shortage.

• Current Mortgage Rates Data Since 1971​xlsx

Week of May 22, 2023 in Review

Uncertainty surrounding the debt ceiling caused volatility in the markets, while inflation was hotter than expected in April. Tight supply continues to be a key factor impacting home sales. Here are the headlines:

• Better Progress to Come on Inflation
• “Sizeable Increase” Needed in Housing Inventory
• New Home Sales Hit 13-Month High
• Unemployment Claims Reflect Challenges for Job Searchers
• First Quarter GDP Revised Higher but Still Disappointing

Better Progress to Come on Inflation

The Fed’s favorite measure of inflation, Personal Consumption Expenditures (PCE), showed that headline inflation increased 0.4% in April, while the year-over-year reading ticked higher from 4.2% to 4.4%. Core PCE, which strips out volatile food and energy prices, also rose by 0.4% with the year-over-year change up from 4.6% to 4.7%. All these readings were hotter than expected, as energy prices and used cars pressured inflation higher.

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 in the wrong direction in April, the coming months will likely see nice progress made toward lowering inflation. This is because inflation is calculated on a rolling 12-month basis, so the total of the past 12 monthly inflation readings gives us the year-over-year rate of inflation. Headline inflation last year was 0.6% in May and 1% in June, so if we continued to see 0.4% readings over the next two reports, year-over-year inflation would drop from 4.4% to 3.6%.

“Sizeable Increase” Needed in Housing Inventory

Pending Home Sales remained at the same level from March to April, which was a bit below estimates looking for a 1% gain. While the West, Midwest and South all saw increases, there was a big decrease in the Northeast which pulled the index down overall. Sales were also 20.3% below the amount recorded in April of last year, though this was an improvement from the annual difference of -23% reported for March.

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? Tight supply of existing homes remains the key hindrance to signed contracts this spring. Lawrence Yun, chief economist for the National Association of REALTORS�, explained, “Not all buying interests are being completed due to limited inventory. Affordability challenges certainly remain and continue to hold back contract signings, but a sizeable increase in housing inventory will be critical to get more Americans moving.”

New Home Sales Hit 13-Month High

New Home Sales, which measure signed contracts on new homes, rose 4.1% from March to April to a 683,000-unit annualized pace. Sales are at their best level in thirteen months, and they were also 11.8% higher than in April of last year. 

The median sales price fell from $455,800 in March to $420,800 in April. Note that 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, CoreLogic and the Federal Housing Finance Agency have shown that home prices are rising again.

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 433,000 new homes for sale at the end of April, only 70,000 were completed, with the rest either not started or under construction.

This disparity between the high demand for homes and tight supply of both existing and new homes will continue to be supportive of home prices, providing opportunities for buyers who are ready to start taking advantage of appreciation gains. 

Unemployment Claims Reflect Challenges for Job Searchers

Initial Jobless Claims rose by 4,000 in the latest week, as 229,000 people filed for unemployment benefits for the first time. However, there was a negative revision to the previous week’s data subtracting 17,000 claims, so the net number over the past two weeks is lower. While this sounds like positive news on the surface, part of the decline stems from fraud that was discovered in both Massachusetts and Kentucky, which had spiked the number of filings. 

Continuing Jobless Claims declined by 5,000 in the latest week though they remain elevated at 1.794 million, which is well above the low of 1.289 million seen last September. This upward trend shows the difficulties many people are having as they search for new employment.

First Quarter GDP Revised Higher but Still Disappointing

The second reading of first quarter 2023 Gross Domestic Product (GDP) showed that the U.S. economy grew by 1.3%. While this was an improvement from the initial estimate of 1.1%, it is still significantly lower than the 2.6% growth reported in the fourth quarter of last year. Note that this data is subject to further revision when the final report is released on June 29. However, given that GDP functions as a scorecard for the country’s economic health, the disappointing reading is a further sign that the economy slowed faster than expected in the first three months of this year. 

What to Look for This Week

We’ll see an update on home price appreciation when the Case-Shiller Home Price Index and the Federal Housing Finance Agency (FHFA) House Price Index are reported on Tuesday.

Labor reports will also make headlines, starting with an update on May’s private payrolls when ADP’s Employment Report is released on Wednesday. The latest Jobless Claims data will be reported on Thursday while Friday brings the Bureau of Labor Statistics Jobs Report for May, which includes Non-farm Payrolls and the Unemployment Rate.

Technical Picture

Mortgage Bonds temporarily broke beneath support at 99.38 on Friday but recovered most of their losses before the Bond market closed early in advance of the Memorial Day holiday. The 10-year ended last week trading at around 3.80% after breaking above resistance at 3.786% on Thursday.

The 30-year Fixed-rate Mortgage Reverts from Last Week

Primary Mortgage Market Survey® U.S. weekly averages as of May 18, 2023

The 30-year fixed-rate mortgage averaged 6.39 percent this week, as economic crosscurrents have kept rates within a ten-basis point range over the last several weeks. After the substantial slowdown in growth last fall, home prices stabilized during the winter and began to modestly rise over the last few months. This indicates that while affordability remains a hurdle, homebuyers are getting used to current rates and continue to pursue homeownership.

TL:DR
Nationally, existing Home Sales declined by 3.4% from March to April, indicating a tight supply in the housing market. Despite an increase in total housing inventory, the supply remains below normal levels. However, demand remains strong, as homes are selling quickly when priced correctly. Median existing-home prices fell slightly, but actual appreciation numbers show an increase. Home builder confidence has risen, signaling expansion in the housing market. Construction of new homes has improved gradually, but the housing sector remains undersupplied. Unemployment claims show a decline, but the overall trend reflects rising unemployment. Manufacturing, retail sales, and leading indicators show weakness in the economy. Mortgage bonds and yields are in a new range, with technical indicators suggesting a negative outlook for mortgage rates. Many of the experts suggested we would be in the 5’s by now or very soon. With the debt ceiling negotiations taking longer, OPEC reducing its output and economic uncertainty looming, we may not see relief until later this year. But, it’s still a good time to buy a house, despite higher rates. Rents will continue to rise and locking in a housing payment creates stability that will lead to wealth creation. The goal is to get in and get on the appreciation train BEFORE it leaves the station. Don’t wait! Looking to get pre-approved? Start here!

• Current Mortgage Rates Data Since 1971​xlsx

Week of May 15, 2023 in Review

Recent data shows the impact that low supply is having on the housing market, while unemployment claims continue to reflect a slowdown in hiring. Don’t miss these stories:

• Tight Supply Takes the Spring Out of Existing Home Sales
• Home Builder Confidence Reaches Key Threshold
• “Gradual Improvement” In Single-family Construction
• Unemployment Claims Trending Higher Despite Weekly Decline
• Weakness in Manufacturing, Retail Sales and Leading Indicators

Tight Supply Takes the Spring Out of Existing Home Sales 

Existing Home Sales fell 3.4% from March to April to a 4.28 million unit annualized pace, per the National Association of Realtors (NAR). Sales were also 23.2% lower than they were in April 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 is the key reason for the decline in sales around the country. While total housing inventory increased 7.2% from March to 1.04 million homes available at the end of April, it remains well below normal with just 2.9 months’ supply available at the current sales pace. 

In addition, multiple data points suggest that demand remains strong. Homes stayed on the market on average for 22 days, down sharply from 29 days in March. Plus, 73% of homes sold in April were on the market for less than a month, which is up from 65% and shows homes are selling quickly when they’re priced correctly. Meanwhile, investors accounted for 17% of transactions last month, making up roughly one out of every six deals. Clearly investors are seeing the opportunity in housing right now.

Also of note, the median existing-home price fell 1.7% to $388,800 from a year earlier. However, this is not the same as a decline in home prices as some media reports implied. 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 Reaches Key Threshold

The National Association of Home Builders (NAHB) Housing Market Index, which is a near real-time read on builder confidence, rose five points to 50 in May.Any reading above 50 on this index, which runs from 0 to 100, signals expansion while readings below 50 signal contraction. May’s reading marks the fifth straight month this measure has increased and the first time builder sentiment has hit this important midpoint since July 2022. 

All three components of the index posted gains, with current sales conditions rising five points to 56, sales expectations for the next six months up seven points to 57, and buyer traffic moving two points higher to 33. 

What’s the bottom line?

Home builder confidence overall has now risen 19 points since the low of 31 in December. The buyer traffic component has also made a big recovery since reaching a low of 20 last November. NAHB Chief Economist Robert Dietz noted the “lack of existing inventory continues to drive buyers to new construction.” Home builders are also continuing to use incentives to appeal to homebuyers.

“Gradual Improvement” In Single-family Construction

Construction of new homes ticked higher in April, with Housing Starts rising 2.2% from March. However, Building Permits, which are indicative of future supply, fell 1.5% for the month. While Starts and Permits for single-family homes rose from March to April, they were both significantly lower than in April of last year.

What’s the bottom line? 

While NAHB Chair Alicia Huey noted that “single-family starts are showing gradual improvement from the beginning of the year,” the housing sector is undersupplied and not enough inventory is heading to the market. Starts for single-family homes have declined from a pace of 1.176 million units in April 2022 to 846,000 units this April. Single-family permits have followed the same pattern, declining from 1.085 million units to 855,000 over the same period. 

With single-family homes remaining in high demand among buyers, the imbalance between supply and demand should continue to be supportive of prices. 

Unemployment Claims Trending Higher Despite Weekly Decline

Initial Jobless Claims fell by 22,000 in the latest week, as 242,000 people filed for unemployment benefits for the first time. While this sounds like positive news on the surface, part of the decline stems from fraud in Massachusetts that spiked the numbers in the previous week. Continuing Jobless Claims also declined slightly by 8,000 to 1.799 million. This figure measures people who continue to receive benefits after their initial claim is filed. 

What’s the bottom line? 

Jobless Claims data can be volatile from week to week, so it’s important to look at the overall trend, which continues to reflect rising unemployment. For example, the four-week average of Initial Jobless Claims, which smooths out some of the weekly fluctuation among first-time filers, reached the second highest level of the year at 244,250. 

Meanwhile, Continuing Claims have risen by more than 500,000 since the low reached last September, and they’re also up 165,000 since the start of the year. This metric remains at some of the highest levels seen in some time and is a clear sign that hiring has slowed.

Weakness in Manufacturing, Retail Sales and Leading Indicators

May brought more negative readings (which signal contraction) reported for manufacturing in the New York and Philadelphia regions. The Empire State Index contracted sharply to -31.8, which was much worse than estimates, while the Philadelphia Fed Index remained in contraction territory for the ninth straight month. These reports suggest that the manufacturing sector is already experiencing recession-like conditions.

Meanwhile, Retail Sales rose 0.4% in April but this was just half of market estimates. Sales increased 0.5% over the last year, which is the lowest growth rate in three years and well below the historical average of 4.8%. After adjusting for inflation, however, the story is far worse. Real retail sales have fallen 4.2% over the last year, marking the sixth consecutive year-over-year decline.

The Conference Board also released their Leading Economic Index (LEI) for April, which was down 0.6%. This latest deterioration followed the 1.2% drop in March and marked the thirteenth consecutive month of declines. The LEI provides an early indication of turning points in the business cycle, reflecting where the economy is heading in the near term. Justyna Zabinska-La Monica, Senior Manager, Business Cycle Indicators, noted that “the Conference Board forecasts a contraction of economic activity starting in Q2 leading to a mild recession by mid-2023.”

What to Look for This Week 

More housing reports are ahead, with April’s New and Pending Home Sales releasing on Tuesday and Thursday, respectively. Also on Thursday, look for the latest Jobless Claims data along with the second reading for first quarter 2023 GDP. 

The minutes from the Fed’s May meeting will be released Wednesday and these always have the potential to move the markets. Ending the week, Friday brings perhaps the biggest news with April’s reading for the Fed’s favored inflation measure, Personal Consumption Expenditures. 

Technical Picture

Mortgage Bonds ended last week in the middle of a wide range between support at 99.845 and resistance at 100.281. The 10-year broke above its ceiling at 3.644%, which is a negative technical sign. Yields are in a new range, with the next ceiling at 3.786% if they cannot get back under the aforementioned level.