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.

Time is of the Essence! – Buyer’s Market Heating Up

Mortgage rates have been hovering around 6% for a while and would require significant volatility in the overall economic market to change. The mortgage market gurus are currently engaged in a debate about inflation and economic growth, which are both crucial factors affecting rates. The uncertainty surrounding these factors has led to a sideways range in mortgage rates between 6% and 7% since September 2022. The recent small increase in rates was not driven by any specific reason and is part of the overall volatility within the range. Resolving the questions about inflation and economic growth will take weeks or even months, highlighting the complexity of the situation.

We’re currently trading in a narrow trough and which has led to a sideways trend in mortgage rates. This is a welcome departure from the record increases of last year. While inflation remains elevated, its rate of growth has moderated and is expected to decelerate over the remainder of 2023. This should bode well for the trajectory of mortgage rates over the long-term.

The prospect of lower mortgage rates for the remainder of the year is still on the horizon for borrowers who are looking to purchase a home. The stabilization of rates and lack of inventory may create a frenzy for houses in desirable neighborhoods and those that are priced right with the right features. 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 May 11, 2023

Week of May 8, 2023 in Review

Inflation continues to trend lower. Jobless Claims continue to trend higher. Here are last week’s highlights:

-Annual consumer and producer inflation continue lower

-Jobless Claims continue higher

-Small Business Optimism Hits 10-Year Low

CPI Continues Downward Trend

Consumer inflation rose 0.4% in April per the Consumer Price Index (CPI), with this headline reading coming in-line with estimates. On an annual basis, CPI fell from 5% in March to 4.9% last month. Core CPI, which strips out volatile food and energy prices, increased 0.4% while the annual reading fell from 5.6% to 5.5%.

In addition, the shelter index increased 8.1% over the last year, accounting for 43.2% of the total increase in all items less food and energy per the Bureau of Labor Statistics. However, shelter costs have been declining in more real-time data. For example, Apartment List’s latest Rent Report showed that year-over-year rent growth decelerated to 1.7% in April, the lowest level since March 2021. Once these moderating shelter costs are reflected in the CPI data, they will add additional downside pressure to inflation.

What’s the bottom line? While annual inflation remains elevated at 4.9%, it has declined sharply from the 9.1% peak seen last June. Lower inflation helps both Mortgage Bonds and mortgage rates improve, so these signs of easing inflation are welcome.

PPI Continues Downward Trend

The Producer Price Index (PPI), which measures inflation on the wholesale level, rose 0.2% in April, coming in below expectations of 0.3%. On an annual basis, PPI fell from 2.7% to 2.3%. Core PPI, which strips out volatile food and energy prices, also rose 0.2% with the year-over-year reading dropping from 3.4% to 3.2%.

What’s the bottom line? Annual wholesale inflation readings have 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 2.7%, which is a decline of 9%!

Jobless Claims Continue Lower

Initial Jobless Claims rose by 22,000 in the latest week, as 264,000 people filed for unemployment benefits for the first time. This is the highest Initial Jobless Claims print since October 2021. Since October 2022, Initial Jobless Claims have risen by 84,000. While not in a straight line, the trend is higher overall.

Continuing Claims rose by 12,000 to 1,813,000. This number measures people who continue to receive unemployment benefits after their initial claim is filed. Continuing Claims have been rising substantially and remain elevated.

Small Business Optimism Hits 10-Year Low

The National Federation of Independent Business (NFIB) Small Business Optimism Index weakened to 89 in April. This is the lowest level in more than ten years and marked the sixteenth straight month the index has come in below the 49-year average of 98. Among the key takeaways, 24% of small business owners reported that labor quality was their top problem, with inflation a close second at 23%.  

What’s the bottom line? Overall, small business owners are “cynical about future economic conditions,” per NFIB’s chief economist Bill Dunkelberg. The report showed that compensation plans and higher selling prices moderated while the earnings outlook, capital spending plans, and those expecting higher sales all declined. In addition, those expecting a better economy fell to nearly the lowest level on record. This data in totality points to a slowing economy and a recession.

What to Look for This Week

Crucial housing reports are ahead, starting Tuesday with builder confidence for this month from the National Association of Home Builders. April’s Housing Starts and Building Permits will be reported on Wednesday while Existing Home Sales follows on Thursday.

In other news, May’s manufacturing data for the New York and Philadelphia regions will be released on Monday and Thursday, respectively. Look for April’s Retail Sales on Tuesday while the latest Jobless Claims will be reported as usual on Thursday.

Technical Picture

Mortgage Bonds ended the week by breaking beneath the quad level of support and are battling their 50-day moving average.

The 10-year Treasury has broken above its ceiling at 3.43% and is battling its 25-day moving average. If this level fails to keep a lid on yields, we may see a retesting of the 50-day moving average.

What’s the bottom line? Jobless Claims can be volatile from week to week, but they continue to trend higher. The labor market has been extremely tight for quite some time. However, it’s been showing signs of weakening as of late.

Mortgage Rates Tick Down

This week, mortgage rates inched down slightly amid recent volatility in the banking sector and commentary from the Federal Reserve on its policy outlook. Spring is typically the busiest season for the residential housing market and, despite rates hovering in the mid-six percent range, this year is no different. Interested homebuyers are acclimating to the current rate environment, but the lack of inventory remains a primary obstacle to affordability.

There has been much hype in my world around the release of April Inflation numbers with the CPI print this coming Wednesday. the next CPI report is scheduled to be released on Wednesday, May 10 at 8:30 am Eastern time. May’s monthly increase is forecast at 0.3%, and that, compared with sharply rising prices from May 2022 falling out of the series could finally bring annual CPI below 5% for the first time since 2021. All agencies predicted that CPI inflation in 2023 will be 0.8-1.5% higher compared to the Federal Reserve target of 2%. The expectation up until this week is that good numbers would lead a rally in the bond market and subsequently lower mortgage rates. We still expect that inflation will be brought under control in the coming months. However, with OPEC cutting production and oil prices playing a role in the overall inflation numbers, we may not see these better rates right away. Moreover, if the Fed believes that inflation is not being brought under control. they might just call for another hike to the overnight rate. This would not bode well for rates. Stay tuned for more as information becomes available.

The prospect of lower mortgage rates for the remainder of the year is still on the horizon for borrowers who are looking to purchase a home. Looking to get pre-approved? Start here!

• Current Mortgage Rates Data Since 1971​xlsx

Primary Mortgage Market Survey® U.S. weekly averages as of May 4, 2023

Week of May 1, 2023 in Review

The Fed hiked its benchmark Fed Funds Rate despite signs of cooling inflation and concerns about the banking sector. Plus, job growth isn’t as strong as it seems while home prices have reached an inflection point. Here are the key stories:

• Fed Hikes Rates Another 25 Basis Points
• Strong Jobs Report or Not Really?
• What’s Really Boosting Private Payrolls?
• Challenges Remain for Job Seekers
• Appreciation Data Turning Around

Fed Hikes Rates Another 25 Basis Points

The Fed hiked their benchmark Fed Funds Rate by 25 basis points at their meeting last Wednesday, bringing it to a range of 5% to 5.25%. 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 tenth hike since March of last year.

What’s the bottom line? The Fed’s decision to hike the Fed Funds Rate was unanimous, despite clear signs of falling inflation, forecasts of a recession, and concerns about the banking sector.

And while Fed Chair Jerome Powell stressed that the banking system is “sound and resilient,” one result of the Fed’s rate hikes is the stress they have put on many regional banks. Depositors have been incented to withdraw their money and invest it in higher-yielding money market accounts or short-term treasuries. Over the last two months, three banks with a combined $550 billion in assets have failed, which is 50% more than the 511 banks that have failed since 2009. The stability of regional banks is crucial, as they make up almost 40% of all loans.

There was also a big change to the Fed’s policy statement, which saw the removal of language saying they “anticipate” further rate hikes would be needed. Instead, the Fed said that going forward they would determine whether additional firming policy would be appropriate. This lays the groundwork for a pause in rate hikes at their next meeting in June, although Powell noted in his press conference that the Fed has not made that decision as of yet. He also denied the Fed would cut rates this year even though economists forecast otherwise.

Strong Jobs Report or Not Really?

The Bureau of Labor Statistics (BLS) reported that there were 253,000 jobs created in April, which was much larger than estimates. However, substantive revisions to the data from February and March subtracted 149,000 jobs in those months combined, which tempered April’s gains. The unemployment rate fell from 3.5% to 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 derived by calling households to see if they are employed.

The Household Survey has its own job creation component, and it showed some underlying weakness with only 139,000 new jobs created last month. Plus, the labor force decreased by 43,000, which is not a positive sign. When we combine these two factors, the unemployment rate did decline – but not because of strong job growth.

In addition, while the headline job growth number appeared strong, there were some cracks in the data. One of the biggest reasons we saw job gains 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 April, this modeling added 378,000 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.

What’s Really Boosting Private Payrolls?

Private payrolls nearly doubled expectations last month, as the ADP Employment Report showed that there were 296,000 jobs created in April. Annual pay for job stayers increased 6.7% and job changers saw an average increase of 13.2%. While these figures are still high, they reflect a year-long slowdown and lower wage-pressured inflation, with job-changers in particular seeing the slowest pace of pay growth since November 2021.

What’s the bottom line? The leisure and hospitality sector once again led the way with 154,000 job gains, and this sector has been a huge driver of job growth after the massive losses seen during the height of the pandemic. However, these jobs may not 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 16.25 million after last month’s gains, meaning we have eclipsed where we were pre-Covid.

In addition, private sector job growth has been quite volatile so far this year, with monthly gains averaging 205,000 from January through April. This is compared to an average of 306,000 new jobs per month throughout last year, so we’re seeing a clear  slowdown notwithstanding April’s strong print.

Challenges Remain for Job Seekers

The number of people filing for unemployment benefits for the first time rose by 13,000 in the latest week, as 242,000 Initial Jobless Claims were reported. Continuing Claims, which reflect people continuing to receive unemployment benefits after their initial claim is filed, declined by 38,000 to 1.805 million.

What’s the bottom line? Jobless Claims can be volatile from week to week, but they continue to trend higher. Initial Jobless Claims have remained above 200,000 since early February. Plus, the four-week average of Initial Jobless Claims, which smooths out some of the weekly fluctuation among first-time filers, has hovered around 240,000 near a yearly high in recent weeks. Meanwhile, Continuing Claims have now risen by over 500,000 since the low reached last September, which shows the challenges people are subsequently facing as they search for new employment.

Housing Market at a Turning Point

CoreLogic’s Home Price Index showed that home prices nationwide rose by 1.6% from  February to March and they were 3.1% higher when compared to March of last year. This follows February’s 0.8% rise in home prices, suggesting that the housing market is at a turning point. CoreLogic forecasts that home prices will rise 0.8% in April and 4.6% in the year going forward, which is an upward revision from 3.7% in February’s report. 

In addition, other prominent appreciation reports have shown that home prices are on the rise again, including those by Case Shiller (+0.2% in February), the Federal Housing Finance Agency (+0.5% in February), Black Knight (+0.5% in March) and Zillow (+0.9% in March). This is further evidence that home prices have reached an inflection point.

What’s the bottom line? CoreLogic’s Chief Economist Selma Hepp said, “While housing markets across the country continue to send mixed signals, prices in many large metros appeared to have turned the corner, with the U.S. recording a second month of consecutive monthly gains. At 1.6%, the month-over-month increase was twice the average seen between 2015 and 2020.” 

She added that, “The monthly rebound in home prices underscores the lack of inventory in this housing cycle. In addition, while the lack of affordability generally weighs on home price growth, mobility resulting from remote working conditions appears to be a current driver of home prices in some areas of the country.”

What to Look for This Week

Inflation will be the top story, with April’s Consumer Price Index releasing on Wednesday. Look for the Producer Price Index on Thursday, which will give us news on wholesale inflation.

Also of note, the latest data on optimism among small businesses will be reported by the NFIB on Tuesday. Jobless Claims will be released 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 battling their 200-day Moving Average. If they can stay above this level, there is a lot of room to the upside before the next ceiling at 101.34. The 10-year moved higher Friday and ended the week battling the 3.43% ceiling.

Banking Industry Continues Consolidation

First Republic Bank was acquired today by JP Morgan as a resulted of the loss of over half of its customer deposits, amounting to $102 billion in the first quarter of 2023 alone. First Republic’s troubles began back in March with the collapse of Silicon Valley Bank and Signature Bank–both of who ran their portfolio business in a similar manner. When those banks were taken over by federal regulators, customers of First Republic lined up to withdraw a significant amount of their funds because many saw it as the next to fall.

JP Morgan Chase stepped in to acquire most of the bank’s operations today, providing relief to its customers, who will still have access to their money. This is just another in a long list of ongoing consolidation in the banking industry with the larger financial institutions continuing to expand their reach and solidify their position in the market.

Rates to Decline Through Remainder of 2023 – Stage Set for Prospective Home Buyers

In other news, the 30-year fixed-rate mortgage increased modestly for the second straight week, but with the rate of inflation decelerating, rates should gently decline over the course of 2023. Incoming data suggest the housing market has stabilized from a sales and house price perspective. The prospect of lower mortgage rates for the remainder of the year should be welcome news to borrowers who are looking to purchase a home. Looking to get pre-approved? Start here!

• Current Mortgage Rates Data Since 1971​xlsx

Primary Mortgage Market Survey® U.S. weekly averages as of 04/27/2023

Week of April 24, 2023 in Review

Inflation continues to trend lower while home prices continue to be supported by the ongoing dynamic of high demand and tight supply. Here are the takeaways:

• Inflation Improving One Step at a Time
• Lack of Existing Home Inventory a “Major Constraint”
• March New Home Sales Reach Yearly High
• Appreciation Data Turning Around
• Jobless Claims Trend Higher Despite Weekly Drop
• First Quarter GDP Well Below Estimates

Inflation Improving One Step at a Time

The Fed’s favorite measure of inflation, Personal Consumption Expenditures (PCE), showed that headline inflation increased 0.1% in March, while the year-over-year reading made a nice improvement from 5.1% to 4.2%. Core PCE, which strips out volatile food and energy prices, also rose by 0.3% with the year-over-year change declining from 4.7% to 4.6%.

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.

Inflation continues to trend lower in the right direction, though last month’s reading would have been even lower if the decelerating shelter costs seen in the real world were better reflected in the PCE report. Once this lagging shelter data catches up in the PCE report, it should cause additional downside pressure to inflation.

Lack of Existing Home Inventory a “Major Constraint”

Pending Home Sales fell 5.2% from February to March, which was much weaker than expectations and marks the first monthly decline since November. Sales were also down 23.2% from a year earlier. 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? Recent data showed that there were nearly 200,000 fewer active listings at the end of March than there were in November. Lawrence Yun, chief economist for the National Association of REALTORS�, confirmed, “The lack of housing inventory is a major constraint to rising sales. Multiple offers are still occurring on about a third of all listings, and 28% of homes are selling above list price. Limited housing supply is simply not meeting demand nationally.”

March New Home Sales Reach Yearly High

New Home Sales, which measure signed contracts on new homes, surged 9.6% in March to a 683,000-unit annualized pace. This was much stronger than estimates of a 1% increase and the best number in the past twelve months. In addition, sales were just 3.4% lower than they were in March of last year. 

The median sales price rose from $433,200 in February to $449,800 in March. 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.

What’s the bottom line? There were 432,000 new homes for sale at the end of March, which equates to a 7.6 months’ supply at the current sales rate. While this may sound like a large amount, a closer look shows that only 71,000 were actually completed, with the rest either not started or under construction. When comparing the pace of sales versus homes that were actually completed, there was only 1.2 months’ worth of available supply, which is well below a balanced market.

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.

Appreciation Data Turning Around

The Case-Shiller Home Price Index, which is considered the “gold standard” for appreciation, showed home prices rose 0.2% from January to February and they were 2% higher when compared to February 2022. This annual reading is a decline from the 3.7% gain reported in January.

The Federal Housing Finance Agency (FHFA) also released their House Price Index, which revealed that home prices rose 0.5% from January to February. This follows the 0.2% monthly gain reported in January. While prices rose 4% from February 2022 to February 2023, this was a decline from the 5.3% annual increase reported in January.

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? S&P DJI Managing Director Craig J. Lazzara noted that, “The National Composite, which had declined for seven consecutive months, rose a modest 0.2% in February, and now stands 4.9% below its June 2022 peak.” This is a far cry from a housing crash of 20% that some in the media have been predicting.

In addition, February’s monthly increase signals an inflection point, as does the turnaround in some of the hardest hit cities which saw price gains after several months of declines, including among others San Diego (+1.5%), San Francisco (+1%) and Detroit (+0.8%). 

Jobless Claims Trend Higher Despite Weekly Drop

Initial Jobless Claims fell 16,000 in the latest week, as 230,000 people filed for unemployment benefits for the first time. The number of people continuing to receive unemployment benefits after their initial claim is filed also fell 3,000 to 1.858 million.

What’s the bottom line? While these numbers can be volatile from week to week, the overall trend has been higher. Initial Jobless Claims have remained above 200,000 since early February while Continuing Claims have now risen by 569,000 since the low reached last September. These numbers are further evidence of workforce reductions, and the challenges people are subsequently facing as they search for new employment.

First Quarter GDP Well Below Estimates

The first reading of first quarter 2023 Gross Domestic Product (GDP) showed that the U.S. economy grew by 1.1%, which was much lower than estimates of 2% to 2.5%. Note that this is the first of three readings and there can be significant revisions when the second and final readings are released on May 25 and June 29, respectively. 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

More housing appreciation data will be reported on Tuesday via CoreLogic’s Home Price Index for March.

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

But perhaps the biggest news will stem from the Fed’s two-day meeting which begins Tuesday, with their Monetary Policy Statement and press conference coming on Wednesday. The Fed is expected to again hike its benchmark Fed Funds Rate, which they have been doing to curb inflation, and their actions and commentary could be market moving.

Technical Picture

Mortgage Bonds moved higher last Friday following the PCE report. After being rejected by their 200-day Moving Average, they ended the week testing the ceiling at the 25-day Moving Average. The 10-year moved sharply lower on Friday and ended the week battling with a key Fibonacci level of support at 3.431%.

Several of you have reached out to me regarding the main stream media’s pick up of the story I covered back in January. Here is an excerpt from the excellent website, Mortgage New Daily:

Before you stop paying your bills in the hope of cashing in, let’s separate fact from fiction.  First and most importantly, you will absolutely NOT get a better deal on a mortgage rate if your credit score is lower, even if your nephew just texted you a screenshot of a news headline saying “620 FICO SCORE GETS A 1.75% FEE DISCOUNT” and “740 FICO SCORE PAYS 1% FEE.”  

Matthew Graham – Mortgage News Daily

I strongly encourage you to read the rest of his article here: https://www.mortgagenewsdaily.com/markets/mortgage-rates-04212023 It is well-written and informative and takes the political bias and opinion out of the explanation. Just the facts. And yes, it has gotten more expensive to get a home loan–for everyone.

But to really understand what’s changed, you need to first understand that mortgage rates have a price. In other words, each rate on a rate sheet is associated with a price or fee and that price/fee goes up and and down with the rate you choose, based on how much money you want to borrower, what your credit score is and how much down payment you’re bringing to the purchase. There are a few other factors that determine rate and that is why it is so difficult to answer your question: “What are rates like today?”

With that out of the way, sometimes an interest rate comes at cost to you (that’s what we all know as “Points”) and sometimes that price/fee is a rebate to you (that’s how some lenders will quote you a “no cost loan”). What’s in the middle is something called “PAR”. This is the fancy Wall Street word for “Neutral”, meaning you don’t pay points and you don’t get a rebate. The price for mortgage rates has been increased at the direction of the Federal Housing Finance Administration because they don’t believe they are making enough money and raising these fees (because inflation). The FHFA believes this will help them maintain the financial health of Fannie Mae and Freddie Mac–the two Government Sponsored Entities that purchase many of the home loans that are originated in the United States.

Here’s a picture proving that home loans for the purpose of purchasing just got more expensive for us all:

Now, Fannie and Freddie have what is called a “Duty to Serve” and that requires them to be focused on helping first time home buyers get into homes. That is why the chart above shows that a smaller down payment and a lower credit scores appears to be getting a better deal than say someone with higher credit and a larger down payment.

But let’s take the following example, if you have two borrowers, one with a 700 FICO and 20% down, and another with 640 and 5% down, the LLPAs (1.500%) are in fact the same, creating an “equal” playing field. However, if you have both come in with 5% the higher FICO score gets an improvement to LLPA of 0.625%, whereas if the lower FICO borrower comes in with 20%, their LLPA is 1.375% higher. With the latter, a mortgage of $600,000 results in $8,250 of additional costs to the lower credit score borrower. The point here is that the FHFA is working to create more affordable housing for those that have lower credit scores and by assumption a smaller down payment.

After Weeks of Decline, Mortgage Rates Increase

For the first time in over a month, mortgage rates moved up due to shifting market expectations. Home prices have stabilized somewhat, but with supply tight and rates stuck above six percent, affordable housing continues to be a serious issue for potential homebuyers. Unless rates drop into the mid five percent range, demand will only modestly recover.

Primary Mortgage Market Survey® U.S. weekly averages as of 04/20/2023

Current Mortgage Rates Data Since 1971​xlsx

Week of April 17, 2023 in Review

The latest data showed signs of strength in the housing market while the labor sector is getting weaker. Plus, an important recession signal continues to reflect a slowing economy. Don’t miss these stories:

• What the Media Gets Wrong About Home Prices
• Home Builders Need to be “Starting” Something
• NAHB Reports Cautious Optimism Among Home Builders
• Job Market Getting Weaker
• Recession Signal Flashing

What the Media Gets Wrong About Home Prices

Existing Home Sales fell 2.4% from February to March to a 4.44 million unit annualized pace, per the National Association of Realtors (NAR), which was in line with estimates. Sales were 22% lower than they were in March 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? While it’s true that buyer activity slowed in March, February was an especially strong month for closings, so a slight pullback last month was understandable.

In addition, multiple data points suggest that demand remains strong. Homes stayed on the market on average for 29 days, down sharply from 34 days in February. Plus, 65% of homes sold in March were on the market for less than a month, which is up from 57% 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, there was a 0.9% decline in the median home price to $375,700 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. In fact, we could see home prices increase across all price categories, but the median price could still fall if the concentration of sales was on the lower end. Actual appreciation numbers are higher, not lower, on a year-over-year basis according to key reports from Case-Shiller, CoreLogic and the Federal Housing Finance Agency.

Home Builders Need to be “Starting” Something

Construction of new homes slowed in March, with Housing Starts falling nearly 1% from February. Building Permits, which are indicative of future supply, also fell 8.8% for the month. While Starts and Permits for single-family homes both ticked higher from February to March, they were significantly lower than in March of last year.

What’s the bottom line? The housing sector is undersupplied, and not enough inventory is heading to the market. Starts for single-family homes have been on a downward trend over the last year, with the pace of 1.191 million units in March 2022 falling all the way to 861,000 units this March. Single-family permits have followed the same pattern, declining from a pace of 1.163 million units to 818,000 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. 

NAHB Reports Cautious Optimism Among Home Builders

The National Association of Home Builders (NAHB) Housing Market Index, which is a near real-time read on builder confidence, rose one point to 45 in April, marking the fourth straight month this measure has increased. Among the components of the index, current sales conditions rose two points to 51 while sales expectations for the next six months increased three points to 50. Buyer traffic remained unchanged at 31.

What’s the bottom line? Home builder confidence has now risen 14 points since the low of 31 in December. Present sales conditions returned to expansion territory (over 50) for the first time since last September, while the future sales outlook is right at the breakeven between expansion and contraction at its highest level since June. Even though the overall confidence reading remains below 50 in contraction territory, sentiment continues to rebound in the right direction.

Job Market Getting Weaker

Initial Jobless Claims continued to move higher this month, with the number of people filing for unemployment benefits for the first time rising by 5,000 in the latest week to 245,000. This tied the third highest reading so far this year. Continuing Jobless Claims also surged to 1.865 million, up 61,000.

What’s the bottom line? Continuing Claims measure people who continue to receive benefits after their initial claim is filed and this data clearly shows that hiring has slowed. While the number can be volatile from week to week, the overall trend has been higher with an increase of around 576,000 since the low reached last September.

Plus, there’s greater evidence of workforce reductions as the four-week average of Initial Jobless Claims, which smooths out some of the weekly fluctuation among first-time filers, has hovered around 240,000 at a yearly high in recent weeks.

Recession Signal Flashing

The Conference Board released their Leading Economic Index (LEI) for March, which was down 1.2%, falling to “its lowest level since November of 2020, consistent with worsening economic conditions ahead,” said Justyna Zabinska-La Monica, Senior Manager, Business Cycle Indicators. This report is a composite of economic indexes and can signal peaks and troughs in the business cycle.

What’s the bottom line? The Conference Board explained that a warning signal occurs when the LEI 6-month growth rate on an annualized basis breaks beneath 0%. But a break beneath -4.2%, like we saw last month, is a recession signal that has been highly accurate historically. The Conference Board also stated that they believe the U.S. will enter a recession “starting in mid-2023.” 

What to Look for This Week

More housing news is ahead, starting with Tuesday’s release of home price appreciation data for February from the Case-Shiller Home Price Index and the Federal Housing Finance Agency (FHFA) House Price Index. March’s New Home Sales will also be reported on Tuesday, while Pending Home Sales follows on Thursday.

Also on Thursday, the latest Jobless Claims data will be released along with the first reading for first quarter 2023 GDP. Friday brings perhaps the biggest news of the week with March’s reading for the Fed’s favored inflation measure, Personal Consumption Expenditures.

Technical Picture

Mortgage Bonds were able to stay above their 50-day Moving Average after testing it earlier in the day last Friday. The 10-year tested support at its 200-day Moving Average but remained above it at the end of last week.

Mortgage Rates Decrease Slightly

Primary Mortgage Market Survey® U.S. weekly averages as of April 13, 2023

The charts tell us that week to week, mortgage rates have decreased for the fifth consecutive week. However, as I have mentioned in previous posts, rates change every day and sometimes multiple time per day, depending on market activity. We did receive an encouraging report on inflation last week (with it hitting a low not seen since 2021). Incoming data suggests inflation remains well above the desired level but that is showing signs of deceleration. These trends, coupled with tight labor markets, are creating increased optimism among prospective homebuyers as the housing market hits its peak in the spring and summer.

Dream for All turned out to be more accurately named, “Dream for Some”, with the generous program launching just three weeks ago today, ending within just 12 days. The good news is that the program brought a huge number of fence-sitters out to get pre-approved and many now see that getting into a home is actually more realistic than they thought. Did you have borrowers trying for Dream for All? Encourage them to review the other down payment assistance programs that are out there. Want to know more about what is possible for these borrowers? Contact me! I want to help them get pre-approved and underwritten to go shop and find a home they love! If you have first-time buyers lookin for education, please send them to my first-time buyer’s guide here!

• Current Mortgage Rates Data Since 1971​xlsx

Week of April 10, 2023 in Review

Inflation is trending lower while unemployment claims are doing the opposite. Plus, the minutes from the Fed’s latest meeting revealed what they think about a recession this year. Here are the headlines:

• Consumer Inflation Getting Better
• Wholesale Inflation Makes Huge Progress Lower
• Latest on Small Business Optimism…or Lack Thereof
• Unemployment Claims Trend Higher
• Fed Expects “Mild Recession” Later This Year

Consumer Inflation Getting Better

Consumer inflation rose 0.1% in March per the Consumer Price Index (CPI), with this headline reading coming in just below estimates. On an annual basis, CPI fell sharply from 6% in February to 5% last month. 

Core CPI, which strips out volatile food and energy prices, increased 0.4% while the annual reading rose from 5.5% to 5.6%. This notch higher is partly due to a small replacement figure from last March, which was removed from the rolling 12-month calculation. Readings from April through June 2022 are higher comparisons, meaning annual Core CPI should decline in upcoming reports if readings this spring are lower than last year.

In addition, the shelter index increased 8.2% over the last year, accounting for over 60% of the total increase in all items less food and energy per the Bureau of Labor Statistics. However, shelter costs have been declining in more real-time data. For example, Apartment List’s latest Rent Report showed that year-over-year rent growth decelerated to 2.6% in March, the lowest level since April 2021. Once these moderating shelter costs are reflected in the CPI data, they should add additional downside pressure to inflation. 

What’s the bottom line? While annual inflation remains elevated at 5%, it has declined sharply from the 9.1% peak seen last June. Lower inflation typically helps both Mortgage Bonds and mortgage rates improve, so these signs of easing inflation are welcome.

Wholesale Inflation Makes Huge Progress Lower

The Producer Price Index (PPI), which measures inflation on the wholesale level, decreased by 0.5% in March, coming in well below expectations of no change. On an annual basis, PPI saw a sharp decline from 4.9% to 2.7%. Core PPI, which also strips out volatile food and energy prices, fell by 0.1% with the year-over-year reading dropping from 4.4% to 3.4%.

What’s the bottom line? Annual wholesale inflation readings have 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 2.7% – a decline of 9%! PPI is now at its lowest level since February 2021.

Latest on Small Business Optimism…or Lack Thereof

The National Federation of Independent Business (NFIB) Small Business Optimism Index weakened in March, falling to 90.1 and marking the fifteenth straight month the index has come in well below the 49-year average of 98. Among the key takeaways, 24% of small business owners reported that inflation remained their biggest problem, so the latest reports of cooling inflation are a positive development.

What’s the bottom line? Overall, small business owners are “cynical about future economic conditions,” per NFIB’s chief economist Bill Dunkelberg. He added, “Hiring plans fell to their lowest level since May 2020, but strong consumer spending has kept Main Street alive and supported strong labor demand.”

However, Retail Sales did fall 1% in March, after February brought a 0.2% decline from January’s stronger than expected sales. Business owners will be closely watching whether the pullback in spending continues this spring.

Unemployment Claims Trend Higher

The number of people filing for unemployment benefits for the first time rose by 11,000 in the latest week, with 239,000 Initial Jobless Claims reported. There were also 1.81 million Continuing Jobless Claims filed, which is a decline of 13,000 from the previous week. This represents people who continue to receive benefits after their initial claim is filed.

What’s the bottom line? The four-week average of Initial Jobless Claims, which smooths out some of the weekly fluctuation, has hovered around 240,000 in recent weeks, a high not seen since November 2021. And while Continuing Claims can also be volatile from week to week, the overall trend has been higher with an increase of more than 500,000 since the low reached last September. These numbers speak to the challenges people are having as they search for new employment.

Fed Expects “Mild Recession” Later This Year

The minutes from the Fed’s March meeting showed they believe there will be “a mild recession starting later this year, with a recovery over the subsequent two years.” The Fed also said they thought the recent banking crisis will result in a pullback in bank lending, which would have its own tightening effect on the economy.

On that note, several members considered forgoing a rate hike in March because of the banking turmoil but ultimately judged inflation to be too significant. Some members even noted they would have considered a 50 basis point hike to the Fed Funds Rate if there wasn’t any stress in the banking sector.

What’s the bottom line? The Fed has hiked the Fed Funds Rate nine times since March of last year, bringing it to a range of 4.75% to 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, which continues to ease per the latest CPI and PPI reports as noted above.

The Fed minutes also showed that they expect the Fed Funds Rate to reach a peak in May, which sounds like potentially one more 25 basis point hike at their May 2-3 meeting. The problem is that the Fed continues to look at lagging data instead of seeing the progress already made, even though the economy is showing signs of cracks and inflation is coming down.

What to Look for This Week

Housing reports will be front and center, starting with builder confidence for this month from the NAHB on Monday. March’s Housing Starts and Building Permits will be reported on Tuesday while Existing Home Sales data follows on Thursday.

April’s manufacturing data for the New York and Philadelphia regions will be released on Monday and Thursday, respectively. The latest Jobless Claims will also be reported as usual on Thursday.

Technical Picture

Mortgage Bonds failed to remain above a triple floor of support formed by the 25-day Moving Average, 100-day Moving Average and 100.758 Fibonacci level. They ended last week with the aforementioned floors acting as a ceiling and the 50-day Moving Average acting as support. The 10-year moved sharply higher and ended last week battling its 200-day Moving Average.

Mortgage Rates Trending Lower

Mortgage rates continue to trend down entering the traditional spring homebuying season. Most of the data we get is lagging, hence the information we show below each Monday is from a week to 10 days ago. We had what looked like a decent rally in mortgage rates last week, with rates as low as they have been since the end of February, but then jobs data was reported to be inline with expectations and that pushed rates back up slightly. The Consumer Price Index will be reported this coming Wednesday and if core inflation is shown to be hotter in March than expected, mortgage rates will be under pressure to rise. However, if inflation looks to be in check, we could see a continued rally in the bond market, which could spell good news for mortgage rates. Unfortunately, those in the market to buy are facing an additional challenge with the low inventory of homes for sale–we are at about 50% of inventory from a year ago.

Here in California, with pausing of the California Housing Finance Housing Agency’s Dream for All Program, aspiring first-time homebuyers may have had their home ownership goals dashed but fear not, there are plenty of other down payment assistance programs available and I would love to discuss them with you or your buyers. Please contact me today to review what options for first-time home buyers are available. I am here to help.

Freddie Mac Primary Mortgage Market Survey^® as of 4/6/2023

Week of April 3, 2023 in Review

The labor sector delivered plenty of news for the markets to digest, including some important signals about what may be ahead. Plus, the latest on home prices, manufacturing and more in these stories:

• Mixed Jobs Report for March
• Disappointing Private Sector Job Growth Signals “Slowing” Economy
• Reporting Adjustment Sheds Light on Unemployment Claims
• Home Price Forecast Sees Upward Revision
• Recession-like Conditions Continue in Manufacturing

Mixed Jobs Report for March

The Bureau of Labor Statistics (BLS) reported that there were 236,000 jobs created in March, which was in line with estimates. Revisions to the data from January and February subtracted 17,000 jobs in those months combined, which tempers March’s gains a bit. The unemployment rate fell from 3.6% to 3.5% even as the labor force increased.

What’s the bottom line? Despite the strength in these headline points, a deeper look at the data shows some signs of weakness in the labor market. 

Leisure and hospitality accounted for 72,000 new jobs in March. This sector has been a huge driver of job gains after the massive losses seen during the height of the pandemic. However, 98% of these jobs have now been regained so they may not contribute to the overall total for much longer. In fact, the latest Job Openings and Labor Turnover (JOLTS) report showed a sizable drop in leisure and hospitality job openings over the last two months.

In addition, while average hourly earnings were up 4.2% year over year in March, this is a decline from 4.6% and the lowest post-COVID yearly increase we have seen. Average weekly earnings were only up 3.3% year over year, which is also a big drop from the previous two reports.

It also appears that some companies are cutting hours to save costs, which is another sign of a slowing labor market. The average workweek fell from 34.5 hours to 34.4 hours, the lowest number of hours worked since 2019 (excluding COVID). While this doesn’t sound like a large decline, it reflects the entire US workforce of 161 million workers whose hours were cut by a tenth of an hour on average. This reduction in hours equates to 468,000 job losses.

Disappointing Private Sector Job Growth Signals “Slowing” Economy

Private payrolls were below estimates last month, as the ADP Employment Report showed that there were just 145,000 jobs created in March. Annual pay for job stayers increased 6.9% and job changers saw an average increase of 14.2%. These figures are still high but they have been moderating, showing lower wage-pressured inflation.

While the leisure and hospitality sector once again led the way with 98,000 job gains, these jobs may not bolster the overall private payroll total for much longer, as noted above.

What’s the bottom line? Nela Richardson, chief economist for ADP, said, “Our March payroll data is one of several signals that the economy is slowing. Employers are pulling back from a year of strong hiring and pay growth, after a three-month plateau, is inching down.”

Reporting Adjustment Sheds Light on Unemployment Claims

Initial Jobless Claims fell by 18,000 in the latest week, as 228,000 people filed for unemployment benefits for the first time. However, this does not tell the whole story. The previous week’s data was revised higher from 198,000 to 246,000 due to methodology adjustments, as explained below. 

The number of people continuing to receive unemployment benefits after their initial claim is filed also rose 6,000 to 1.823 million. There is more to this figure as well, with the prior week being revised higher from 1.689 million to 1.817 million.

What’s the bottom line? The Bureau of Labor Statistics has revised the seasonal adjustment factors they were using to compile the Jobless Claims report now that they have a better understanding of how COVID impacted the numbers in recent years. This has caused a material change in many of the previous reports over the past five years, making the number of Initial and Continuing Claims MUCH higher. These revisions paint a very different labor market picture than previously reported.

In addition, the Job Cuts Report from Challenger, Gray & Christmas showed that there were 90,000 job cuts in March, which is 15% higher than February. The technology sector led the way, accounting for 38% of the total. The report also noted that market and economic conditions, cost-cutting, and unit or department closings are the biggest reasons for job cuts made this year.

Home Price Forecast Sees Upward Revision

CoreLogic’s Home Price Index showed that home prices nationwide rose by 0.8% from January to February and they were 4.4% higher when compared to February of last year. This annual appreciation reading declined from 5.5% in January but is still solid. CoreLogic forecasts that home prices will rise 0.2% in March and 3.7% in the year going forward, which is an upward revision from 3.1% in January’s report. 

What’s the bottom line? CoreLogic’s Chief Economist Selma Hepp said that “U.S. home prices rose by 0.8% in February, double the month-over-month increase historically seen and indicating that prices in most markets have already bottomed out.” She also noted that “pent-up homebuyer demand is responding favorably to lower rates in many markets.”

On a related note, Black Knight’s latest Mortgage Monitor Report showed that home prices rose 0.2% in February, which is the first monthly gain since they peaked last June. Prices are now down just 2.6% from their peak, a far cry from a housing crash of 20% that some in the media have been predicting.

Recession-like Conditions Continue in Manufacturing

Economic activity in the manufacturing sector remained in contraction territory for the fifth straight month, as the ISM Index was reported at 46.3% for March. This data is compiled from a survey of purchasing and supply executives nationwide and measures the health of the manufacturing sector in the U.S. March’s reading was below expectations and saw new orders and production both contracting. Generally, readings above 50% indicate that the manufacturing economy is expanding, while below 50% signals a decline.

What to Look for This Week

Inflation will be the big headliner, as March’s Consumer Price Index will be reported on Wednesday. Look for the Producer Price Index on Thursday, which will give us news on wholesale inflation.

The latest data on optimism among small businesses will be reported by the NFIB on Tuesday. Jobless Claims will be released as usual on Thursday, while Friday brings news on March’s Retail Sales.

Also of note, the minutes from the Fed’s latest meeting will be released on Wednesday and these always have the potential to be market moving. 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 moved sharply lower following Friday’s mixed Jobs Report, breaking beneath the important 200-day Moving Average. They ended last week battling a dual floor comprising the 100-day Moving Average and 100.758 Fibonacci level.

Mortgage Rates Decrease Third Consecutive Week, Inventory Soft

Economic uncertainty continues to bring mortgage rates down. Over the last several weeks, declining rates have brought some borrowers back to the market but, as the spring homebuying season gets underway, low inventory remains a key challenge for those in the market to purchase. A recent study concludes there are now 11 renters competing for each available rental unit in the south bay (6 in SF and 9 in the east bay), with the speculation being that rising rates have taken prospective home buyers out of the market. Pressure from collapsed bank, SVB and uncertainty around another important regional lender, First Republic, along with the workforce reductions all across the tech space here in the regional are making home selling/buying conditions challenging.

According to Compass chief market analyst, Patrick Carlisle, February and previous months saw the largest year-over-year median price declines in the San Francisco since 2008-2009. Though not as extreme, the east bay also saw significant declines in home prices. However, if you can find a suitable home to purchase and it: 1. Doesn’t leave you broke and miserable, 2. You are willing to give it 5-7 years before selling (anything less would likely leave you writing a check at the close of escrow when you sold) and 3. You have decent credit, not a lot of debt and savings enough to cover your closing costs, this is an amazing time to get in. I’ll say it again, this is an amazing time to be a first time home buyer! If you want to get your clients pre-approved and underwritten, please reach out today. I would love to work with you!

• Current Mortgage Rates Data Since 1971​xlsx

Primary Mortgage Market Survey® U.S. weekly averages as of March 30, 2023

Week of March 27, 2023 in Review

Consumer inflation is trending lower in the right direction, while data shows the housing market is stronger than media reports suggest. Here are last week’s highlights:

• Annual Consumer Inflation Continues to Move Lower
• Signed Contracts Show Housing Is Standing Strong
• Media Cries Housing Crash but Appreciation Data Says Otherwise
• Significance of Elevated Continuing Jobless Claims
• What Do GDP Forecasts Signal?

Annual Consumer Inflation Continues to Move Lower

The Fed’s favorite measure of inflation, Personal Consumption Expenditures (PCE), showed that headline inflation increased 0.3% in February, while the year-over-year reading fell from 5.3% to 5%. Both readings were just below market estimates. Core PCE, which strips out volatile food and energy prices, also rose by 0.3% with the year-over-year change declining from 4.7% to 4.6%.

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.

Inflation continues to trend lower in the right direction, though last month’s reading would have been even lower if the decelerating shelter costs seen in the real world were better reflected in the PCE report. Once this lagging shelter data catches up in the PCE report, it should cause additional downside pressure to inflation.

Signed Contracts Show Housing Is Standing Strong

Pending Home Sales rose 0.8% from January to February, which was much stronger than expectations and marks the third straight month of increases. Sales were down 21.1% from a year earlier, though this was an improvement from the 24.1% annual decline in January’s report. Pending Home Sales is a critical report for taking the pulse of the housing market. It is considered a forward-looking indicator of homes 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�, noted, “After nearly a year, the housing sector’s contraction is coming to an end. Existing-home sales, pending contracts and new-home construction pending contracts have turned the corner and climbed for the past three months.”

Housing activity should continue to rebound during the spring buying season, especially if home loan rates move lower and hibernating buyers are motivated to resume their home search.

Media Cries Housing Crash but Appreciation Data Says Otherwise

The Case-Shiller Home Price Index, which is considered the “gold standard” for appreciation, showed home prices declined 0.5% from December to January but they were 3.8% higher when compared to January 2022. This annual reading is a decline from the 5.6% gain reported in December.

The Federal Housing Finance Agency (FHFA) also released their House Price Index, which revealed that home prices rose 0.2% from December to January. While prices rose 5.3% from January 2022 to January 2023, this was a decline from the 6.6% annual increase reported in December.

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? Home prices have been softening nationwide, but S&P DJI Managing Director Craig J. Lazzara noted that they are only down 5.1% from their peak 

last June. Plus, when you adjust for seasonal factors, prices are only down 3% from the peak. This is a far cry from a housing crash of 20% that some in the media have been predicting.

Significance of Elevated Continuing Jobless Claims

The number of people filing for unemployment benefits for the first time rose by 7,000 in the latest week, as 198,000 Initial Jobless Claims were reported. The number of people continuing to receive unemployment benefits after their initial claim is filed also rose 4,000 to 1.689 million. Note that the number of Continuing Claims can be volatile from week to week. However, the overall trend has been higher, as they have now risen by nearly 350,000 since the low reached last September.

What’s the bottom line? While it’s true that Initial Jobless Claims remain under 200,000, which is a relatively muted level, it’s important to understand that this is a lagging indicator regarding the strength of the labor market. Think of it this way. As the economy slows, companies don’t typically hold layoffs right away. Instead, they usually slow their pace of hiring first, potentially implementing hiring freezes before making the difficult decision to let people go. The elevated level of Continuing Claims suggests companies have reduced their pace of hiring and it’s harder for people who are let go to find new employment. 

What Do GDP Forecasts Signal?

The final reading of fourth quarter 2022 Gross Domestic Product (GDP) showed that the U.S. economy grew by 2.6%, which is a downward revision from the first (2.9%) and second (2.7%) readings. Still, seeing GDP turn positive in the third and fourth quarters of last year was a welcome sign, since it was negative for the first two quarters of 2022.

What’s the bottom line? Given that GDP functions as a scorecard for the country’s economic health, the big question now is what will GDP be for the first quarter of this year? The initial reading will be released April 27 and as of now the markets are expecting a reading of 3.2%. However, the Fed’s estimate for full year 2023 GDP is just 0.4%. If the Fed’s forecast is accurate, GDP would likely turn negative for the remainder of the year, which could signal recession.

What to Look for This Week

The latest data from the labor sector will be front and center, starting Wednesday with ADP’s Employment Report, which will give us an update on private payrolls for March. The latest Jobless Claims data will be reported on Thursday while Friday brings the Bureau of Labor Statistics Jobs Report for March, which includes Non-farm Payrolls and the Unemployment Rate.

We’ll also see an update on the manufacturing sector when the ISM Index is reported on Monday.

Technical Picture

Mortgage Bonds broke out of their narrow range last Friday, moving above overhead resistance at the 100.758 Fibonacci ceiling. This level will now act as support, with the 200-day Moving Average as the next ceiling. The 10-year broke beneath a tough floor at its 200-day Moving Average, with the next floor at the 3.431% Fibonacci level.