The 30-year fixed-rate mortgage hit the highest level since the year 2000 last week but retraced slightly Friday. Unlike the turn of the millennium, house prices today are rising alongside mortgage rates, primarily due to low inventory and that can be attributed to the mortgage “lock-in” effect being experienced by more than 70% of mortgage holders have rates of 4% or lower. The high current rates are causing both buyers and sellers to hold out for better circumstances.

The increase is attributed to a combination of factors, including the market’s reaction to a stop-gap bill preventing a government shutdown and unexpectedly strong manufacturing data.

The broader trend influencing these rate movements is the “higher for longer” theme that has persisted in the bond market over the past two years. The Federal Reserve’s recent economic projections and rate outlook have contributed to this trend, pushing rates upward.

Several important economic reports this week will play a significant role in determining the direction of mortgage rates. Weaker-than-expected data in these reports could bring rates down, while stronger results could push rates even higher, potentially reaching new multi-decade highs.

The response to the government’s passage of the stop-gap bill in the bond market was somewhat surprising, as past examples have yielded mixed reactions. Technical trading activity and principals may also have played a role in the market’s movements. With 10-year treasury yield closing above 4.68%, mortgage-backed securities lost some value, leading to mortgage rates moving back towards the high 7’s. Darn it.

What most home owners and first-time buyers are not recognizing is that waiting for rates to fall (and therefore perceived affordability to make a return) comes at a cost. More and more buyers are coming to the table while inventory is as strained as it has ever been. No amount of building can solve the problem in the short term. So, as rates fall, more competition will flood in, creating upward price pressures–with that goes any possible gain in affordability. Boo.

I say it daily: If your client can afford the payment and they like the house and it will suit its purpose for 3-5 years, go for it. Rates are temporary. Getting in is the goal and the home need not be perfect for it to be wonderful.

Primary Mortgage Market Survey® U.S. weekly averages as of 09/28/2023

• Current Mortgage Rates Data Since 1971xlsx

Week of September 25, 2023 in Review

Inflation continues to march lower while tight housing supply and elevated mortgage rates remain key influences on home sales and home prices. Here are last week’s stories:

• Inflation Makes Progress Lower
• Pending Home Sales Tumble in August
• New Home Sales Hit Slowest Pace Since March
• Record High for Home Prices
• Initial Unemployment Claims Remain Tame

Inflation Makes Progress Lower

August’s Personal Consumption Expenditures (PCE) showed that headline inflation increased by a lower-than-expected 0.4%. The year-over-year reading rose from 3.4% to 3.5%, though the increase was due to revisions in prior reporting. Core PCE, the Fed’s preferred method which strips out volatile food and energy prices, rose by 0.1% in August with the year-over-year reading falling from 4.3% to 3.9% – the lowest level in two years.

What’s the bottom line? The Fed has hiked its benchmark Fed Funds Rate (the overnight borrowing rate for banks) eleven times since March of last year to try to slow the economy and curb inflation. While inflation is still elevated, it has made a big improvement from the 7.1% peak seen last year and is now less than half that amount at 3.5% on the headline reading.

Plus, if we annualize the last six months’ worth of Core PCE readings (which the Fed did during their last meeting), Core PCE would equal 2.9%. This is a large drop from 3.4% in the previous report and not far above their 2% target. Will this progress be enough for the Fed to pause further rate hikes? We’ll find out at their next meeting on November 1. 

Pending Home Sales Tumble in August

Pending Home Sales fell 7.1% from July to August, with sales also 18.7% below the level seen a year earlier. This data measures signed contracts on existing homes, making it a forward-looking indicator for closings as measured by Existing Home Sales. August’s level of signed contracts suggests that closings in September will likely come in at an annualized pace under 4 million.

What’s the bottom line? Some would-be homebuyers have pressed pause on their purchase due to high rates and low inventory. Lawrence Yun, chief economist for the National Association of REALTORS� (NAR), explained, “It’s clear that increased housing inventory and better interest rates are essential to revive the housing market.” 

New Home Sales Hit Slowest Pace Since March

New Home Sales, which measure signed contracts on new homes, fell 8.7% from July to August to a 675,000-unit annualized pace. However, there was a positive revision to the number of signed contracts in July, and sales are still higher than they were a year earlier. 

What’s the bottom line? Buyers continue to turn to the new construction market due to the lack of existing homes for sale. However, more “available” supply of new homes is needed to meet demand. Of the 436,000 new homes available for sale at the end of August, only 76,000 were completed, with 254,000 under construction and 106,000 not even started yet.

The tight supply of both existing and new homes will continue to be supportive of home prices. On that note, the median sales price for new homes was $430,300, which was down from $440,300 a year ago. While this may sound like home prices are declining, this figure is not the same as appreciation but represents the mid-price and can be skewed by the mix of sales among lower-priced and higher-priced homes.

Multiple appreciation reports have reported record high home price growth in their respective indexes, as detailed below.

Record High for Home Prices

The Case-Shiller Home Price Index, which is considered the “gold standard” for appreciation, showed home prices nationwide rose 0.6% from June to July after seasonal adjustment, marking the sixth consecutive month of gains. The Federal Housing Finance Agency’s (FHFA) House Price Index also saw home prices rise 0.8% in July, with their index reporting gains every month so far this year.

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? Home values have hit new all-time highs according to Case-Shiller, FHFA, CoreLogic, Black Knight and Zillow, more than recovering from the downturn we saw in the second half of 2022. This year, prices are on pace to appreciate between 5-9% depending on the index, based on the reported pace of appreciation through July. These indexes show that now remains a great opportunity for building wealth through homeownership and appreciation gains.

Initial Unemployment Claims Remain Tame

Initial Jobless Claims rose by 2,000 in the latest week, just above the previous week’s eight-month low, with 204,000 people filing for unemployment benefits for the first time. The low level of first-time filings suggests that employers continue to hold on to workers.

Continuing Claims also rose by 12,000, with 1.67 million people still receiving benefits after filing their initial claim. This data has been trending lower since topping 1.861 million in early April, reflecting a mix of people finding new jobs and benefits expiring.

What’s the bottom line? The Fed has been looking for clear signs that the labor market is softening as they consider further rate hikes this fall. Upcoming labor sector data will also play a pivotal role in the Fed’s next rate decision, which will be announced on November 1.

What to Look for This Week

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

Technical Picture

After a volatile week, Mortgage Bonds ended Friday trading in a wide range between support at 98.086 and a ceiling at 99.234. The 10-year is also trading in a wide range between support at 4.323% and a ceiling at 4.676%.

September 21, 2023

I get these daily updates from a mortgage market guru. The daily emails show this graphic below as part of it, along with his commentary on the current market for rates and what’s driving them. I wanted to share this with you because in the last 30 days, I count only twice that the advice to lock wasn’t in the red. Mortgage interest rates are under incredible pressure with the current state of our economy, nagging inflation, high gas prices, Fed Speakers making comments, overseas bond markets, labor workers striking, a looming government shutdown (that would normally help but probably won’t this time around) are all playing a role in where rates are today (mid 7’s).

Importantly, today’s update included the following: “I think we will see 7.75% before the week is over.” We’re currently following the 6% MBS Coupon. That generally means that baseline mortgage rates are 1.5%-2% higher and the ten year treasury bond is trading around 4.53% with rates generally about 3% higher and this is before any pricing adjustments are made for loan size, credit score, occupancy and down payment percentages.

As a reminder, you can control quite a bit with respect to YOUR (or your client’s) rate (i.e., FICO above 780, loan amount less than $726,200 in high cost areas, 20% or more down, purchase of a single family residence for primary occupancy.) If you can check these boxes, you generally will have access to the best rates. Move any of these variables in the wrong direction and your interest rate will increase.

Given high mortgage rates, housing demand is cooling off and now homebuilders are feeling the effect. Builder sentiment declined for the first time in several months and construction levels have dipped to a three-year low, which could have an impact on the already low housing supply.

The bottom line though is that it is still a great time to buy a home. Getting in and getting started, even with high interest rates, is your best opportunity to accumulate generational wealth. Getting pre-approved is the easiest way to determine your purchase power. Getting that approval fully underwritten will make your offer strong and keep you competitive in this market.

Primary Mortgage Market Survey® U.S. weekly averages as of 09/21/2023

• Current Mortgage Rates Data Since 1971xlsx

Week of September 18, 2023 in Review

The Fed held its benchmark Fed Funds Rate steady, though there are signs that a higher for longer approach is ahead. Plus, elevated mortgage rates and tight inventory remain key factors impacting the housing market. Read on for last week’s stories:

• Will the Fed Keep Rates Higher for Longer?
• Inventory of Existing Homes Needs to “Double”
• Housing Starts Plunge to 2-year Lows
• Higher Rates Dampen Home Builder Sentiment
• Is a Rise in Unemployment Claims Ahead?

Will the Fed Keep Rates Higher for Longer?

After eleven rate hikes since March of last year, the Fed left their benchmark Federal Funds Rate unchanged at a range of 5.25% to 5.5% 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? Despite holding the Fed Funds Rate steady last week, there were signs that the Fed may keep rates higher for longer. Projections in the Fed’s dot plot show one more hike is ahead this year. Plus, there are indications that we’ll only see two rate cuts in 2024, down from four previously.

Fed Chair Jerome Powell noted that the Fed remains “strongly committed to returning inflation to our 2 percent objective.” The Fed will be assessing incoming data ahead of their next meeting and rate decision on November 1, especially inflation and labor market figures. Yet, with recent job growth numbers being revised lower in subsequent reports (for example, June’s originally reported number of 209,000 new jobs has been cut in half to just 105,000 jobs), this data may not provide the most accurate picture. 

The Fed expects stronger economic growth, as they revised their 2023 GDP forecast upward to 2.1% (more than double their June estimate of 1%). But this is in sharp contrast to the latest Leading Economic Indicators (LEI) from the Conference Board, which was down 0.4% last month, marking the seventeenth straight month of declines. This indicator (along with yield curve inversions, near record high credit card debt, and the lag effect of the Fed’s rate hikes) shows why a recession may not be off the table just yet.

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

Inventory of Existing Homes Needs to “Double”

Existing Home Sales fell 0.7% from July to August to a 4.04-million-unit annualized pace, per the National Association of REALTORS� (NAR). Sales were also 15.3% lower than they were in August of last year. This report measures closings on existing homes, which represent a large portion of the market, making it a critical gauge for taking the pulse of the housing sector.         

What’s the bottom line? Record low inventory and elevated mortgage rates remain key constraints on home sales. There were 1.1 million homes available for sale at the end of August, down from 1.28 million a year earlier and nearly half the levels seen in 2019. Plus, inventory is even tighter than that figure implies, as many homes counted in existing inventory are under contract and not truly available for purchase. In fact, there were only 669,000 “active listings” at the end of last month.

Yet, homes continue to sell quickly (averaging just 20 days on the market) and NAR’s Chief Economist Lawrence Yun noted that “home prices continue to march higher despite lower home sales.” He added that “supply needs to essentially double to moderate home price gains.”

Housing Starts Plunge to 2-year Lows

August brought a slowdown in home construction as Housing Starts, which measure the start of construction on homes, fell 11.3% from July. While the bulk of the pullback came in multi-family units, starts for single-family homes also declined 4.3%. Building Permits, which are indicative of future supply, did rise 6.9% from July while permits for single-family homes reached their highest level in a year.   

What’s the bottom line? Given the resurgence in rates last month, it’s possible that builders were readying permits for what they hope is a pivot on rates and the increased buyer traffic that should follow.

Regardless, supply is still well below current demand. When we look at the pace of completed homes that will be coming to market (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 2 million. Even looking at future supply (Building Permits at 1.5 million annualized), we’re still lower than where we need to be.

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

Higher Rates Dampen Home Builder Sentiment

The National Association of Home Builders (NAHB) Housing Market Index fell five points to 45 in September, pushing builder sentiment below the key breakeven level of 50 for the first time since April. All three components of the index declined, with current and future sales expectations down six points to 51 and 49 respectively, and buyer traffic falling five points to 30.    

What’s the bottom line? Rising mortgage rates, a lack of workers and buildable lots, and ongoing shortages of distribution transformers (which are crucial for converting voltage in transformer lines to appropriate household levels) were key reasons cited for declining confidence among builders. But there was a positive takeaway for potential buyers – 32% of builders reported cutting prices, the largest share since last December.

Is a Rise in Unemployment Claims Ahead?

Initial Jobless Claims fell by 20,000 in the latest week, reaching an eight-month low, with 201,000 people filing for unemployment benefits for the first time. Continuing Claims also declined by 21,000, with 1.662 million people still receiving benefits after filing their initial claim. This latter number has been trending lower since topping 1.861 million in early April, reflecting a mix of people finding new jobs and benefits expiring.

What’s the bottom line? While the tame level of Initial Jobless Claims suggests a strong labor market, these unemployment filings are usually the last data point to reflect a slowdown. Typically, we first see a decline in job postings, hirings, and a reduction in hours before layoffs occur and these first three trends have been seen in recent reports. It will be important to see if a sustained rise in Initial Jobless Claims follows in the coming months, especially with the Fed looking for clear signs that the labor market is softening as they consider further rate hikes this fall. 

What to Look for This Week

Another housing-centric week is ahead, starting Tuesday with an update on home price appreciation for July via Case-Shiller and the Federal Housing Finance Agency. August’s New and Pending Home Sales will also be reported on Tuesday and Thursday, respectively.

Also on Thursday, look for the latest Jobless Claims and the final reading for second quarter GDP. Plus, a crucial inflation reading will be delivered on Friday via the Fed’s favored measure, Personal Consumption Expenditures.

Technical Picture

Mortgage Bonds rebounded on Friday, finding support just above 98.944. The 10-year moved lower from the 4.5% ceiling of resistance, ending last week down near 4.43%. Should the recovery continue, there is a lot of room for yields to move lower before reaching the next support level.

September 18, 2023

High mortgage rates are having a widespread impact. Currently hovering in the 7% range, these rates possibly contributed to declines in all three major housing market indices (HMI) in September. Two of these indices, which assess current sales conditions and predictions for the next six months, dropped by 6 points to 51 and 49, respectively–one is now below the midline. Higher numbers are better for this measure. Additionally, the measure of traffic from prospective buyers fell by 5 points to 30. Rates and likely affordability are to blame.

Even if we implement housing-friendly policies for builders soon, it’s unlikely we can construct our way out of the current inventory issues we’re facing anytime soon. The solution? Listings! Recent studies reveal that 27% of U.S. homeowners contemplating listing their homes in the next year would feel a greater sense of urgency to sell if interest rates dropped to 5% or lower. An even larger percentage, 49%, would be motivated to sell if rates dropped to 4% or below. This urgency jumps to 78% if rates were to drop to 3% or lower—though this scenario is highly unlikely in the near future (and if we see 3% rates again, something else is wrong). Some think we won’t be in a lower rate environment until mid 2024. I’ve heard some speaking an uneasy mantra–“survive ’til ’25” UGH.

What’s the pathway to lower rates? First, we need to get inflation under control (and we are getting closer). Additionally, some softening in the labor market could help, although there is debate about whether we are accurately counting part-time workers. Some experts believe that the recent strength seen in job figures doesn’t truly reflect the reality of the situation.

All things considered, if you currently hold a mortgage with a 4% interest rate or lower (like 62% of all U.S. households with mortgages), there is little incentive to move to a new home. One area that could help loosen up inventory is that household debts are at an all time high. There may be past clients in your database that have gotten themselves into debt and need a way out. Many homeowners today are sitting on record equity in their homes. Selling and taking some of that equity to pay off debt and purchase something else may provide some with much needed monthly cash flow–even with rates that are double of what they have today. Making calls and asking questions could lead to listings, which is what all of us need right now more than anything else.

Need to get your client preapproved? Call me today! 650-207-4364

• Current Mortgage Rates Data Since 1971xlsx

Primary Mortgage Market Survey® U.S. weekly averages as of 09/14/2023

Week of September 11, 2023 in Review

Key inflation data was reported ahead of this week’s Fed meeting, while home prices continue to show signs of strength. Here are the latest stories:

• What “Fueled” the Rise in Consumer Inflation?
• Is the Rise in Wholesale Inflation a Concern?
• New High in Home Price Appreciation
• Important Context Regarding Tame Jobless Claims

What “Fueled” the Rise in Consumer Inflation?

August’s Consumer Price Index (CPI) showed that inflation rose 0.6%, with this monthly reading coming in right around estimates. On an annual basis, CPI increased from 3.2% to 3.7% last month, though this is still near the lowest level in more than two years. Core CPI, which strips out volatile food and energy prices, increased 0.3% while the annual reading declined from 4.7% to 4.3%.

Surging energy and gasoline prices accounted for much of the monthly increase, while tame food and shelter prices and declining costs for used cars helped inflation last month. Note that if the United Auto 

Workers strike ends up having a prolonged impact on the supply of new cars, we could see used car prices start to rise again.

What’s the bottom line? While annual PPI also moved higher in the wrong direction, it was coming from a very low level and remains extremely muted, well below last year’s 11.7% peak. Plus, much of the increase in wholesale inflation was also due to rising energy prices, like we saw with consumer inflation.

Plus, New York Fed President John Williams recently acknowledged that inflation would be even lower if decelerating shelter costs were better reflected in the reporting, with less of a lag effect.

Is the Rise in Wholesale Inflation a Concern?

The Producer Price Index (PPI), which measures inflation on the wholesale level, increased by 0.7% in August, coming in hotter than expected. On an annual basis, PPI doubled from 0.8% to 1.6%. Core PPI, which also strips out volatile food and energy prices, rose by 0.2%, with the year-over-year reading dropping from 2.4% to 2.2%.

What’s the bottom line? While annual PPI also moved higher in the wrong direction, it was coming from a very low level and remains extremely muted, well below last year’s 11.7% peak. Plus, much of the increase in wholesale inflation was also due to rising energy prices, like we saw with consumer inflation.

Remember, the Fed has been hiking its benchmark Fed Funds Rate (which is the overnight borrowing rate for banks) to try to slow the economy and curb inflation. Their latest hike in July was the eleventh since March of last year, pushing the Fed Funds Rate to the highest level in 22 years

Will the progress we’ve seen so far on inflation be enough for the Fed to pause further hikes? Recent comments from several Fed members suggest that’s the case, including New York President John Williams (monetary policy is in “a good place”), Dallas Fed President Lorie Logan (skipping a hike this month “could be appropriate”), and Philadelphia Fed President Patrick Harker (the Fed may be at a point to “hold rates steady”).

We’ll find out what the Fed decides for sure this Wednesday, after their two-day meeting concludes.

New High in Home Price Appreciation

CoreLogic’s Home Price Index showed that home prices nationwide rose for the six straight month, up 0.4% from June to July. Prices were also 2.5% higher when compared to July of last year. CoreLogic forecasts that home prices will rise 0.4% in August and 3.5% in the year going forward, though their forecasts tend to be on the conservative side historically. In fact, CoreLogic’s index is on pace for just under 9% appreciation in 2023, based on the monthly gains we’ve seen so far this year.

Zillow also reported that home values have increased 4.5% since the beginning of this year, with their index showing new all-time highs in home values month after month since May. Zillow’s index is on pace for 7% appreciation this year, based on the monthly gains we’ve seen to date.

What’s the bottom line? The latest rise in home prices reported by CoreLogic and Zillow echoes the strong growth seen by Case-Shiller, Black Knight and the Federal Housing Finance Agency. These reports continue to demonstrate why homeownership remains a good investment and opportunity for building wealth through real estate.

Important Context Regarding Tame Jobless Claims

Initial Jobless Claims rose by 3,000 in the latest week, with 220,000 people filing for unemployment benefits for the first time. Continuing Claims also increased by 4,000, with 1.688 million people still receiving benefits after filing their initial claim. This latter number has been trending lower since topping 1.861 million in early April, reflecting a mix of people finding new jobs and benefits expiring.

What’s the bottom line? While the tame level of Initial Jobless Claims suggests a strong labor market, the measured week included the Labor Day holiday, so the shortened filing time may have impacted the data. Plus, Initial Jobless Claims are usually the last data point to reflect a slowdown in the job market. Typically, we first see a slowdown in job postings, hirings, and a reduction in hours before layoffs occur. These first three trends have been seen in recent reports.

It will be important to see if a sustained rise in Initial Jobless Claims follows in the coming months, especially with the Fed looking for clear signs that the labor market is softening as they consider further rate hikes this fall.

What to Look for This Week

Important housing reports are ahead, starting Monday with an update on home builder sentiment for this month from the National Association of Home Builders. August’s Housing Starts and Building Permits will be reported on Tuesday, while Existing Home Sales follow on Thursday.

Also on Thursday, look for the latest Jobless Claims and September’s manufacturing data for the Philadelphia region.

But the Fed will likely steal the show as their two-day meeting begins Tuesday, with their Monetary Policy Statement, rate decision and press conference coming on Wednesday.

Technical Picture

Mortgage Bonds broke beneath support at their 25-day Moving Average, ending last week testing the next floor at 98.086. The 10-year broke above the ceiling of resistance at 4.29%, with the next ceiling at 4.36%

Primary Mortgage Market Survey® U.S. weekly averages as of  September 7, 2023

We all know that predicting market trends in real estate is challenging. If we could see things coming, we’d be having far different conversations with our buyers and sellers, wouldn’t we? Sometimes, unexpected events lead to significant fluctuations. This past week, we saw an abrupt rise in rates after a holiday closure. It caught many of us us off guard. A “warning” might have been a scheduled economic report known for market volatility–we didn’t get that after the long holiday weekend. However, the surge in new corporate bonds created heightened competition for investor attention. The result? Lower demand for other bonds, including those affecting mortgage rates.

For the fourth consecutive week, the 30-year fixed-rate mortgage hovered above seven percent. The economy remains buoyant, which is encouraging for consumers. Though while inflation has decelerated, market activity and economic data mentioned above have put upward pressure on mortgage rates. This has led to continued affordability challenges, which are straining potential homebuyers and likely sidelining some.

Additionally, economic data released on Wednesday showed stronger-than-expected growth in the services sector, accompanied by higher prices. Such data typically has an adverse impact on rates, making Wednesday the week’s least favorable day for mortgage lenders (and our buyers, too!).

Looking ahead, we anticipate high-stakes economic data with August’s Consumer Price Index (CPI). While CPI has been decreasing overall, this decline could be misleading due to the recent fuel price reversal, potentially leading to a more volatile market response. Keep an eye on both “headline” and “core” inflation for insights into the economy’s resilience.

Stay informed, as market conditions can change rapidly in the real estate landscape. No matter what, it’s still a great time to buy a house!

• Current Mortgage Rates Data Since 1971xlsx

Week of September 4, 2023 in Review

Fed speakers made headlines with hints about their next move on rate hikes. Plus, another report shows the strength in home values. Read on for these stories and more.

• Is the Fed Planning to Pause Rate Hikes?
• New High in Home Price Appreciation
• Holiday Impact on Unemployment Filings

Is the Fed Planning to Pause Rate Hikes

There was a parade of Fed speakers last week and there were signs that the Fed may be ready to pause rate hikes at their upcoming meeting on September 20. Comments from voting members were particularly noteworthy, including New York President John Williams, who said he believes monetary policy is in “a good place” and “having the desired effect.” While he thinks the Fed needs to keep their options open based on incoming data, his tone suggested he favors pausing hikes this month.

Dallas Fed President Lorie Logan also said skipping a hike this month “could be appropriate,” though she noted more tightening may still be needed for inflation to reach their 2% target. Philadelphia Fed President Patrick Harker has also said that the Fed may be at a point to “hold rates steady.”

Remember, the Fed has been hiking its benchmark Fed Funds Rate (which is the overnight borrowing rate for banks) to try to slow the economy and curb inflation. Their latest hike in July was the eleventh since March of last year, pushing the Fed Funds Rate to the highest level in 22 years.

What’s the bottom line? The Fed has been looking for clear signs that the labor market is softening as they consider further rate hikes. While job growth has appeared strong in recent reports, a closer look at the Bureau of Labor Statistics data shows a clear downtrend in job growth.

Not only has monthly job growth slowed, but negative revisions are growing as well. Most recently, for example, job creations in June were revised from the originally reported 209,000 all the way down to 105,000 after two months of revisions. In addition, the unemployment rate has moved higher from the low of 3.4% in April to 3.8% last month.

Are these signs of weakness enough to convince the Fed to pause rate hikes? This week’s inflation data will also play a role in their decision, which will be announced after the Fed’s meeting concludes next Wednesday, September 20.

New High in Home Price Appreciation

Home prices rose 1.5% from June to July per Black Knight’s Home Price Index, which was a big acceleration from the 0.7% monthly increase reported for June and the third month in a row this index set a new all-time high. On an annual basis, prices were up 2.3%, with the pace of appreciation at 4.4% from the beginning of this year. This equates to a 7.5% annualized pace if gains continue at this rate. Ninety-nine out of 100 cities showed gains in Black Knight’s index.

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

Holiday Impact on Unemployment Filings

Initial Jobless Claims fell by 13,000 in the latest week, with 216,000 people filing for unemployment benefits for the first time. Continuing Claims also declined by 40,000, with 1.679 million people still receiving benefits after filing their initial claim. This latter number has been trending lower since topping 1.861 million in early April, reflecting a mix of people finding new jobs and benefits expiring.

What’s the bottom line? While the decline in Initial Claims appears to show a strong labor market, the measured week was the lead up to Labor Day weekend, which could have skewed this number as people often put off filing around holidays. Note that Continuing Claims lag a week, so they were unaffected by the holiday.

Also of note, there have been reports that large companies like Adidas, Adobe, IBM, and Salesforce are “quiet cutting” their employees. In other words, they are reassigning workers with lower pay and a lower title so they can trim costs. These reassignments have more than tripled over the past year and could partly explain why unemployment claims have remained low.

What to Look for This Week

Crucial inflation reports are ahead, starting with August’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 brings the NFIB’s report on confidence among small business owners for last month. August’s Retail Sales and the latest Jobless Claims will be reported on Thursday. Investors will also be closely watching Tuesday’s 10-year Note and Wednesday’s 30-year Bond auctions for the level of demand.

Technical Picture

Mortgage Bonds ended last week battling their 25-day Moving Average. If Bonds can break above this level, the next ceiling is up at 98.60. The 10-year is trading in a range between a ceiling at 4.28% and a floor at the 25-day Moving Average.

Primary Mortgage Market Survey® U.S. weekly averages as of August 31, 2023

Mortgage rates leveled off this past week but remain elevated. Despite continued high rates, low inventory is keeping house prices steady. As the economic landscape rapidly evolves, the Federal Reserve is facing mounting pressure, as both inflationary trends and significant shifts in the labor market gain intensity. These dual forces continue to shape the economic outlook and, ultimately, the Fed’s decision to raise the overnight rate again. Those of us in the industry know that the Fed’s response could have a substantial impact of not only our business but also on the trajectory of the economy. Continued volatility makes it difficult to forecast where rates will go next, but it might be easier to gauge as the Federal Reserve determines their next steps regarding their decision to hike in September. But…IT’S STILL A GREAT TIME TO BUY A HOME!

• Current Mortgage Rates Data Since 1971xlsx

Week of August 28, 2023 in Review

There are signs of weakening in the labor market. Find out why this matters, plus what’s really going on with inflation and housing.

• Labor Market Lower and Slower
• Private Payrolls Weaker Than Expected
• Media Misinterpreting Inflation
• Pending Home Sales Rise for Second Straight Month
• Strong Home Price Growth Continues

Labor Market Lower and Slower

The Bureau of Labor Statistics (BLS) reported that there were 187,000 jobs created in August. While this was slightly better than estimates, job growth in June and July was revised lower substantially, subtracting 110,000 jobs in those months combined. The unemployment rate also rose from 3.5% to 3.8%.

What’s the bottom line? Job gains are clearly slowing, with the last three months averaging just 150,000 new jobs per month. This is compared to an average of 194,000 over the last six months, 257,000 over the last twelve months, and the 2022 average of 399,000 new jobs per month.

Job growth also continues to be revised lower in subsequent reports. For example, June’s originally reported number of 209,000 new jobs has been cut in half to just 105,000 jobs (which is the lowest reading in almost three years). Growth figures for July and August are likely to be revised lower as well. Plus, a deeper look at the data for August shows that part-time workers increased by 32,000, while full-time workers fell by 85,000. All these factors point to a weakening job market.

The Fed has been looking for clear signs that the labor market is softening as they consider further rate hikes. Will this report be enough to convince them to pause at their next meeting? We’ll find out on September 20.

Private Payrolls Weaker Than Expected

The ADP Employment Report showed that private payrolls were weaker than forecasted in August, with 177,000 jobs created. Most of the gains came in the services sector, spread fairly evenly between trade/transportation/utilities, education/health services, and leisure/hospitality.

ADP said that “job growth slowed notably last month, driven heavily by leisure and hospitality.” That sector added 30,000 jobs in August, finally cooling after months of strong gains that may have been overstated due to seasonal adjustment issues.

What’s the bottom line? Annual pay for job stayers increased 5.9% and job changers saw an average increase of 9.5%. While these figures are still high, they have cooled considerably from last year’s highs of 8% for job stayers and 16% for job changers. This is significant because it suggests lower wage-pressured inflation.

Media Misinterpreting Inflation

July’s Personal Consumption Expenditures (PCE) showed that headline inflation increased 0.2%, while the year-over-year reading rose from 3% to 3.3%. Core PCE, which strips out volatile food and energy prices, also rose by 0.2% in July with the year-over-year reading up from 4.1% to 4.2%.

What’s the bottom line?  With the latest PCE data showing an increase in annual inflation, some media analysts suggested that the Fed should continue raising the Fed Funds Rate.This is the overnight borrowing rate for banks and the Fed has been hiking this rate to slow the economy and curb inflation.

However, it’s important to look closely at the data, as inflation is calculated on a rolling 12-month basis. A lower comparison from July 2022 was removed and replaced with the 0.2% reading for this July,causing the annual rate to rise. Inflation has actually made significant progress lower from the 7% peak seen last year and is now less than half that amount at 3.3% on the headline reading.

Plus, if we annualize the last five months’ worth of readings, which provide a more current and relevant trend, inflation is running at a 2.2% pace on headline PCE and 3.2% pace for Core PCE. While this is higher than the Fed’s 2% target, these readings are lower than the annual readings reported for July and show the lower direction inflation has been heading. Pending Home Sales Rise for Second Straight Month

Pending Home Sales rose 0.9% from June to July, which was much stronger than estimates of a 0.6% drop. While sales were down 14% from a year earlier, this is not from a lack of demand but a lack of inventory, which was nearly 15% lower over the same period. Pending Home Sales measure signed contracts on existing homes, which represent the largest segment of transactions, making this a crucial measure for taking the pulse of the housing market.

What’s the bottom line? Despite the media’s best efforts to put a negative spin on this report, this was the second monthly increase in a row and shows strength in the housing sector, especially considering that July saw elevated mortgage rates and historically tight inventory. Lawrence Yun, chief economist for the National Association of REALTORS� (NAR), noted that “the small gain in contract signings shows the potential for further increases in light of the fact that many people have lost out on multiple home buying offers.”

Strong Home Price Growth Continues

The Case-Shiller Home Price Index, which is considered the “gold standard” for appreciation, showed home prices nationwide rose 0.7% from May to June after seasonal adjustment, marking the fifth consecutive month of gains. Prices were flat when compared to June 2022, which was when prices peaked in this report.

The Federal Housing Finance Agency (FHFA) also released their House Price Index, which revealed that home prices rose for the sixth straight month, up 0.3% from May to June. Prices also rose 3.1% from June 2022 to June 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?  Home values are setting new all-time highs according to FHFA, CoreLogic, Black Knight and Zillow, more than recovering from the downturn we saw in the second half of 2022. New highs are also expected in Case-Shiller’s next report, given that home values have returned to the highs seen last year. These appreciation indexes show that now remains a great opportunity for building wealth through real estate.

What to Look for This Week

After the market closures Monday for Labor Day, this week’s calendar is much quieter than last week’s, highlighted by Thursday’s release of weekly Jobless Claims and second quarter Productivity.

Technical Picture

Mortgage Bonds ended last week trading in a tight range between the ceiling of resistance at the 98.716 Fibonacci level and support at the 25-day Moving Average. The 10-year moved higher on Friday, testing the ceiling at 4.20%, which held last week.

This week, the 30-year fixed-rate mortgage reached its highest level since 2001 and indications of ongoing economic strength will likely continue to keep upward pressure on rates in the short-term. As rates remain high and supply of unsold homes woefully low, incoming data shows that existing homes sales continue to fall. However, there are slightly more new homes available, and sales of these new homes continue to rise, helping provide modest relief to the unyielding housing inventory predicament.

• Current Mortgage Rates Data Since 1971xlsx

Primary Mortgage Market Survey® U.S. weekly averages as of 08/24/2023

Week of August 21, 2023 in Review

Fed Chair Jerome Powell gave hints about further rate hikes during his speech at Jackson Hole. Plus, the lack of existing homes available for sale continues to be a key factor driving the housing sector. Read on for these important stories:

• Are Further Fed Rate Hikes Ahead?
• Existing Home Sales Constrained by Low Inventory
• New Home Sales Reach 17-Month High
• Tame Unemployment Claims

Are Further Fed Rate Hikes Ahead?

Fed Chair Jerome Powell spoke last Friday at the annual Jackson Hole Symposium, which is a gathering of economists, central bankers and policy makers from around the world. While Powell acknowledged that progress has been made in the fight against inflation, his comments were relatively hawkish (hawks are policy makers who favor higher interest rates to keep inflation in check).

Powell said, “Although inflation has moved down from its peak – a welcome development – it remains too high. We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective.”

What’s the bottom line? Remember, the Fed has been hiking its benchmark Fed Funds Rate (which is the overnight borrowing rate for banks) to try to slow the economy and curb inflation. Their latest hike in July was the eleventh since March of last year, pushing the Fed Funds Rate to the highest level in 22 years. Powell said that the Fed will proceed carefully in upcoming meetings as they assess incoming data and the evolving outlook and risks.

Powell also reiterated that the Fed’s inflation goal is still 2% and that he sees the current economic stance as restrictive, putting downward pressure on economic activity, hiring and inflation. The Fed appears hyper focused on the extremely tight labor market, and they likely want to see a weaker labor sector and weak Jobs report before their outlook changes.

Fed members will certainly be watching as crucial labor data will be reported this week, especially headline job growth in August’s Jobs Report coming on Friday.

Existing Home Sales Constrained by Low Inventory

Existing Home Sales fell 2.2% from June to July to a 4.07-million-unit annualized pace, per the National Association of REALTORS� (NAR). Sales were also 16.6% lower than they were in July of last year. This report measures closings on existing homes, which represent a large portion of the market, making it a critical gauge for taking the pulse of the housing sector.          

What’s the bottom line? While inventory levels increased 3.7% last month, from 1.07 million units in June to 1.11 million units available at the end of July, housing supply was still well below normal levels with just 3.3 months’ worth of inventory available at the current sales pace. Plus, inventory is even tighter than that figure implies, as many homes counted in existing inventory are under contract and not truly available for purchase. In fact, there were only 647,000 “active listings” last month.

NAR’s Chief Economist Lawrence Yun confirmed that the lack of inventory is a key factor constraining sales activity this summer. Yet demand remains for homes, as evidenced by how quickly correctly priced homes have been selling. Homes stayed on the market on average for 20 days last month, while 74% of homes sold in July were on the market for less than a month. 

New Home Sales Reach 17-Month High

New Home Sales, which measure signed contracts on new homes, rose 4.4% from June to July to a 714,000-unit annualized pace. This reading was better than expected and the highest amount since February of last year. 

What’s the bottom line? The lack of existing homes for sale is heightening the demand for new homes, but the available supply of new construction remains below healthy levels. Of the 437,000 new homes available for sale at the end of July, only 75,000 were completed, with 254,000 under construction and 108,000 not even started yet.

The tight supply of both existing and new homes will continue to be supportive of home prices, making homeownership a good investment and opportunity for building wealth through real estate.

On that note, the median sales price for new homes was $436,700, which was down from $478,200 a year ago. Despite what the media might suggest, this figure is not the same as appreciation but represents the mid-price and can be skewed by the mix of sales among lower-priced and higher-priced homes. Multiple appreciation reports, including those from Case-Shiller, CoreLogic, Zillow, Black Knight and the Federal Housing Finance Agency, have reported strong price growth in their respective indexes.

Tame Unemployment Claims

Initial Jobless Claims fell by 10,000 in the latest week, as 230,000 people filed for unemployment benefits for the first time. Initial Claims have remained relatively tame after topping 260,000 for the first three weeks of June, which suggests that employers are trying to retain their workers and firings have been muted.

Meanwhile, Continuing Claims declined by 9,000, with 1.7 million people still receiving benefits after filing their initial claim. This figure has been vacillating around this range for much of the summer after hitting a high of 1.861 million in early April. The trend lower reflects a mix of people finding new jobs and benefits expiring.

As noted above, employment data will play a big role in the Fed’s next rate hike decision, which will be announced at their meeting on September 20.

What to Look for This Week

The markets will be busy ahead of the Labor Day weekend. In housing news, we’ll see an update on home price appreciation for June when the Case-Shiller Home Price Index and the Federal Housing Finance Agency House Price Index are reported on Tuesday. July’s Pending Home Sales follow on Wednesday.

Job market data will also grab headlines, starting Wednesday with an update on August’s private payrolls in ADP’s Employment Report. The latest Jobless Claims will be reported on Thursday while Friday brings August’s Jobs Report from the Bureau of Labor Statistics, which includes Non-farm Payrolls and the Unemployment Rate.

In addition, the second estimate for second quarter GDP will be released Wednesday, while a crucial inflation reading will be delivered on Thursday via the Fed’s favored measure, Personal Consumption Expenditures.

Technical Picture

Mortgage Bonds ended last week in the middle of a very wide range between the floor at 97.313 and overhead resistance at the 25-day Moving Average. As always, whenever trading in a wide range we need to be on the lookout for whipsaws. The 10-year is also trading in a very wide range between the 4.335% ceiling and the 25-day Moving Average.

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

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

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

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

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

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

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

• Current Mortgage Rates Data Since 1971xlsx

Week of August 14, 2023 in Review

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

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

Strong Summer for Housing Starts

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

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

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

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

Understanding the Decline in Home Builder Confidence

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

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

Are More Fed Rate Hikes Ahead?

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

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

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

Initial Jobless Claims Remain Tame

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

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

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

What an Important Recession Indicator Is Saying

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

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

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

What to Look for This Week

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

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

Technical Picture

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

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

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

• Current Mortgage Rates Data Since 1971xlsx

Week of August 7, 2023 in Review

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

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

Is Consumer Inflation Rearing Its Head Again?

July’s Consumer Price Index (CPI) showed that inflation rose 0.2%, with this monthly reading coming in just below estimates. On an annual basis, however, CPI increased from 3% to 3.2% last month, though this is still near the lowest level in more than two years. Core CPI, which strips out volatile food and energy prices, increased 0.2% while the annual reading declined from 4.8% to 4.7%.

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

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

Wholesale Inflation Hotter Than Expected

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

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

There has been mixed chatter from the Fed regarding whether they will hike rates again at their meeting on September 20. Remember, the Fed started hiking their benchmark Fed Funds Rate (which is the overnight borrowing rate for banks) last year to slow the economy and help curb runaway inflation. The Fed will be closely watching upcoming CPI and PPI readings for August (releasing September 13 and 14) and their favored inflation report Personal Consumption Expenditures (July’s data releases August 31) as they weigh this decision.Home Price Appreciation Heading Higher

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

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

Is the Rise in Initial Jobless Claims a New Trend?

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

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

Family Hack of the Week

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

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

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

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

What to Look for This Week

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

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

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

Technical Picture

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

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

• Current Mortgage Rates Data Since 1971

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

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

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

Where Are Job Gains Really Coming From?

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

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

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

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

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

Leisure and Hospitality Continues to Boost Private Payrolls

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

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

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

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

Initial Jobless Claims Remain Tame

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

Meanwhile, Continuing Claims rose by 21,000, with 1.7 million people still receiving benefits after filing their initial claim. While this latter metric is well above the low of 1.289 million seen last September, it has declined from the high of 1.861 million reported in early April, reflecting a mix of people finding new jobs and benefits expiring.

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

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

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

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

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

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

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

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

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

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

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

• Current Mortgage Rates Data Since 1971​xlsx

Week of July 24, 2023 in Review

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

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

Is the Latest Fed Rate Hike the Last?

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

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

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

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

Inflation Moving Lower Step by Step

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

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

Housing Supply “Critical to Expand,” Says NAR

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

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

Low Inventory Heightens Demand for New Homes

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

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

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

Home Prices Turning Higher

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

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

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

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

What to Look for This Week

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

Technical Picture

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