Mortgage rates go up on inflation concerns

Markets are rallying and the Fed is hiking: What can the market tell us about the economic outlook? A CNN Business Editor’s Report

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Markets plunged on Thursday morning after red-hot inflation data raised fears on Wall Street that the Federal Reserve would continue hiking interest rates aggressively. Then, there was something odd about it.

Stocks staged a massive comeback. The Dow Jones Industrial Average surged 1,500 points from peak to trough and the S&P 500 posted its widest trading range since March 2020, ending the day up more than 2%.

He said the economy is showing signs of resilience, mostly due to consumer spending. The overall housing costs are increasing, which is also impacting inflation.

Tucker said inflation expectations play a role in mortgage rates. The Fed wants to see inflation come down before taking off the brakes on raising rates. There is growing consensus to expect another step down in the pace of tightening.

So what explains the sharp divergence between markets and seemingly terrible inflation data? Prices are close to their peak, according to the stronger-than- expected inflation report. The rollercoaster market illustrates how investors are desperately grasping for clues about what the Fed will do next.

The Big Picture: The End of the Global Financial Crisis and the Prospect for Future Growth of Household Assets and Debt in the 21st Century

The big picture: Household wealth is on track for its first significant reduction since the financial crisis in 2008, according to a new report by financial services company Allianz.

Global assets are set to decline by more than 2% in 2022, Allianz reports. It’s likely that households will lose a tenth of their wealth this year.

The report states a very bad picture. The 2008 financial crisis was marked by a relatively quick turnaround, but the current outlook shows stagnant growth in the future. The average growth of financial assets is expected to be around 4.6% until 2025, compared with 10.4% over the last three years.

Increased food and energy scarcity have been caused by Russia’s war on Ukraine, which has hindered the recovery of the economy. Inflation is rampant and central banks around the world are raising borrowing costs. Stock markets are likely to end the year in the red– 2021 “might have been the last year of the old ‘new normal’, with low interest rates and bullish stock markets,” wrote Allianz researchers.

Household debt, meanwhile, has been on the rise globally. “The context of rising interest rates and the higher cost of living could pose a risk to household balance sheets,” reported researchers.

Global wealth can take years to recover from changes that are being called atonic shift. The retail sales data for September will shed more light on the state of the consumer, as well as the earnings reports from some of the country’s largest banks.

The 30-Year Homebuying Rates and Finances of the U.S. Two-Economies Excited by Wall Street Rates, Bankruptcy and Inflation

The 30-year fixed-rate mortgage averaged 6.12% in the week ending February 9, up from 6.09% the week before, according to data from Freddie Mac released Thursday. The 30-year rate was 3.69% a year ago.

According to my colleague Anna Bahney, mortgage rates have gone up and down in the past few months due to a combination of the central bank raising rates and investor concerns about a recession.

Freddie Mac’s chief economist said, “We continue to see a tale of two economies in the data.” “Strong job and wage growth are keeping consumers’ balance sheets positive, while lingering inflation, recession fears and housing affordability are driving housing demand down precipitously.”

Today, a homeowner buying the same-priced house with an average rate of 6.92% would pay $2,059 a month in principal and interest. That adds $735 a month.

The US home prices declined for the fifth month in a row in November. “As the Federal Reserve moves interest rates higher, mortgage financing continues to be a headwind for home prices.”

The new option will feature much of what’s available with Netflix’s current $9.99 a month Basic plan, but will include an average of four to five minutes of commercials per hour. The ads will be 15 or 30 seconds long and played before and during TV series and movies.

Mortgages and Consumer Loans: Inflation, Predictions and Expectations for the Next Ten-Year Earnings of Freddie Mac

Following that news, the stock tumbled, and the company lost billions in market cap. Many employees were laid off and there was doubts about the future of the platform.

JPMorgan Chase

            (JPM), Wells Fargo

            (WFM), Citigroup

            (C) and Morgan Stanley

            (MS) report third quarter earnings before the bell.

The recent downward trend in mortgage rates are expected to continue, according to the president and CEO of the Mortgage Bankers Association. These lower rates, he said, “along with moderating home prices, should encourage more homebuyers to return to the market in early 2023.”

MBA’s economists also said they expect the US to enter into a recession in the first part of next year that will be driven by tighter financial conditions, reduced business investment and slower growth globally. That will, in turn, push the unemployment rate up from its current 3.5% to 5.5% by the end of next year, according to the forecast.

The higher cost of financing a home caused a decrease in sales. But in recent months, as rates came down from their 2022 peak over 7% last reached in mid-November, more buyers have been active.

“Mortgage application activity sunk to a quarter-century low this week as high mortgage rates continue to weaken the housing market,” said Sam Khater, Freddie Mac’s chief economist. “While mortgage market activity has significantly shrunk over the last year, inflationary pressures are easing and should lead to lower mortgage rates in 2023.”

According to Walsh, origination volumes have declined and revenues have dropped. Reducing staffing levels, exiting less profitable channels, and exiting the business entirely are some ways in which the lenders are Shrinking excess capacity.

From a peak to trough the employment in the mortgage industry could decrease by 25% to 30% given the decrease in production volume.

Consumer loans. Changes in credit card rates will closely track the Fed’s moves, so consumers can expect to pay more on any revolving debt. Car loan rates are expected to rise, too. Private student loan borrowers should also expect to pay more.

Mortgages. Mortgage rates don’t move in lock step with the federal funds rate, but track the yield on the 10-year Treasury bond, which is influenced by inflation and how investors expect the Fed to react to rising prices. The 30-year fixed-rate increases have increased since 2008 according to Freddie Mac.

The base rate is typically tied to the yield — or rate of return — on a 10-year Treasury note, which is used because most people move to another home, prepay or refinance within a decade of getting a mortgage. A second rate is tied to the difference between the yield on those notes and mortgage-backed securities, or M.B.S., which are essentially interest-paying bonds backed by mortgages. The difference is called the’spread.’

The extra amount of interest charges reflects the profits made by the players in the mortgage chain.

Many banks and other lenders don’t hold on to the mortgages they originate. Instead, they package them into bonds that they sell to investors. The payments that homeowners make go through to the investors. Money raised from the sale of bonds allows for more mortgage loans to be made.

The spread between Treasury bonds and mortgage-backed securities is what it normally is in normal times. But that changes when interest rates rise, especially as swiftly as they have now.

Therefore, the spread — or the amount bond investors now expect to be paid compared with a Treasury note — widens. This year, the spread has more than doubled to 1.7 percent. The wider the spread, the more consumers pay because lenders pass on to them the cost of those increased rates.

Mortgage Applications are Down, Mortgage Rates Are Up, and Homes are Up in the Air: A Footprint of Inflation in Real Estate Markets

The Bureau of Labor Statistics said on Tuesday that the Consumer Price Index was at its lowest level in nearly a year in November.

The average mortgage rate is determined by thousands of mortgage applications that Freddie Mac receives. The survey includes only borrowers who put 20% down and have excellent credit. Many buyers who put down less money upfront or have less-than-perfect credit will pay more than the average rate.

According to Ratiu, Powell mentioned in his remarks that the central bank remains committed to rate hikes until the pace of inflation slows.

What this means for real estate markets is that the continued cooling in inflation measures should ease the upward pressure on mortgage rates, said Ratiu.

“With more homes available for sale, and more of them sporting price cuts, some buyers are running the math and finding that the slide in rates is offering better options within their budgets,” said Ratiu.

Already, rates have been climbing in recent weeks, leading to a drop in mortgage applications. Last week, applications fell 7.7% from one week earlier, according to the Mortgage Bankers Association.

The vice president and deputy chief economist said that applications increased due to increases in purchase and refinance activity. “However, with rates more than three percentage points higher than a year ago, both purchase and refinance applications are still well behind last year’s pace.”

A bunch of housing data is on tap. On Tuesday the US Census Bureau will report housing starts and building permits figures for November, followed by Friday’s release of new home sales data for the same month. The existing home sales numbers from the National Association of REALTORS will be released on Wednesday, as well as weekly data on mortgage rates and applications on Thursday.

Still, there are some promising signs that the worst could soon be over. Last week’s earnings by Lennar, one of the US’s largest homebuilders, helped to propel the stock higher. Revenue topped forecasts and the company’s guidance for the number of homes it expected to deliver next year was a little higher than analysts’ estimates as well.

Lennar investors “may be looking ahead to 2023, perhaps crossing the valley from recession to potential recovery,” according to CFRA Research analyst Kenneth Leon.

Amherst said home prices are still up about 40% from pre-pandemic levels. A further fall of 15 to 25% would bring them to mid-2021 levels. In other words, this isn’t like the mid-2000s real estate bubble bursting.

Ratiu said that on the one hand investors expect the economy to fall into a recession as a result of the Fed’s rate hikes, and on the other hand, higher borrowing costs will make it harder for consumers to spend on credit. “On the other hand, the combination of a strong job market and pandemic savings mean that Americans have maintained a steady consumption pace even as they switched their focus from goods to services.”

Others point out that even though housing sales may remain weak due to high home prices and still elevated mortgage rates, the good news is that most existing homeowners are still paying their monthly mortgage on time.

Again, that’s a stark contrast from 2008 when many people with subprime loans or borrowers with poor credit histories were unable to keep up with their mortgage payments.

“Housing is not bringing down the economy. Yes, the housing market has been impacted. Gene Goldman of Cetera Investment Management said that mortgage delinquencies are still low.

There aren’t a ton of companies reporting their latest earnings this week. But the few that are could give more clues about the financial health of consumers and the state of corporate spending.

General Mills will release its earnings on Tuesday. Analysts expect a slight increase in sales and profit. Consumers may be growing increasingly wary about inflation and the broader economy, but they’re still eating their Wheaties. General Mills’ stock has soared nearly 30% this year.

Analysts are less optimistic about the outlooks for sneaker king and Dow component Nike

            (NKE), used car retailer CarMax

            (KMX) and memory chip maker Micron

            (MU), whose semiconductors are used in devices ranging from cell phones and computers to cars.

According to data from FactSet, fourth-quarter earnings for S&P 500 companies are expected to decline 2.8% from a year ago. Analysts are making forecasts as well. John Butters, senior earnings analyst at FactSet, noted in a report that fourth-quarter profits were expected to rise 3.7% as recently as September 30.

“Odds of a recession are pretty high,” said Vincent Reinhart, chief economist and macro strategist at Dreyfus & Mellon. It will affect corporate earnings. Higher rates and weaker earnings suggest more pain for stocks.”

On Tuesday, the US starts housing starts and building permits, China sets Loan Prime Rate, the Bank of Japan rate decision, and earnings from General Mills, Nike, FedEx and Blackberry.

Throughout 2022, the Federal Reserve hiked its benchmark interest rate at a record pace to slow the economy and fight high inflation. The most interest rate-sensitive sector of the economy was housing. The Fed actions resulted in falling sales and slower annual price growth as the housing affordability deteriorated.

Predicting prices from an economists range from a 5% rise to a 22% decline from the peak in 2022, according to John Burns Real Estate Consulting.

He said locked-in homeowners will be able to get more inventory from their ultra-low mortgage rates.

“Half of the country may experience small price gains, while the other half may see slight price declines,” said Lawrence Yun, NAR chief economist. “However, markets in California may be the exception, with San Francisco, for example, likely to register price drops of 10%-15%.”

The markets such as Manchester, New Hampshire; Columbus, Ohio; Fort Wayne, Indiana; Hartford, Connecticut; Lancaster, Pennsylvania; or Topeka, Kansas are still seeing homes sell as buyers from more expensive locations are lured by solid local economies and median prices.

In November, as mortgage rates started a six-week tumble, the median monthly mortgage payment fell by 1.8% to $1,977 from $2,012 in October, according to the Mortgage Bankers Association.

“With interest rates still running well below the 7% range we saw in the fall, the psychological shock of the 2022 rate jump is wearing off for buyers, leading to a favorable adjustment in expectations,” said Ratiu.

The second half of the year may be more popular for buyers compared to the first, said Leonard Steinberg, broker at Compass in New York.

“Many would-be buyers stepped back from the market in late 2002 because they were faced with demands from first-time buyers and retirees to move or downsize, but still aren’t done yet,” he said.

Chronic under-building of new homes is also likely to remain a challenge across all market segments as builders grapple with the challenge of balancing a short-term decline in demand with the long-term need for more new housing, he added.

What would buyers tell us about the home prices in the United States during the peak home sales of the past few months? A surprising surprise for some buyers during the spring selling season

Buyers are likely to pay more during the spring selling season, when homes tend to sell for a seasonal premium because that’s when most buyers are trying to get it done.

“The big surprise for a lot of people might be that the market has a really boring year,” said Tucker. “It would be a great change of pace. A plain, boring, vanilla year in the housing market would be a wonderful surprise.”

“This expectation is becoming more visible in the growing number of companies resorting to layoffs as a hedge against a potential economic slowdown,” he said. “People who are laid off pull back on spending, and even those who are still employed may begin to do the same due to worries about losing their job, thus potentially sending consumer spending into a downward spiral.”

The labor market would have to experience a drop in demand in order for spending to go up with over 10 million open jobs. “This scenario is more likely if corporate executives overreact to the recession chatter and preemptively cut payrolls, which would create a self-fulfilling downward spiral.”

And even as prices dropped 10% from the summer peak nationally, home values were still up by double digits from last year in 79 out of the top 150 largest metropolitan areas during November, according to Realtor.com.

But traditional seasonal norms are expected to kick in come March as more inventory becomes available and more buyers starting to look at what’s available — as long as buyers can stomach the current rates and sellers are willing to give up the ultra-low rates they enjoyed in the past couple years.

He said that more clarity on the direction of housing markets this year may have to be waited until the start of the spring shopping season.

US home prices fell for the sixth month in a row in December because rising mortgage rates pushed prospective buyers out of the market, according to the latest S&P CoreLogic Case-Shiller US National Home Price Index.

Last July marked the first month-over-month decrease for the national index since February 2012 and that continued through November, with seasonally adjusted prices falling 0.3% month over month.

The 20 city index includes New York, Minneapolis, Phoenix, and Los Angeles, all of whom reported declines before and after seasonal adjustments.

The November 10 Census Number: Cities in the United States Increasing Home Prices and the Fed Is Cooling the Economy: MLS Chief Economist Craig J. Lazzara, CFO Craig Mac, and Job Openings and Labor

The Case-Shiller US National Home Price index rose 7.7% in November from the year before, less than the 9.6% growth seen in October.

Cities in the South led price appreciation, with Miami; Atlanta; and Tampa, Florida, all reporting the highest year-over-year gains among the cities in the 20-city index in November. The first three places to have a price increase from last year are Miami, Tampa and Atlanta. The prices in all of the 20 cities increased at a slower rate in the year ending November 22nd.

The Bright MLS chief economist said the November report provides evidence of a slowing housing market, but it might not be the worst yet.

According to Craig J. Lazzara of S&P, the cooling in home prices that began in June went on through the end of the year.

Freddie Mac said that a one percentage point reduction in rates could allow as many as three million more consumers to qualify for a $400,000 loan.

The Fed hiked interest rates by a quarter point on Wednesday, the smallest increase since March. The move to slow the pace of increases sends a clear signal that the central bank is seeing progress in its battle with inflation.

He expects rates to stay around 6 percent over the next few weeks due to the effect of the Fed’s actions.

Ratiu said that most recent indicators point to a still-resilient economy. The labor market remains tight despite the Fed’s efforts to cool the economy: Wednesday’s Job Openings and Labor Turnover Survey, or JOLTS, showed there were 11 million job openings in December, the highest since July.

The February 14 report on the inflation will be important for housing economists and those in the mortgage market to see if the rate of price increases continues to slow.

The down payment for a median-priced home is less than it would have been last summer according to Ratiu. “While that is positive news, affordability remains a primary challenge, especially for first-time buyers.”

Mortgage Rates Rise After Four Weeks of Declining Employment: Implications of the Resilient Economy to Mortgage Rate Growth and Mortgage Rate Adjustment

Mortgage rates rose this week after four weeks of declines, as a stronger-than-expected jobs report suggested the Federal Reserve would continue hiking its benchmark lending rate in its battle against inflation.

The Chairman of the Federal Reserve said on Tuesday that the resilient economy could allow the central bank to do more and raise rates more than it had priced in.

The tension between expectations and economic data will continue to seep through financial markets for several more months, said George Ratiu, Realtor.com’s manager of economic research.

Mortgage applications are down 58 percent since November and the rate has gone down but is still double what it was a year ago according to the Mortgage Bankers Association.

“Affordability — especially at the lower end of the market — continues to be a challenge, but MBA expects purchase demand to continue to recover heading into the spring,” said Bob Broeksmit, MBA president and CEO.

The Northeast, Midwest, South and West all saw increases in pending home sales in the month of September.

In the first quarter of this year activity appears to be bottoming out before improvements occur, even though home sales are down by 24.1% from a year ago.

“An extra bump occurred in the West region because of lower home prices, while gains in the South were due to stronger job growth in that region,” Yun said.

“But as rates are right back up in February, it’s likely that any momentum in this market will be short lived and affordability challenges will remain key to the direction and speed the market moves in the coming months,” she said.

A recent slew of robust economic data suggests the Federal Reserve is not done in its battle to cool the US economy and will likely continue hiking its benchmark lending rate.

According to Kan, inflation may not be cooling as quickly as anticipated, which is putting upward pressure on rates.