Mortgage rates are on the rise

What Happened After the First Big Surprise? An Analysis of Inflationary Performances in the Dow Jones Industrial Average and S&P 500

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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. Something strange happened after that.

The stocks staged a huge 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%.

What’s happening: The consumer price index, or CPI, rose 0.4% in September from the previous month, double the 0.2% estimate from analysts surveyed by Refinitiv. On an annual basis, inflation was up 8.2%.

“While this move was largely expected by investors, the Fed signaled to capital markets at yesterday’s meeting that it sees its aggressive monetary tightening having an effect on inflation,” said George Ratiu, Realtor.com’s manager of economic research.

So what explains the sharp divergence between markets and seemingly terrible inflation data? Investors could be betting that the stronger-than-expected inflation report means price increases are near their peak. The market illustrates how investors are looking for clues on what the Fed will do next.

The Growth of Household Financial Assets in the Next Three Years: The Implications for the Future Growth of the Economy, Inflation, and Credit Card Charges

Household wealth is on track for its first significant reduction since the financial crisis of 2008, according to a new report.

Global assets are set to decline 2% by 2022, according to the report. The average household will lose a tenth of their wealth this year.

The picture painted by the report is bleak. The 2008 financial crisis was relatively quick and the outlook shows no growth in the future. The average growth of financial assets is expected to be 4.6% until 2025, compared to 10.4% over the last three years.

Russia’s war on Ukraine has obstructed the potential for a post-pandemic economic recovery, and increased food and energy scarcity. Inflation is rampant and central banks around the world are raising borrowing costs. The new normal for stock markets may have been the last year of low interest rates and bullish stock markets.

During the summer of 2022, disposable income fell because inflation outran wage growth. Consumers are borrowing more while American bank accounts are still strong. Credit card balances increased in the third quarter. That’s the largest annual jump since the New York Fed began tracking the data in 2004.

The takeaway: Allianz calls these changes a “tectonic shift” in global wealth that will take years to recover from. The retail sales report for September is expected to shed some light on the state of the consumers, as well as earnings reports from several of the country’s largest banks, including Citigroup, Wells Fargo, and Morgan Stanley.

The 30-year fixed-rate mortgage market is turning heads upwards: An analysis by Freddie Mac, Sam Khater, and Markovian Khater

The 30-year fixed-rate mortgage averaged 6.48% in the week ending January 5, up from 6.42% the week before, according to Freddie Mac. A year ago, the 30-year fixed rate was 3.22%.

The Federal Reserve launched a string of interest rate hikes to tame inflation, which has resulted in a rise in mortgage rates. The data showed that inflation may have reached its peak, somortgage rates have fallen in the last few weeks.

“We continue to see a tale of two economies in the data,” said Sam Khater, Freddie Mac’s chief economist. Consumer balance sheets are holding up despite inflation, recession fears and housing affordability, as well as strong job and wage growth.

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’s $735 more each month.

The US housing market is in the midst of a major shift. After two years of stratospheric price appreciation, home prices have peaked and are on their way back down.

Streaming Home Prices: The Long Way to Break The Wall: The Case for Real Estate Buyers in the Era of Wall Street Walls

The new option will include a lot of what is currently available with the current version of the plan but will also have a few minutes of commercials per hour. Those ads will be 15 or 30 seconds in length and will play before and during TV series and movies.

Following that news, the stock tumbled, and the company lost billions in market cap. Hundreds of employees were laid off, and doubts ran rampant about the platform’s future, raising questions about the viability of the entire streaming marketplace.

▸ Third quarter earnings from Bank of America

            (BAC), Goldman Sachs

            (GS), Johnson & Johnson

            (JNJ), United Airlines

            (UAL), American Airlines

            (AAL), Tesla

            (TSLA), AT&T

            (T), Verizon

            (VZ) and Netflix

            (NFLX).

The home price data that was released today did not account for the impact of rising mortgage rates, which were above 7% in early November, and led to a significant pullback in buyer activity. “In many local markets across the country, home prices have fallen precipitously from their summer peaks as buyers were forced out of the market due to affordability challenges.”

“Home shoppers are still going to find limited supply in the market and affordability is still a major challenge, particularly for first-time homebuyers,” Sturtevant said. The lack of inventory is the main reason why we should expect prices to remain stable or even go up in the coming year.

The National Association of Realtors projects prices will go up less than 1%, reaching a median price of $385,800 by the end of 2023. The small shift masks a lot of variability.

Tucker said there could be a 5% decline from the peak. “But prices will decline by more in the West and there will be a smaller decline in the Southeast.”

Forecasters predict a wide range of where rates will go. While Realtor.com anticipates rates for the 30-year, fixed-rate loan will be above 7% in 2023, Zillow projects rates closer to 6% this year, ending the year at between 5.5% and 6%.

The Big Questions That Will Determine the State of the Economy – Mortgage Rates, Employment and the Fed’s Office of Economic Inflation

The biggest question on everyone’s mind is whether the United States will see a recession this year. And there are three big “ifs” that will determine the health of the economy: The strength of the labor market, the American consumer and the Federal Reserve.

Kan said first-time homebuyers will be a large part of the housing demand over the next few years. Because more homeowners stay put and refuse to give up their ultra low mortgage rates, fewer starter homes are available. And the combination of low inventory of homes for sale and slowing new construction activity means that housing supply is likely to remain constrained.

Freddie Mac’s chief economists said mortgage application activity fell to a quarter-century low this week as high mortgage rates continued to weaken the housing market. Inflationary pressures are easing and should lead to a decrease in mortgage rates in the coming years.

“This is an unusual situation where the low inventory is the by-product of mortgage rates being cut to the floor,” Miller said, eviscerating supply. You would expect inventory to expand with the rate of growth.

MBA estimates that a 25% to 30% decrease in mortgage industry employment from peak to trough will need to occur, given the decrease in production volume from the record levels in 2020 and 2021.

Real Estate Prices in the Rise and Fall of the Real Estate Bubble: Erik Lundh’s Comment on the 2008 Mortgage Crisis and Other Related Trends

Editor’s Note: Erik Lundh is a principal economist at The Conference Board. The opinions expressed in this commentary are his own. Read more opinion at CNN.

As interest rates rose leading into 2006, prices finally began to slide later that year, and homeowners started defaulting on their mortgage payments. As prices fell further, homeowners rushed to dump their properties, creating a feedback loop that cascaded throughout the entire real estate market. The subsequent financial crisis was triggered by mass defaults in low-quality mortgages that had been wrapped up in mortgage-backed securities. The financial system was thrown into crisis when these assets became worthless.

The years after the 2008 financial crisis saw the introduction of new regulations. Banks are now needed to be better capitalized, lending standards are stricter, and most mortgages are fixed-rate. This is important to the financial system because of another housing downturn.

Other helpful trends include the spike in refinancing activity over the last few years associated with ultra-low interest rates. This pushed down monthly payments for many homeowners, making servicing their mortgages easier.

Americans have more equity in their homes now than they did before the last financial crisis. Loan-to-value ratios, which measure the amount of a mortgage compared to the value of a home in the US, have plummeted to a 12-year low. This creates more of a “cushion” for prices to decline before home values fall below the loans that underpin them. If a home is sold for less than it is worth, it will hit homeowners before the banks do.

Inflation, the Mortgage Market, and the Real Estate Marketplace: Predictions of a Warming Economy in the Last Three Months

The bureau of labor statistics’ closely watched index shows that inflation cooled considerably in November, and was at its lowest level in nearly a year.

The average mortgage rate is based on mortgage applications that Freddie Mac receives from thousands of lenders across the country. Only borrowers who put 20% down and have excellent credit are included in the survey. Many buyers with less-than- perfect credit pay more than average because they put down less money.

The yield on 10-year US treasury bonds are tracked by mortgage rates. When that rate goes up, the 30-year fixed-rate mortgage typically goes up, too. When the Treasury rate goes down, so do mortgage rates.

“Depending on the extent of the impact of a tighter banking sector, Powell expressed a ‘wait-and-see’ approach to further contractionary policy,” Jones said. The interest rate environment is likely to stay elevated through the end of the year as the federal funds rate is expected to remain elevated.

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.

“The sellers aren’t putting their houses on the market and the buyers that are out there, certainly the power of their dollar has changed with rising interest rates, so there is a little bit of a standoff,” says Susan Horowitz, a New Jersey-based real estate agent.

Already, rates have been climbing in recent weeks, leading to a drop in mortgage applications. The Mortgage Bankers Association reported last week that applications fell 7.7% from the previous week.

“Overall, applications increased, driven by increases in purchase and refinance activity,” said Joel Kan, MBA’s vice president and deputy chief economist. With rates more than three percentage points higher than a year before, both purchase and Refinance applications are well behind last year’s pace.

January’s housing market data showed a growing number of homes for sale, properties lingering longer on the market, and prices down 11% from their 2022 peak, according to Realtor.com.

There are some promising signs that the worst may be over. After reportingearnings last week, the shares of Lennar rallied. 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.

According to CFRA Research analyst Kenneth Leon, the investors may be looking forward to the future, possibly going from recession to recovery.

According to data from Amherst Group, an investment firm that buys single-family homes to rent out, it’s important to put the recent slide in prices in context.

It’s also worth noting that the job market is still strong and wages are growing. What’s more, many consumers still have decent levels of excess savings thanks to pandemic era government stimulus.

Even though housing sales may remain weak, the good news is that most existing homeowners are on time with their mortgage payments.

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.

The economy is not being brought down by housing. Yes, the housing market has been impacted. Gene Goldman is a chief investment officer at Cetera Investment Management.

A lot of companies are not 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.

Cereal giant General Mills

            (GIS) will release earnings on Tuesday. Analysts are expecting a slight increase in both sales and profit. Consumers may be growing increasingly wary about inflation and the broader economy, but they’re still eating their Wheaties. Shares of General Mills

            (GIS) have 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.

Investors are also going to be paying very close attention to what companies say in their earnings reports about their outlooks for 2023. Analysts currently are anticipating earnings growth of 5.3% for 2023. If the economy starts to worry companies will start cutting their forecasts.

The chief economist at Dreyfus & Mellon said there’s a good chance of a recession. That will affect corporate earnings. Higher rates and weaker earnings suggest more pain for stocks.”

The following were posted Tuesday: US housing starts and building permits; China sets the loan prime rate; and earnings from General Mills, Nike, FedEx and Blackberry.

Open Houses in Los Angeles, Calif., and the First Year in a Low Interest Rate Market: The Pauls’ View of Homes for Sale

Paul and his wife were financially stable and wanted to start having kids, so they decided to just kind of settle down.

High home prices were the initial insurmountable hurdle. When the Pauls first started their search, low interest rates at the time had unleashed a buying frenzy in Boston, and they were relentlessly outbid.

“There’d be, you know, two dozen other offers and they’d all be $100,000 over asking,” says Paul. “Any any time we tried to wait until the weekend for an open house, it was gone before we could even look at it.”

According to Jones, new listings were at their lowest level in six years in January as sellers remained on the sidelines waiting to see buyers return before they place their homes for sale. The first month of the year brought some hope, as both existing and new home sales slowed and buyer sentiment improved.

Home prices have remained mostly high despite the slump in sales activity because inventory has remained low. The inventory of unsold existing homes fell for a fourth consecutive month in November to 1.14 million.

The open house for a charming starter home in Hollywood was attended by many people, but not as many as they did a year ago.

The Real Estate Market is Easier than 2021, as Mortgage Rates Drive the Prices and Sales of New Condos in the United States

“The Manhattan sales market is exiting the euphoric market of 2021 and moving to something closer to normal,” said Jonathan Miller, president and CEO of Miller Samuel.

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

The largest share of condos sold were one-bedrooms with a median price of $1,140,000. The price for a two-bedroom condo was over $2 million. Median prices of co-ops were lower, at $710,000 for a one-bedroom, and $1,325,000 for a two-bedroom.

There were a lot of listings in Manhattan at the end of the fourth quarter. That’s 5% higher than the fourth quarter of 2021, but 15.7% less than the third quarter of 2022.

Looking at the market metrics of prices, sales and inventory, both prices and sales are going up from their pre-pandemic levels at a modest pace, with prices rising 10% above 2019 levels and sales 6% higher.

“Sellers aren’t going to get the prices they got in 2021 and buyers aren’t going to get much improvement on affordability from 2022,” he said. The banks are disappointed because their work is not going well.

Throughout 2022, the Federal Reserve hiked its benchmark interest rate at a record pace to slow the economy and fight high inflation. Housing took the brunt of the impact, as the most interest rate-sensitive sector of the economy. The Fed’s actions had the intended effect, though, with housing affordability deteriorating and demand dwindling, which led to declining sales and slower annual price growth.

There is likely to be a return to the traditional seasonality of the real estate market, in which inventory tends to rise in February and carry through the summer. Meanwhile, prices often peak in May or June and prices and sales tend to slowly decline until the end of the year.

He said more inventory would then become available from the locked-in homeowners clinging to their ultra-low mortgage rates from the past couple of years.

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

“Markets like Manchester, New Hampshire; Columbus, Ohio; Fort Wayne, Indiana; Hartford, Connecticut; Lancaster, Pennsylvania; or Topeka, Kansas are still seeing homes change hands as buyers from more expensive locations are lured by solid local economies and median prices, which in some cases are still below $300,000,” Ratiu said.

The Mortgage Bankers Association said the median monthly mortgage payment fell by 1.8% to $1,977 from $2,012 in October.

After the 30-year fixed mortgage rate eclipsed 7% in late 2022, Yun said he expects that to settle at 5.7%, as the Fed slows the pace of rate hikes in response to slowing inflation.

The Outlook for Real Estate Growth in 2022-23: A Wonderful Surprise for the Housing Market and Walls in the Early 2022 Era

LeonardSteinberg, a corporate broker at COMPASS in New York said that in 2022-23, we will see a mirror image of the first half of 2022, when it was difficult for buyers to find good deals.

Builders are facing a challenge of balancing a short-term decline in demand with the long-term need for more housing as chronic under building of new homes continues, he said.

“Many agents and brokers are expecting a robust spring housing market, and the overall mood in the market feels much more optimistic than even a month ago,” she said.

“The big surprise for a lot of people might be that the market has a really boring year,” said Tucker. It will 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.”

“With more than 10 million open jobs and still not enough applicants to fill them, the labor market would have to experience a sharp and significant drop to move the needle on spending,” he said. If executives overreact to the recession chatter, and cut payrolls, the situation will get worse and lead to a downward spiral.

The Fed: Will Wages Moderate in the New Year? An Analysis of Goldman Constraints from the First Snowflake of Mortgage Rates

As more inventory becomes available and buyers start to look at what’s available, traditional seasonal norms will kick in in the spring, as long as sellers are willing to give up the low rates they’ve enjoyed in the past.

With mortgage rates half a percentage point higher over the past month, home buyers are pulling back even as the spring home buying season should be heating up.

We are in the salad days of the New Year, where many feel rejuvenated and encouraged as they look toward the coming year. There’s a certain clarity that comes during this time in January.

Jobs has been the word of the week as investors eye a slew of data highlighting a strong labor market that is confoundingly resistant to the Fed’s attempts to cool the economy.

The Fed is trying to cool the labor market. Policymakers fear that persistent wage growth in a tight labor market will keep already sky-high inflation levels elevated.

The second in command of the International Monetary Fund encouraged the Fed to continue with rate increases this year because of labor market resilience in an interview with the Financial Times this week.

So will wages moderate this year? Goldman analysts think that they will. Wage growth is set to slow to 4% by the end of the year, from above 5% in 2022, as the unemployment rate goes up.

“This would still be a bit too hot, but any sizeable drop would provide Fed officials with a proof of concept for the idea that gradual labor market rebalancing can dampen wage and eventually price pressures without a recession,” they write.

The US Consumer is Responsible for Storing Off the Recession, a Comment on Fed Minutes from December 8, 2015 (Klein vs. Bloomberg)

Moynihan said in the holidays that the US consumer is nearly solely responsible for staving off the recession.

US retail sales fell in November, the weakest performance of the year. If sales continue to decline, retailers will lose money, say analysts.

This is the main question on every investor’s mind — and the answer will not only help determine what happens to markets this year, but also whether the economy will fall into recession.

In the minutes from the December Fed meeting, central bank officials spelled it out for interested parties: No policy makers anticipated that rate cuts would be appropriate in 2023. The minutes warned that easing financial conditions would complicate the effort to restore price stability.

And while officials welcomed softer inflation reports in recent months, they stressed that “substantially more evidence of progress” was required and said that inflation was still “unacceptably high.”

There is “substantial doubt about the company’s ability to continue” because of its worsening financial situation, the home goods chain said in a regulatory filing.

The analyst at GlobalData Retail stated in his note to clients that the future of Bed Bath and Beyond is not in its present form. All of this points to the most likely outcome being the dissolution of the state.

The December November Rate Increase of the Home Price Index: Significance of the Central Bank with Mortgage Rates During the November Outburst

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.

All cities in the 20-city index reported declines before seasonal adjustments. 19 cities have reported declines after seasonal adjustments, with only Detroit increasing.

Home prices rose 7.7% in November from the year before, a smaller jump than the 9.2% growth seen in October, according to the latest S&P CoreLogic Case-Shiller US National Home Price Index, released Tuesday.

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. Miami led the way with an 18.4% price increase from the year prior, followed by Tampa and Atlanta. In the past year, all 20 cities reported lower price increases.

The November report provides evidence of the slowing housing market during the fall, said Lisa Sturtevant, Bright MLS chief economist, but it may not show the worst yet of the housing market.

“This one percentage point reduction in rates can allow as many as three million more mortgage-ready consumers to qualify and afford a $400,000 loan, which is the median home price,” said Sam Khater, Freddie Mac’s chief economist.

The Fed approved a quarter-point interest rate hike on Wednesday, the smallest since March. The decision to slow the pace of increases is a sign that the central bank is making progress with inflation.

The effect of the Fed’s actions are keeping a floor under mortgage rates for the short term, he said, adding that he expects rates to stay around 6% for the next few weeks.

The next report on inflation will be released in February and is being looked at by economists and the mortgage market to see if the pace of price hikes continues to slow.

Speaking at the Economic Club of Washington on Tuesday, Federal Reserve Chairman Jerome Powell said the resilient economy means the central bank “may have do more and raise rates more than is 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.

“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.

Mortgage Rates Rise and Prices Drop: The Fed isn’t Doinin’ Its Predictions Will Never Come to an End

Home sales were higher than expected in January, when mortgage rates dropped from highs and home buyers made the most of the opportunity.

The Northeast and Midwest saw increases in pending home sales in the last month, along with the South and West.

The West region had an extra boost because of lower home prices, while the South had stronger job growth.

The market will likely remain volatile as February marks the return of rates and affordability challenges will be key to direction and speed, 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.

“Mortgage rates continued to slide down as financial market concerns came to the fore over the last two weeks,” said Sam Khater, Freddie Mac’s chief economist.

“If mortgage rates continue to slide over the next few weeks, look for a continued rebound during the first weeks of the spring homebuying season,” he said.

Yields on 10-year US Treasury bonds climbed on Tuesday ahead of the meeting as investors prepared for the impact of the committee’s revised rate projections, said Hannah Jones, economic data analyst at Realtor.com. The Fed said that the series of rate hikes may be coming to an end.

The 30-year fixed rate will decline to around 5.3% by the year’s end, which is a gradual decline from the highs seen last year.