Economic update for the week ending September 24, 2022

Stock markets drop to their lowest levels in two years after another disastrous week – The Fed increased their key rates by another .75% on Wednesday. They also said that they expect to increase rates by another 1.25% by the end of the year. Stocks slid, and bond yields and mortgage rates increased dramatically for the second consecutive week. Much of this week’s drop is because investors have lost confidence in the Fed. That is not good for the financial system. In 2021 when the economy was very robust and the jobs and real estate market were overheated, they left their key rates at near 0%. They also continued to hold and purchase mortgage securities, keeping mortgage rates at historic lows. This March, they acknowledged that they had made a mistake and began raising rates and selling off their bond and mortgage portfolio to reduce their balance sheet. Both short-term and long-term rates have risen at a rate never seen before. Experts now think the Fed has overcorrected and is moving too quickly without giving the increases and other tightening measures enough time to see the effects. We are already seeing the impact on the real estate market. Rates have more than doubled in the last five months. Home sales have declined dramatically and prices have dropped off their record highs that were hit earlier this year. The Dow Jones Industrial Average closed the week at 29,590.41, down 4% from 30,822.42 last week. It is down 18.6% year-to-date. The S&P 500 closed the week at 3,693.23, down 4.6% from 3,873.33 last week. The S&P is down 18.7% year-to-date. The NASDAQ closed the week at 10,867.94, down 5.1% from 11,448.40 last week. It is down 31.7% year-to-date.

U.S. Treasury bond yields – The 10-year treasury bond closed the week yielding 3.69% up from 3.45% last week. The 30-year treasury bond yield ended the week at 3.61%, up from 3.52% last week. We watch bond yields because mortgage rates often follow treasury bond yields.

Mortgage rates – The Freddie Mac Primary Mortgage Survey reported that mortgage rates for the most popular loan products as of September 22, 2022, were as follows: The 30-year fixed mortgage rate was 6.29%, up from 6.02% last week. The 15-year fixed was 5.44%, up from 5.21% last week. The 5-year ARM was 4.97%, up from 4.93% last week. Rates were higher at the end of the week. Next week’s rates will be higher.

U.S. existing-home sales – The National Association of Realtors reported that existing-home sales totaled 4.80 million units on a seasonally adjusted annualized rate in August, down 0.4% month-over-month from the annualized number of sales in July. Year-over-year sales were down 19.9% from an annualized rate of 5.99 million in August 2021. The median price for a home in the U.S. in August was $389,950, up 7.7% from $361,500 one year ago. Month-over-month the median price dropped in July and August from the all-time high of $413,800 in June. August marked a record 126 consecutive months of year-over-year increases in the median price. There was a 3.2-month supply of homes for sale in August, up from a 2.6-month supply last August. First-time buyers accounted for 29% of all sales. Investors and second-home purchases accounted for 16% of all sales. All-cash purchases accounted for 24% of all sales. Foreclosure and short sales accounted for less than 1% of all sales, remaining at a historic low.

Economic update for the month ending August 31, 2022

Stock markets dropped about 4% in August – To say that the markets don’t know what to do is an understatement. The first half of 2022 marked the worst first half of a year for the S&P 500 since 1939. The Dow and Nasdaq also had their worst half of a year since 1970. In July, inflation seemed to be moderating, corporate profits were higher than expected, consumer spending was strong and July marked the best July in 50 years for the major stock markets. They made up over half of the losses suffered in the first six months. In August markets reversed after the July jobs report. It shocked experts because employers had hired over double the number of new employees that analysts had estimated and the unemployment rate dropped to 3.5%, a 52-year low. Stocks began to rally again after the July CPI report was released in the second week of the month. It showed that consumer prices, a key indicator of inflation, rose 8.5% year-over-year in July, down from 9.1% in June. With inflation moderating investors felt that the Fed would be less aggressive with future interest rate hikes. On the third week of August, the Fed minutes from the July meeting were released. The minutes showed that the Fed did not intend to slow the pace of rate hikes and was concerned with the overheated jobs market and consumer spending which they have been trying to slow and stocks began to drop. On August 26 Federal Reserve Chairman, Jarome Powell gave a major policy speech. He said that the Fed intended to act “quickly and swiftly for a long prolong period of time” to get inflation down to the Fed target range of 2%. He said to “expect pain!” He cited the overheated jobs market, which is causing a labor shortage and leading to wage gains that are fueling inflation. He spoke about the rate of consumer spending. His frustration that all the rate hikes and other measures to slow the economy was not having an effect on the pace of hiring and spending was evident. Stock markets sold off in the hours that followed his speech. For example, the Dow dropped over 1,000 points. To put it in perspective, that was a 3% drop. The S&P dropped 3.4% and the Nasdaq dropped 3.9% on the 26th. It was a tough speech and a tough day! In September we will be looking at the jobs report which will be released tomorrow. If the pace of hiring continues to be brisk, we expect stocks to continue to drop. If hiring is strong but not above expectations stocks should stabilize. If the pace of hiring is weak and the unemployment rate begins to rise stocks should rise as well. We will look at the August CPI report the second week of the month to see what the inflation rate is. If it looks like inflation is continuing to moderate, so below 8.5%, stocks will do well, but if the CPI rate is higher stocks will get hit hard. On the third week of the month, the Fed will raise their key interest rates. A .75% rise is expected. I would not expect that rise to cause stocks to drop. It’s already built into the current market levels. Should they do a full 1% increase, that’s a different story, but it is not expected. The Dow Jones Industrial Average closed the month at 31,510.43, down 4.1% from 32,845.13 on June 30. It’s down 13.3% year-to-date. The S&P 500 closed the month at 3,955.29, down 4.2% from 4,130.29 last month. The S&P is down 17% year-to-date. The NASDAQ closed the month at 11,816.20, down 4.6% from 12,390.69 last month. It is down 24.4%, year-to-date.

U.S. Treasury bond yields – The 10-year treasury bond closed the month yielding 3.15%, up from 2.67% last month. The 30-year treasury bond yield ended the month at 3.27%, up from 3.00% last month. We watch bond yields because mortgage rates often follow treasury bond yields.

Mortgage rates – The Freddie Mac Primary Mortgage Survey reported that mortgage rates as of September 1, 2022 for the most popular loan products were as follows: The 30-year fixed mortgage rate was 5.66%, up from 5.30% at the end of July. The 15-year fixed was 4.98% up from 4.58% last month. The 5-year ARM was 4.51% up from 4.29% last month. Rates topped out in the middle of June when the 30-year hit over 6%. It dropped to 4.99% the first week of August, but have worked their way back up over ½% since then. The jobs report and the CPI report will have a big impact on rates. If hiring slows and unemployment increases, rates will drop. If hiring remains strong rates will remain at these levels or rise slightly. If the CPI rate shows inflation is dropping, rates will drop. If the CPI increases mortgage rates will increase as well. These are long term rates. They are tied to longer term inflation expectations, not short term. When the Fed raises rates, it may actually lower mortgage rates.

The August jobs report will be released tomorrow. That will be a good indicator of whether the fed rate hikes are causing employers to slow the pace of hiring. So far that has not happened. With unemployment at a 52-year low and wages increasing due to a shortage of labor. The tight labor market is one of the conditions that is fueling inflation.

U.S. existing-home sales – The National Association of Realtors reported that existing-home sales totaled 4.81 million units on a seasonally adjusted annualized rate in July, down 5.9% month-over-month from the annualized number of sales in June. Year-over-year sales were down 20.2% from an annualized rate of 6.03 million in July 2021. The median price paid for a home in the U.S. in July was $403,800, up 10.8% from $364,600 one year ago. July marked a record 125 consecutive months of year-over-year increases in the median price. There was a 3.3-month supply of homes for sale in July, up from a 2.6-month supply last July. First-time buyers accounted for 29% of all sales. Investors and second-home purchases accounted for 15% of all sales. All-cash purchases accounted for 24% of all sales. Foreclosure and short-sales accounted for less than 1% of all sales, remaining at a historic low.

California existing-home sales – The number of single family homes sold in July declined 31% year-over-year – The California Association of Realtors reported that existing-home sales totaled 295,460 on a seasonally adjusted annualized rate in July, down 14.4% from June, and down 31.1% from July 2021 when 428,980 homes sold on an annualized basis. Year-to-date, California existing-home sales were down 13.6% in July. The statewide median price paid for a home in July was $833,910, up 2.8% from $811,170 in July 2021. There was a 3.2-month supply of homes for sale in July, up from a 1.9-month supply in July 2021. A normal market has a 5-6 month supply of homes on the market.

My take – We have been shocked by such a sudden slowing in the number of sales. The number of homes sold is a number that we have not seen in July since the financial crisis. From the closings I have seen, August may be even worse with fewer closings. Fortunately, I we have had a pick up in openings. I expect September sales to be higher than July and August. Prices are another story. The market got so crazy due to bidding wars in the first quarter of the year that we saw sales that shocked us. Many homes had dozens of offers. Most offers were at or a little over the asking price. One or two buyers went tens or even hundreds of thousands of dollars over the asking price. It seemed that people were so tired of losing out on homes that they would pay anything to get the one they were bidding on. We all scratched our heads in amazement with how much over full price the successful buyer was willing to pay. We are not seeing that now. We are seeing the market normalize. Prices are back to the level they began the year. If you look just at the highest price ever reached in March, April or May we are probably about 10% below that highest ever sale where the buyer bid tens or hundreds of thousands over full price to get it! We are not scratching our head in amazement with that panic buying when someone will pay anything now. Without those outlier overbids, the sales we see are the second or third highest price ever for a similar home in the neighborhood. That’s not so bad!

The graph below shows regional figures by county in Southern California.

Economic update for the week ending July 23, 2022

Stock markets ended the week higher – Most companies that have reported second-quarter profits beat earnings estimates. That gave a boost to stocks this week. Even tech stocks, which have been beaten down significantly, had a great week. The news was not all good for tech stocks. Tesla beat expectations but Snap did not. Snap dropped 39% on Friday which spilled over to other sectors and stock markets ended lower on Friday, ending a three-day rally. Investors were also feeling optimistic that dropping gas prices, some settling in food prices, easing of supply-chain shortages, and some economic data indicating that businesses may be pulling back on spending may keep the Fed from being as aggressive with interest rate hikes as thought just a week ago when the CPI report was released. Some feared a full point rate hike at the next meeting. That seems very unlikely now. The Dow Jones Industrial Average closed the week at 31,899.29, up 1.9% from 31,288.26 last week. It is down 12.2% year-to-date. The S&P 500 closed the week at 3,961.63, up 2.5% from 3,863.19 last week. The S&P is down 16.9% year-to-date. The NASDAQ closed the week at 11,834.11, up 3.3%from 11,452.42 last week. It is down 24.6%, year-to-date.

U.S. Treasury bond yields higher this week – The 10-year treasury bond closed the week yielding 3.00% down from 2.93% last week. The 30-year treasury bond yield ended the week at 3.10%, down from 3.10% last week. We watch bond yields because mortgage rates often follow treasury bond yields.

Mortgage rates – The Freddie Mac Primary Mortgage Survey reported that mortgage rates as of July 21, 2022, for the most popular loan products were as follows: The 30-year fixed mortgage rate was 5.54%, up slightly from 5..51% last week. The 15-year fixed was 4.75%, up from 4.67% last week. The 5-year ARM was 4.31%, down from 4.35% last week.

U.S. existing-home sales – The National Association of Realtors reported that existing-home sales totaled 5.4 million units on a seasonally adjusted annualized rate in June, down 5.4% month-over-month from the annualized number of sales in May. Year-over-year sales were down 14.3%from the annualized rate of 5.97 million in June 2021. The median price of a home in the U.S. in June was $416,000 up 13.4% from $366,900 one year ago. June marked a record 124 consecutive months of year-over-year increases in the median price. There was a 3-month supply of homes for sale in June, up from a 2.5-month supply last June. First-time buyers accounted for 30% of all sales. Investors and second-home purchases accounted for 14% of all sales. All-cash purchases accounted for 25% of all sales. Foreclosure and short sales accounted for less than 1% of all sales remaining at a historic low.

California existing-home sales – The number of single-family homes sold in June declined 21% year-over-year -The California Association of Realtors reported that existing- home sales totaled 344,970 on a seasonally adjusted annualized rate in June, down 8.4% from May, and down 20.9% from last June. Excluding two months during the pandemic shutdown, this marked the fewest number of homes closed escrow in a month since April 2008. Existing-home sales through June are down 10.9% from the number of homes sold in the first half of 2021.

The statewide median price paid for a home in June was $863,790, up 5.4% from $819,630 in June 2021.

There was a 2.5-month supply of homes for sale in June, up from a 2.1-month supply of homes for sale in May, and a 1.7-month supply in June 2021. While up slightly, a 2.5-month supply is still a low level. A normal market has a 5-6 month supply of homes on the market.

We have seen more homes come on the market in the past few weeks. Perhaps sellers feel that prices have topped out. Those listings are selling quickly if they are priced correctly. The vast majority of the homes sold are still receiving multiple offers, but they are not receiving the number of offers that they would have received a couple of months ago. We are seeing two to four offers, not twenty! The homes priced too high are sitting. Once reduced to the correct price those are selling as well, but not with the excitement and urgency a new listing gets. These new listings will begin to close in August. I expect that the number of sales will increase in August from the anemic number of sales we saw in June and that I expect in July, which seems to also be shaping up as a month with a low number of sales. June and July should be the fewest number of sales we see in a month for a long time. That’s what I am seeing on the street.

The graph below shows regional figures by county in Southern California.

Economic update for the week ending July 16, 2022

Stock markets ended a volatile week slightly lower – Stocks dropped and interest rates jumped after the June CPI report was released on Wednesday. The Report shocked experts who had previously seen signs that inflation may have been moderating. To their surprise, the CPI report showed that consumer prices jumped from 8.6% in May to 9.1% in June, the highest reading since 1981. Mortgage interest rates, which had dropped about ½% from their peak on June 14, started to rise last Friday after the June jobs report showed that hiring had beat expectations by over 100,000 new jobs and continued to rise following the CPI report. The brisk rate of hiring, low unemployment, and soaring inflation disappointed investors who had hoped that interest rate hikes and other tightening measures would begin to cool the overheated economy and curb inflation. Due to inflation, good news is bad news, as the stronger the economy is the more people spend which causes inflation. On Friday, stocks surged on good news, which has not been the case lately, when it was announced that Retail Sales increased 1% month-over-month in June and rose 8.4% from one year ago. The report showed that consumers have not been swayed by negative economic predictions and are not cutting spending because they have a high amount of savings and their wages are rising. Early second quarter corporate profits have also beat expectations. The Fed reported that import prices fell slightly in June as the strong dollar and moderating oil prices may be helping inflationary pressures. Fed officials also made comments which dispelled investors’ fears of a full one percentage point interest rate hike at its next meeting. That does not seem to be their plan based on their comments. The Dow Jones Industrial Average closed the week at 31,288.26, down 0.2% from 31,338.15 last week. It is down 13.9% year-to-date.  The S&P 500 closed the week at 3,863.19, down 1.1% from 3,899.38 last week. The S&P is down 19.0% year-to-date. The NASDAQ closed the week at 11,452.42, down 1.6% from 11,635.31 last week. It is down 26.8% year-to-date.

U.S. Treasury bond yields higher this week – The 10-year treasury bond closed the week yielding 2.93%, down from 3.09% last week.  The 30-year treasury bond yield ended the week at 3.10%, down from 3.27% last week. We watch bond yields because mortgage rates often follow treasury bond yields.

Mortgage rates – The Freddie Mac Primary Mortgage Survey reported that mortgage rates as of July 14, 2022, for the most popular loan products were as follows: The 30-year fixed mortgage rate was 5.51%, up from 5.30% last week. The 15-year fixed was 4.67%, up from 4.45% last week. The 5-year ARM was 4.35%, up from 4.19% last week.

California home sales statistics for June will be released next week from the California Association of Real Estate. U.S. home sales will be released by the National Association of Real Estate the week of the 21st. You can get local sales statics for June on my website. You can search the market report tab for your city or zip code.

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Economic update for the week ending July 9, 2022

Stock markets finished the week higher – Signs of cooling inflation, and three straight weeks of declining gas prices from their peak in mid June had investors optimistic about future earnings, interest rate increases, supply chain issues, and labor shortages. On Thursday, ADP – the nation’s largest payroll company, estimated job growth above the level of expectations. On Friday, the Labor Department reported that 372,000 new jobs were created in June. That was 100,000 jobs more than what was expected. With job growth so robust and unemployment so low it’s hard to see how consumer spending, which accounts for almost 70% of the U.S. economy, will stall. If consumers keep spending, it will be hard to bring down inflation. Experts and the Fed had hoped that higher interest rates would increase borrowing costs for companies and slow the pace of hiring. As of June, that has not happened. Job growth for the first half of 2022 is at the highest levels ever recorded and the second quarter job gains were the highest in half a century. It is hard to imagine inflation declining to a healthy level without slowing job growth and wages. Investors now expect further and swifter action by the Fed than they did in the first three days of the week as a result of the strong job growth numbers in June. The CPI report is due out next Wednesday. That will be the best gauge of how the Fed’s actions have impacted inflation so far. The Dow Jones Industrial Average closed the week at 31,338.15 up 0.1% from 31,097.26 last week. It is down 13.8% year-to-date. The S&P 500 closed the week at 3,899.38, up 1.9% from 3,825.33 last week. The S&P is down 18.2% year-to-date. The NASDAQ closed the week at 11,635.31, up 4.6% from 11,127.85 last week. It is down 25.6% year-to-date

U.S. Treasury bond yields higher this week – The 10-year treasury bond closed the week yielding 3.09%, up from 2.88% last week. The 30-year treasury bond yield ended the week at 3.27%, up from 3.11% last week. We watch bond yields because mortgage rates often follow treasury bond yields.

Mortgage rates – The Freddie Mac Primary Mortgage Survey reported that mortgage rates as of June 30, 2022, for the most popular loan products were as follows: The 30-year fixed mortgage rate was 5.30%, down from 5.70% last week. The 15-year fixed was 4.45%, down from 4.83% last week. The 5-year ARM was 4.19%, down from 4.50% last week. Rates were lower Friday. The 30-year jumped a little at the end of the week after the strong jobs report. The hope is that job growth will stall as the Fed raises rates and tightens credit in order to slow the economy to curtail inflation. Such strong job growth and low unemployment puts more pressure on inflation. Next week’s survey rates should be a little higher.

The U.S. economy added 372,000 new jobs in June – The Department of Labor and Statistics reported that 372,000 new jobs were added in June. That exceed experts expectations by 100,000 jobs. They expected interest rate hikes and other tightening measures by the Fed to slow the overheated economy and would slow hiring. The unemployment rate held steady at 3.6% which is just slightly higher than the 52-year low of 3.5% just before the pandemic. The labor-force participation rate (the share of workers with a job or actively looking for a job) was 62.2% in June, down from 62.5% in May. It is well below the 63.6% level before the pandemic. Experts are puzzled as to why more employees are not returning to the workforce, especially with wages higher, pandemic stimulus running out, and so many available job openings. Survey data reported that there were 11.3 million available Jobs which amounted to about 2 positions for every job seeker. Average hourly wages increased 5.1% from one year ago. Wages were up 5.2% year-over-year in May and 5.5% year-over-year in April which may be a sign that inflation may be moderating.

Economic update for the month ending June 30, 2022

Stock markets slid in June – Stock markets closed the first half of 2022 with their largest losses in 50-years – June was a tumultuous month for the stock markets. Stocks, bond yields, and mortgage rates stabilized in May. That was because economic data showed inflation moderating in April. For example, the CPI in March was 8.5%, the highest rate since 1982. In April, the CPI dropped to 8.3% leaving investors feeling that rate hikes and other tightening measures the Fed enacted were working. In the second week of June May’s CPI reading of 8.6%, the highest rate of inflation since 1981, was released. Stocks immediately began to sink and treasury bond yields and mortgage rates rose, as the economy had not slowed in a way to tame inflation as previously hoped. In a response to the May CPI report the Federal Reserve increased its key rates by .75%, the highest single meeting increase in decades. Consumer confidence also slipped to the lowest level in forty years as consumers are feeling the impact of higher prices. The June CPI report will be released on July 13. Other data over the last week of June points to some moderating of inflation. If that data turns out to be correct, stocks may recover some of their losses. Bond yields and mortgage rates dropped significantly in the final days of the month based on expectations that a slowing economy will tamper information. If the CPI stays at 8.6% or increases, we would expect stocks to fall further and bond yields and mortgage rates to increase. The Dow Jones Industrial Average closed the month at 30,776.43, down 6.7% from 32,990.12 on May 30. It’s down 15.3% year-to-date. That is the worst performance for the Dow for the first half of a year since 1962. The S&P 500 closed the month at 3,785.39, down 8.4% from 4,132.15 last month. The S&P is down 20.6% year-to-date. This marked the worst performance for the S&P over the first half of a year since 1970. The NASDAQ closed the month at 11,028.74, down 8.3% from 12,081.39 last month. It is down 29.5%, year-to-date. It was the worst first half of a year ever for the NASDAQ.

U.S. Treasury bond yields – The 10-year treasury bond closed the month yielding 2.98%, up from 2.85% last month. The 30-year treasury bond yield ended the month at 3.14%, up from 3.07% last month. We watch bond yields because mortgage rates often follow treasury bond yields. Bond yields dropped sharply over the last week of the month. The 30-year peaked at 3.45%, and the ten-year hit 3.49% in the middle of June.

Mortgage rates – The Freddie Mac Primary Mortgage Survey reported that mortgage rates as of June 30, 2022 for the most popular loan products were as follows: The 30-year fixed mortgage rate was 5.70%, up from 5.09% at the end of May. The 15-year fixed was 4.83% up from 4.31% last month. The 5-year ARM was 4.50%, up from 4.20% last month. Rates dropped quite a bit on Wednesday and Thursday. Currently the 30-year is under 4.5%. Next week’s survey rates will be back down in that range.

The June jobs report will be released on Friday June 8. This is the May report

The U.S. economy added 390,000 new jobs in May – The Department of Labor and Statistics reported that 390,000 new jobs were added in May. The unemployment rate held steady at 3.6%. The labor-force participation rate (the share of workers with a job or actively looking for a job) increased to 62.4% in May, up from 62.2% in April. It is well below the 63.6% level before the pandemic. Average hourly wages increased 5.2% from May 2021, down from a 5.5% year-over-year increase in April which is another sign that inflation may be moderating.

Home sales figures are released in the third week of the month for the previous month. These are May’s results.

U.S. existing-home sales – The National Association of Realtors reported that existing-home sales totaled 5.41 million units on a seasonally adjusted annualized rate in May, down 3.4% month-over-month from the annualized number of sales in April. Year-over-year sales were down 8.6% from the annualized rate of 5.92 million in May 2021. The median price of a home in the U.S. in April was $407,600, up 14.8% from $355,000 one year ago. May marked a record 123 consecutive month of year-over-year increases in the median price. Inventory levels increased 12.6% from April, but are still 4.1% below the amount of homes for sale in May 2021. There was a 2.6-month supply of homes for sale in May, up slightly from a 2.5 month supply last May. First-time buyers accounted for 27% of all sales. Investors and second-home purchases accounted for 16% of all sales. All-cash purchases accounted for 25% of all sales. Foreclosure and short-sales accounted for less than 1% of all sales remaining at a historic low.

California home sales drastically declined while prices continued to surge in May – The California Association of Realtors reported that existing-home sales totaled 377,790 on a seasonally adjusted annualized rate in May, down 9.8% from April, and down 15.2% from last May. Existing-home sales year-to-date through May are down 8.9% from the number of homes sold in the first five months of 2021. The statewide median price paid for a home in May was $898,980, up 1.9% from April, and up 9.9% from May 2021. There was a 2.1-month supply of homes for sale in May, up from a 1.8-month supply of homes for sale in April, and a 1.8-month supply in May 2021. While up slightly a 2.1-month supply is still a historic low level. A normal market has a 5-6 month supply of homes on the market. Pending sales which represent new contracts signed declined 30.6% in May. That’s an alarming drop which is similar to what we saw in the first month of the pandemic when the shutdown was announced. We watch pending sales to forecast sales 30-60 days later. This is due to a shortage of homes for sale, increasing interest rates, lower affordability, and some erosion of confidence, but it’s impossible to say which of these factors are most impactful, especially with prices climbing at such a accelerated rate.

The graph below shows regional figures by county in Southern California.

Economic Update for Week Ending June 25, 2022

Stock markets soared to rebound from three straight weeks of steep losses – Stocks markets jumped again on Friday and posted their second best week of the year. Comments from Federal Reserve officials and testimony by Fed Chairman Powell to Congress this week led sinvestors to believe that future rate hikes would not be as severe as previously thought. Powell also testified that he felt that even if there were to be a recession, which he felt could be avoided, it would be mild. He quoted many reasons for his belief in the strength of the economy which included: the strong position of U.S. banks, the strength of labor markets, the strength of the housing market and home equity, and a strong dollar. A key inflation index showed that commodity prices have fallen as recession fears have grown, indicating that the rate hikes are working and that inflation may be moderating. The Dow Jones Industrial Average closed the week at 31,500.68 up 5.4% from 29,888.78 last week. It is down 13.3% year-to-date. The S&P 500 closed the week at 3,911.74, up 6.5% from 3,674.84 last week. The S&P is down 18.0% year-to-date. The NASDAQ closed the week at 11,609.62, down 7.6% from 10,789.35 last week. It is down 25.8% year-to-date.

U.S. Treasury bond yields – The 10-year treasury bond closed the week yielding 3.13%, down from 3.25% last week. The 30-year treasury bond yield ended the week at 3.26%, down from 3.30% last week. We watch bond yields because mortgage rates often follow treasury bond yields.

Mortgage rates – The Freddie Mac Primary Mortgage Survey reported that mortgage rates as of June 23, 2022, for the most popular loan products, were as follows: The 30-year fixed mortgage rate was 5.81%, up from 5.78% last week. The 15-year fixed was 4.92%, up from 4.81% last week. The 5-year ARM was 4.41%, up from 4.33% last week.

U.S. existing-home sales – The National Association of Realtors reported that existing-home sales totaled 5.41 million units on a seasonally adjusted annualized rate in May, down 3.4% month-over-month from the annualized number of sales in April. Year-over-year sales were down 8.6% from the annualized rate of 5.92 million in May 2021. The median price of a home in the U.S. in April was $407,600, up 14.8% from $355,000 one year ago. May marked a record 123 consecutive months of year-over-year increases in the median price. Inventory levels increased 12.6% from April, but are still 4.1% below the number of homes for sale in May 2021. There was a 2.6-month supply of homes for sale in May, up slightly from a 2.5-month supply last May. First-time buyers accounted for 27% of all sales. Investors and second-home purchases accounted for 16% of all sales. All-cash purchases accounted for 25% of all sales. Foreclosure and short-sales accounted for less than 1% of all sales remaining at a historic low.

Economic update for the week ending May 28, 2022

Stock markets snapped one of the longest weekly losing streaks on record with their best week since November 2020– Stock markets rallied after a core inflation report showed consumer personal consumption expenditures prices rose 4.9% in April, down from 5.2% in March. Bond yields and mortgage rates have dropped as well over the past couple of weeks as recent reports suggest inflation peaked in March and seems to be moderating. Retail sales also took an unexpected jump showing that the strength of the economy has not subsided. The Dow Jones Industrial Average closed the week at 33,212.60, up 6.2% from 31,261.90 last week. It is down 8.6% year-to-date. The S&P 500 closed the week at 4,158.25, up 6.6% from 3,901.36 last week. The S&P is down 12.8% year-to-date. The NASDAQ closed the week at 12,131.13, up 6.9% from 11,352.62 last week. It is down 22.5% year-to-date.

U.S. Treasury bond yields – The 10-year treasury bond closed the week yielding 2.74% down from 2.78% last week. The 30-year treasury bond yield ended the week at 2.97%, down from 2.99% last week. We watch bond yields because mortgage rates often follow treasury bond yields.

Mortgage rates – Home mortgage rates appear to be stabilizing. The Freddie Mac Primary Mortgage Survey reported that mortgage rates as of May 19, 2022 for the most popular loan products were as follows: The 30-year fixed mortgage rate was 5.10%, down from 5.25% last week. The 15-year fixed was 4.31%, down from 4.43% last week. The 5-year ARM was 4.20%, up from 4.08% last week.

Economic update for the week ending May 21, 2022

Stock markets dropped again this week – The Dow suffered its eighth consecutive weekly loss which marks its longest weekly losing streak since 1923. The S&P and Nasdaq suffered their seventh weekly loss, their longest losing streak since 2001. It is a strange time.

First-quarter corporate profits were much stronger than expected, and the economy and job market are showing very strong numbers; however, investors fear that inflation, higher interest rates, war, supply chain shortages, and a China lockdown will soon lead to a drop in profits, and possibly a recession.  The Dow Jones Industrial Average closed the week at 31,261.90, down 2.1% from 32,196.66 last week. It is down 11.4% year-to-date.  The S&P 500 closed the week at 3,901.36, down 2.4% from 4,023.89 last week. The S&P is down 15.6% year-to-date. The NASDAQ closed the week at 11,354.62, down 2.8% from 11,805.00 last week. It is down 24.5% year-to-date. 

U.S. Treasury bond yields – The 10-year treasury bond closed the week yielding 2.78%, down from 2.93% last week.  The 30-year treasury bond yield ended the week at 2.99%, down from 3.10% last week. We watch bond yields because mortgage rates often follow treasury bond yields. 

Mortgage rates – Home mortgage rates appear to be stabilizing. The Freddie Mac Primary Mortgage Survey reported that mortgage rates as of May 19, 2022 for the most popular loan products were as follows: The 30-year fixed mortgage rate was 5.25%, down from 5.30% last week. The 15-year fixed was 4.43%, down from 4.48% last week. The 5-year ARM was 4.08%, up from 3.98% last week. 

U.S. existing-home sales – The National Association of Realtors reported that existing-home sales totaled 5.61 million units on a seasonally adjusted annualized rate in April, down 2.4% month-over-month from the annualized number of sales in March. Year-over-year sales were down 5.9% from the annualized rate of 5.96 million in April 2021.  The median price of a home in the U.S. in April was $391,200, up 14.8% from $340,700 one year ago. April marked a record 122 consecutive months of year-over-year increases in the median price. Inventory levels ticked up slightly from March but remained near record lows. There was a 2.2-month supply of homes for sale in April, down from a 2.3 month supply one year ago.  First-time buyers accounted for 28% of all sales.  Investors and second-home purchases accounted for 17% of all sales.  All-cash purchases accounted for 26% of all sales.  Foreclosure and short-sales accounted for less than 1% of all sales remaining at a historic low. 

California existing-home sales –  Lower inventory has led to a drop in the number of sales and a rise in prices – The California Association of Realtors reported that existing-home sales totaled 419,040 on a seasonally adjusted annualized rate in April, which marked an 8.5% year-over-year drop from the number of homes sold in April 2021. Existing-home sales in the first quarter of 2022 are down 7.0% from the number of homes sold in the first quarter of 2021, which pretty closely matches the drop in the number of new listings. The median price paid for a home in March was $884,890, up 4.2% from March’s 2021 median price of $849,080. Year-over-year prices are up 8.5%. There was a 1.8-month supply of homes for sale in April, up slightly from a 1.6-month supply of homes in April 2021. 

The graph below shows regional figures by county in Southern California.

Economic Update for Week Ending 5/14/22

Despite a rally on Friday stock markets posted another large weekly loss – Stock markets rallied on Friday to end a turbulent week. The S&P and the Nasdaq posted their sixth weekly loss, their longest losing streak since 2012. The Dow has dropped for seven consecutive weeks, its longest losing streak since 1980. Over the past week, the Labor Department released four economic reports. Last Friday’s jobs report suggested that job growth is still strong which increases the chance of more aggressive rate hikes and tightening by the Fed. Thursday’s CPI, PPI and Import price reports suggested that inflation may have peaked in March. For example, the CPI report had inflation in April up 8.3% from one year earlier which is a very high inflation number but below the 8.5% year-over-year level in March, a 40-year high. First-quarter corporate profits were strong with over 70% of companies beating expectations. However, investors expect inflation and rising interest rates to increase expenses and lower profits in the coming months. The Dow Jones Industrial Average closed the week at 32,196.66, down 2.1% from 32,889.37 last week. It is down 11.4% year-to-date. The S&P 500 closed the week at 4,023.89, down 2.4% from 4,123.34 last week. The S&P is down 15.6% year-to-date. The NASDAQ closed the week at 11,805.00, down 2.8% from 12,144.66 last week. It is down 24.5%, year-to-date.

U.S. Treasury bond yields – The 10-year treasury bond closed the week yielding 2.93%, down from 3.12% last week. The 30-year treasury bond yield ended the week at 3.10%, down from 3.23% last week. We watch bond yields because mortgage rates often follow treasury bond yields.

Mortgage rates – Home mortgage rates have continued to increase. Freddie Mac Primary Mortgage Survey reported that mortgage rates as of May 12, 2022 for the most popular loan products were as follows: The 30-year fixed mortgage rate was 5.30%, up slightly from 5.27% last week. The 15-year fixed was 4.48% down slightly from 4.52% last week. The 5-year ARM was 3.98%, up slightly from 3.96% last week.

California housing affordability improved in the first quarter of 2022 – The California Association of Realtors published their first-quarter housing affordability report this week. They found that 24% of California households could afford to purchase a $797,470 median-priced home. That is down from 25% in the fourth quarter of 2021, and down from 27% in the same period one year ago. A minimum income of $158,000 was needed to qualify for the monthly payment of $3,950 which included principal, interest, and taxes on a 30-year fixed-rate mortgage at a 3.97% rate. Rates are substantially higher now than they were in the first quarter, but appear to be stabilizing. Condominiums were more affordable. The report found that 32% of California households were able to afford a $640,350 median-priced condo or townhouse. A minimum annual income of $126,800 was needed to qualify for the monthly payment of $3,170.

Home sales figures for April will be released next week by the California Association of Realtors and the National Association of Realtors. They will be included in next week’s report. You can get April figures for your city or zip code from my website now.