Economic update for the week ending February 12, 2022

Stock markets dropped this week following a high inflation report – Stock markets were on track for a relatively good week as more companies reported strong corporate profits. Unfortunately, on Thursday the January inflation report was released. The January CPI (Consumer Price Index), which represents the broadest measure of inflation, showed that consumer prices rose 7.5% from January 2021, a 40-year high. Bond yields and mortgage rates immediately began to rise and stocks fell on the news. It is widely felt that the Federal Reserve could make a 1/2% rise to their key interest rates in the coming weeks, and at least two more increases this year in order to slow the pace of inflation. The Dow Jones Industrial Average closed the week at 34,738.06, down 1.0% from 35,087.74 last week. It is down 4.4% year to date. The S&P 500 closed the week at 4,418.64, down 7.3% from 4,500.94 last week. The S&P is down 5.6% year to date. The NASDAQ closed the week at 13,751.19, down 2.5% from 14,098.01 last week. It is down 12.1% year to date.

U.S. Treasury bond yields – The 10-year treasury bond closed the week yielding 1.93%, unchanged from 1.92% last week. The 30-year treasury bond yield ended the week at 2.24%, unchanged from 2.23% last week. We watch bond yields because mortgage rates often follow treasury bond yields.

Mortgage rates – The February 10, 2022, Freddie Mac Primary Mortgage Survey reported that mortgage rates for the most popular loan products were as follows: The 30-year fixed mortgage rate was 3.69%, up from 3.55% last week. The 15-year fixed was 2.93%, up from 2.77% last week. The 5-year ARM was 2.80%, up from 2.71% last week.

California housing affordability improved in the fourth quarter of 2021 – The California Association of Realtors published their third-quarter housing affordability report this week. They found that 25% of California households could afford to purchase an $797,470 median-priced home. That is up from 24% in the third quarter of 2021, but down from 27% in the fourth quarter of 2020. A minimum income of $148,000 was needed to qualify for the monthly payment of $3,700 which included principal, interest, and taxes on a 30-year fixed-rate mortgage at a 3.28% rate. Condominiums were more affordable. The report found that 36% of California households were able to afford a $610,350 median-priced condo or townhouse. A minimum annual income of $113,200 was needed to qualify for the monthly payment of $2,830.

January home sales numbers from the California Association of Realtors and the National Association of Realtors will be released next week. You can find January statistics now on my website. Just look for market trends and enter your city or zip code!