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.