Economic update for the week ending October 15, 2022

Stock markets had a turbulent week – Treasury bond yields and mortgage rates moved higher on continued inflation fears – There were two key inflation reports this week. The producer price index came in at an 8.5% year-over-year increase. That was down for a third straight month. It peaked at 11.7% in March, but it is still at levels not seen since the 1980s. The Consumer Price Index (CPI) dropped slightly to 8.2% in September from 8.3% in August. It peaked at 9.1% in June. Core inflation, which strips out food and energy costs, increased to 6.6%, up from 6.3% in August. That was quite a bit above expectations and also the highest level since the 1980s. Between last week’s strong jobs report and the core inflation numbers this week, experts feel the Fed may do two more 3/4% interest rate hikes this year. With the unemployment rate at a 52-year low, more people working than before the pandemic, almost two open jobs for every worker looking for work, and wages rising at the highest rate in decades, it’s obvious why consumers are out spending, which is fueling inflation. The Fed wants to do something to cool the jobs market. The question is, can the Fed get companies to stop hiring by raising interest rates while a massive amount of stimulus is still going out? With the infrastructure bill, the computer chips bill, and the inflation reduction act ( that is just the name of it) there are trillions of dollars set to go out. It seems like the Fed and the government are working against each other. Investors can’t figure out if the Fed will go so far that companies will begin laying off workers and cause a deep recession, or if all the stimulus will keep companies from making massive layoffs and we will have just a mild recession. From a real estate standpoint, we are seeing these high interest rates shock the real estate and lending industry, but other sectors are still incredibly strong. People leaving the real estate and lending industry are finding no trouble obtaining jobs in other sectors. The Dow Jones Industrial Average closed the week at 29,634.83, up 1.2% from 29,296.70 last week. It is down 18.4% year-to-date.  The S&P 500 closed the week at 3,583.07, down 1.5% from 3,639.66 last week. The S&P is down 24.8% year-to-date. The NASDAQ closed the week at 10,321.39, down 3.1% from 10,652.79 last week. It is down 34% year-to-date. 

U.S. Treasury bond yields – The 10-year treasury bond closed the week, yielding 4.0%, up from 3.89% last week.  The 30-year treasury bond yield ended the week at 3.99%, up from 3.86% 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 October 13, 2022, were as follows: The 30-year fixed mortgage rate was 6.99%, up from 6.66% last week. The 15-year fixed was 5.99%, up from 5.90% last week. The 5-year ARM was 5.81%, up from 5.36% last week. Rates were higher at the end of the week so next week’s rates will be higher.  

September home sales data from the California Association of Realtors and the National Association of Realtors will be released next week. Those will reflect another month of historically low number of sales, prices retreating from their peak in May and year-over-year increases in prices flattening. You can get September home sales data now for your city or zip code at RodeoRe.com. Go to market reports.