| Stock markets dropped and interest rates moved higher in September – Recent data released this month has indicated that inflation may be picking back up. Treasury bond yields rose to their highest levels since 2007 and mortgage rates hit a 23-year high in September. The CPI (Consumer Price Index), the broadest measure of inflation, rose for the second straight month. It had dropped every month for a year from a high of 9.1% in June 2022 to 3% in June of 2023. That streak ended in July when the CPI increased to 3.2%. It increased again to 3.7% in August. The Fed has increased interest rates over the past year and a half to combat inflation. They had hoped that these increases would slow the economy, curtail consumer spending, and reduce the rate of inflation. Fed Chairman Powell left rates unchanged in September but singled that there would be another rate increase this year. He also reiterated his commitment to bringing inflation down to the Fed’s 2% target. The latest jobless claims, people going on unemployment for the first time, dropped to the lowest level of the year. The Fed has also been trying to get the unemployment rate up, because a shortage in labor pushes wages up and encourages consumer spending, which are both inflationary. Economists are waiting for the September jobs report which will be released next Friday. That will signal how companies are responding to higher borrowing costs which so far have not discouraged many from cutting back on the number of employees. The U.S. credit rating downgrade and the massive amount of debt that needs to be financed has caused an oversupply of treasury bond sales which has also contributed to higher interest rates.
Stock markets – The Dow Jones Industrial Average closed the month at 33,507.50, down 3.5% from 34,721.91 on August 30. It is up 1% year-to-date. The S&P 500 closed the month at 4,298.05, down 4.6% from 4,507.66 last month. It is up 12% year-to-date. The NASDAQ closed the month at 13,219.92, down 5.8% from 14,034.97 last month. It is up 26.2% year-to-date. U.S. Treasury bond yields – The 10-year treasury bond closed the month yielding 4.59%, up from 4.09% last month. The 30-year treasury bond yield ended the month at 4.73%, from 4.20% last month. We watch bond yields because mortgage rates often follow treasury bond yields. Both the 10-year and 30-year closed the month about .25% below their highest levels for the month after dropping in the last week of the month. Mortgage rates – The Freddie Mac Primary Mortgage Survey reported that mortgage rates as of September 28, 2023, for the most popular loan products were as follows: The 30-year fixed mortgage rate was 7.31%, up from 7.18% at the end of August. The 15-year fixed was 6.72%, up from 6.11% at the end of August. U.S. existing-home sales – The National Association of Realtors reported that existing-home sales totaled 4.04 million units on a seasonally adjusted annualized rate in August, down 15.3% from an annualized rate of 4.77 million in August 2022. The median price for a home in the U.S. in August was $407,100, up 3.9% from $391,700 last August. There was a 3.3- month supply of homes for sale in August, up from a 3.2-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 27% of all sales. Foreclosures and short sales accounted for 1% of all sales. California existing-home sales – The California Association of Realtors reported that existing-home sales totaled 254,740 on a seasonally adjusted annualized basis in August, down 5.3% month-over-month from July and down 19% from a revised 314,270 annualized sales pace last August. It should be noted that last August the number of sales were down about 20% from August 2021 making the number of sales about 40% lower than they were in 2021. August marked the eleventh straight month on sales dropping under 300,000 on an annualized basis. Year-to-date the number of homes sold was down 29.2% from the first eight months of 2022. The statewide median price paid for a home in July was $859,800, up 3.3% from July, and up 3.3% from $834,740 a year ago. There was a 2.4-month supply of single-family homes for sale in August, down from a 2.8-month supply one year ago. The graph below has sales data for Southern California by region. This was compiled by the California Association of Real Estate.
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