Key economic news this week – This week we saw bond yields and mortgage rates increase on reports that indicate the inflation level is not dropping as quickly as economists had hoped. On Tuesday the Consumer Price Index (CPI), which measures consumer prices, was released. That report showed that consumer prices rose 3.1% from one year ago. Experts had projected a 2.9% increase. Stocks fell and bond and mortgage rates rose after the announcement. On Wednesday it was reported that retail sales dropped 0.8% month-over-month in January. While it’s expected for retail sales to drop in January from December due to holiday sales, experts had expected just a 0.3% decline. Slowing sales are good news for inflation as consumer spending is such a large part of the economy. Stock prices, bond yields, and mortgage rates settled a little from Tuesday’s rise. On Thursday the Producer Price Index (PPI) for January was released. Producer prices, which measure wholesale prices, increased 0.3% month-over-month, its largest increase since last August, and well above the 0.1% increase economists expected. Higher costs to producers are passed to consumers. Stock prices fell and bond and mortgage rates increased because of the PPI report. The Fed is looking for data showing that inflation is continuing to decline. Their goal is to get to a 2% annual inflation level. Investors were very optimistic in December and January that the Fed would soon begin to drop their key interest rates from their 23-year high levels. in February the government reported that almost double the number of new jobs expected were created, inflation rose more than hoped, and company profits indicate that the economy may be heating up. Experts who felt there would be a rate drop in March now feel that there is almost no chance of that and any rate reduction by the Fed will be months away.
Stock markets – The Dow Jones Industrial Average closed the week at 38,627.99, down 0.1% from 38,671.69 last week. It is up 2.6% year-to-date. The S&P 500 closed the week at 5,005.57, down 0.4% from 5,026.61 last week. The S&P is up 4.9% year-to-date. The Nasdaq closed the week at 15,775.65, down 1.3% from 15,990.66 last week. It is up 5.1% year-to-date.
U.S. Treasury bond yields – The 10-year treasury bond closed the week yielding 4.30%, up from 4.17% last week. The 30-year treasury bond yield ended the week at 4.45%, up from 4.37% last week. We watch bond yields because mortgage rates follow bond yields.
Mortgage rates – Every Thursday Freddie Mac publishes interest rates based on a survey of mortgage lenders throughout the week. The Freddie Mac Primary Mortgage Survey reported that mortgage rates for the most popular loan products as of February 15, 2024, were as follows: The 30-year fixed mortgage rate was 6.77%, up from 6.64% last week. The 15-year fixed was 6.12%, up from 5.90% last week.
The graph below shows the trajectory of mortgage rates over the past year.
Freddie Mac was chartered by Congress in 1970 to keep money flowing to mortgage lenders in support of homeownership and rental housing. Their mandate is to provide liquidity, stability, and affordability to the U.S.
Lower mortgage rates in January credited to an increase in home sales – The California Association of Realtors reported that existing-home sales totaled 256,160 in January, up 14.4% from 224,000 closed sales in December, and up 5.9% from a revised 241,920 homes sold on an annualized basis last January. There was a 3.2-month supply of homes on the market in January, up from a 2.5-month supply of homes in December, and down from a 3.5-month supply one year ago. The statewide median price paid for a home in January was $788,940, up 5% from a revised median price of $751,700 last January.
The graph below shows home sales figures by county in Southern California.
Have a great weekend!