Category: Economic Update

Stock markets dropped again this week and interest rates moved higher due to continued reports that indicate that inflation may be picking back up. It has been a tenuous month. This month 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 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 hopes that these increases would slow the economy, curtail consumer spending, and reduce the rate of inflation. This week Fed Chairman Powell left rates unchanged but signaled that there would be another rate increase at the end of the 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 of labor pushes wages up and encourages consumer spending, which are both inflationary. The Dow Jones Industrial Average closed the week at 33,963.84, down 1.9% from 34,618.24 last week. It is up 2.5% year-to-date. The S&P 500 closed the week at 4,320.06, down 2.9% from 4,450.32 last week. It is up 12.5% year-to-date. The Nasdaq closed the week at 13,211.81, down 3.6% from 13,704.34 last week. It is up 26.2% year-to-date.

U.S. Treasury bond yields – The 10-year treasury bond closed the week yielding 4.44% up from 4.33% last week. The 30-year treasury bond yield ended the week at 4.53%, up from 4.42% last week. We watch bond yields because mortgage rates follow bond yields.

Mortgage rates – The Freddie Mac Primary Mortgage Survey reported that mortgage rates for the most popular loan products as of September 21, 2023, were as follows: The 30-year fixed mortgage rate was 7.19%, unchanged from 7.18% last week. The 15-year fixed was 6.54%, almost unchanged from 6.51% last week.

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 was down from August 2021 making the number of sales lower than they were in 2021. August marked the eleventh straight month in 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.

Stock markets finished the week higher again this week – Stock markets had another positive week as data continues to point to the inflation rate moderating. Minutes from the Fed that were released on Wednesday. The minutes signaled that the Fed would be slowing the pace of interest rate hikes. Long term treasury bond rates and mortgage rates have also dropped since the October CPI was released. It showed that year-over-year inflation rose at the slowest pace since January. Next Friday, the November job’s report will be released. It is widely thought that the brisk rate of job growth that we have seen this year will have tamed in November. The strong jobs market, rising wages due to the amount of job openings outpacing the number of workers seeking jobs, and the low unemployment rate, have been fueling consumer spending. The Fed is hoping that their dramatic rate of interest rate hikes will have increased borrowing costs to an extent that companies will have to cut the number of employees. This would lead to a higher unemployment rate, less competition for workers, a lower rate of wage growth, and workers tightening their spending. Less consumer spending would curb inflation as consumer spending accounts for about 70% of the U.S. economy. The Dow Jones Industrial Average closed the week at 34,347.03, up 1.8% from 33,745.69 last week. It is down 5.5% year-to-date. The S&P 500 closed the week at 4,026.12, up 1.3% from 3,975.34 last week. The S&P is down 15.5% year-to-date. The NASDAQ closed the week at 11,225.36, up 0.7% from 11,146.06 last week. It is down 28.2% year-to-date.

U.S. Treasury bond yields continue to drop – The 10-year treasury bond closed the week yielding 3.68%, down from 3.87% last week. The 30-year treasury bond yield ended the week at 3.74%, down from 3.92% last week. We watch bond yields because mortgage rates often follow treasury bond yields.

Mortgage rates lower for the second consecutive week – The Freddie Mac Primary Mortgage Survey reported that mortgage rates for the most popular loan products as of November 24, 2022, were as follows: The 30-year fixed mortgage rate was 6.58%, down from 6.61% last week. The 30-year rate was over 7% just three weeks ago. The 15-year fixed was 5.90% down from 5.98% last week.

Have a great Weekend!

Stock markets surged as key report revealed that inflation moderated in October – The Consumer Price Index (CPI) rose 7.7% year-over-year in October, it’s lowest year-over-year increase since January. The CPI peaked at 9.1% in June, but had remained in the mid 8% level until last month. The Core inflation level, which excludes food and energy costs, was 6.3%, also lower than expected. While still a long way from the 2% Fed target, this was a step in the right direction. Mortgage rates dropped over 1/2% on Thursday after the CPI rate was reported and stocks surged. The Dow jumped 1,200 points on Thursday alone. All indexes had steep gains. The Dow Jones Industrial Average closed the week at 33,747.86, up 4.1% from 32,404.22 last week. It is down 7.1% year-to-date.  The S&P 500 closed the week at 3,992.93, up 5.9% from 3,770.55 last week. The S&P is down 16.2% year-to-date. The NASDAQ closed the week at 11,323.33, up 8.1% from 10,475.26 last week. It is down 27.6% year-to-date. 

U.S. Treasury bond yields – The 10-year treasury bond closed the week, yielding 3.82%, down from 4.17% last week.  The 30-year treasury bond yield ended the week at 4.03%, down from 4.27% 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 November 10, 2022, were as follows: The 30-year fixed mortgage rate was 7.08%, up from 6.95% last week. The 15-year fixed was 6.38%, up from 6.29% last week. The 5-year ARM was 6.06%, up from 5.95% last week. Interest rates dropped sharply on Thursday after the October CPI report showed that inflation dropped to its lowest level since January. Next week’s rates will be lower. The 30-year fixed mortgages was 6.5% by the end of the day on Thursday. Lenders were closed Friday due to Veteran’s Day. 

Real estate sales figures for October will be released next week by the California Association of Realtor’s and the National Association of Realtor’s. You can get a market report with October sales figures for your city or zip code now at RodeoRe.com. 

The U.S. economy added 261,000 new jobs in October – The Department of Labor and Statistics reported that 261,000 new jobs were added in October. The unemployment rate inched up to 3.7%, just off the 60-year low of 3.5% last month, and back to its 3.7% rate in August. The labor-force participation rate (the share of workers with a job or actively looking for a job) dropped slightly to 62.2% from 62.3% in September. Average hourly wages increased 4.7% from one year ago. The number of new jobs created was above what experts had expected, and about the same as the initial report of 263,000 new jobs created in August that was revised to 315,000 today. The Federal Reserve has stated that they intend to keep increasing rates until the overheated jobs market cools. This is a report we will be looking closely at to determine the course of the Fed.

Stock markets down for the week – The Fed led the week with its 4th consecutive .75% interest rate hike, as well as comments which frightened investors who felt that future rate hikes would be moderating. When speaking about inflation Chairman Powell pointed to the labor market as a key contributor. He said “the labor market continues to be out of balance, with demand substantially exceeding the the supply of available workers.” With consumer spending accounting for nearly 70% of the U.S. economy, the Fed has focused on cooling the labor market with the hopes consumers pull back on their spending. While it seems like a historically low unemployment rate is a good thing, as long as workers have no fear of not finding employment, they will keep spending which will continue to fuel inflation. The Dow Jones Industrial Average closed the week at 32,403.22, down 1.4% from 32,861.80 last week. It is down 10.8% year-to-date. The S&P 500 closed the week at 3,770.55, down 3.4% from 3,901.06 last week. The S&P is down 20.9% year-to-date. The NASDAQ closed the week at 10,475.26, down 5.6% from 11,102.45 last week. It is down 32.1% year-to-date.

U.S. Treasury bond yields – The 10-year treasury bond closed the week, yielding 4.17%, up from 4.02% last week. The 30-year treasury bond yield ended the week at 4.27%, up from 4.15% 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 November 3, 2022, were as follows: The 30-year fixed mortgage rate was 6.95%, down from 7.08% last week. The 15-year fixed was 6.29%, down from 6.36% last week. The 5-year ARM was 5.95%, unchanged from 5.96% last week.

Stock markets had another winning week – Stock markets climbed again this week, with the Dow hitting a 2-month high. Although there was no let-up in inflation, third quarter corporate earnings were stronger than expected in almost all sectors besides technology. The third quarter GDP came in stronger than expected. The economy grew at a 2.6% annual rate, rebounding from a weak first and second quarter. The Dow Jones Industrial Average closed the week at 32,861.80, up 5.7% from 31,082.56 last week. It is down 9.6% year-to-date. The S&P 500 closed the week at 3,901.06, up 4% from 3,752.85 last week. The S&P is down 18% year-to-date. The NASDAQ closed the week at 11,102.45, up 2.3% from 10,859.72 last week. It is down 29% year-to-date.

U.S. Treasury bond yields – The 10-year treasury bond closed the week, yielding 4.02%, down from 4.33% last week. The 30-year treasury bond yield ended the week at 4.15%, down from 4.21% last week. We watch bond yields because mortgage rates often follow treasury bond yields.

Mortgage rates – The 30-year topped 7%, it’s highest level since 2002.The Freddie Mac Primary Mortgage Survey reported that mortgage rates for the most popular loan products as of October 27, 2022, were as follows: The 30-year fixed mortgage rate was 7.08%, up from 6.94% last week. The 15-year fixed was 6.36%, up from 6.23% last week. The 5-year ARM was 5.96%, up from 5.81% last week.

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. 

The U.S. economy added 263,000 new jobs in September – The unemployment rate dropped to a 52-year low – The Department of Labor and Statistics reported that 263,000 new jobs were added in September. The unemployment rate dropped to 3.5%, a 52-year low, from 3.7% in August. The labor-force participation rate (the share of workers with a job or actively looking for a job) increased slightly to 62.3%. It was 62.4% in August, 62.1% in July, and 63.6% before the pandemic. Average hourly wages increased 5% from one year ago. More open jobs than workers looking for work is pushing wages up at a higher pace than we have seen in decades because businesses have to compete for workers rather than workers competing for jobs. In September, there were 1.7 job openings for every applicant, down from 2.1 jobs for every applicant last month. The unexpected drop in the unemployment rate, and wages continuing to rise led to a sell-off in stock markets after the report was released.

Stock markets were higher this week despite a steep sell-off on Friday – Stock markets had a huge rally to begin the week. They ended the week higher even though the Dow fell 630 points or 2.1%, the S&P fell 2.8% and the NASDAQ fell 3.8% on Friday after another hot jobs report was announced. With unemployment at a 52-year low investors fear another .75% rate hike at the next Fed meeting. The Fed has made cooling the overheated job market a priority because people with no fear of becoming unemployed shop and spend money. Consumer spending accounts for nearly 70% of the U.S. economy. More people spending leads to higher prices, which fuels inflation. The Dow Jones Industrial Average closed the week at 29,296.79, up 1.9% from 28,725.51 last week. It is down 19.4% year-to-date. The S&P 500 closed the week at 3,639.66, up 1.5% from 3,585.23 last week. The S&P is down 23.6% year-to-date. The NASDAQ closed the week at 10,652.79, up 0.7% from 10,575.62 last week. It is down 32% year-to-date.

U.S. Treasury bond yields – The 10-year treasury bond closed the week, yielding 3.89%, up from 3.69% last week. The 30-year treasury bond yield ended the week at 3.86%, up from 3.61% 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 6, 2022, were as follows: The 30-year fixed mortgage rate was 6.66%, almost unchanged from 6.70% last week. The 15-year fixed was 5.90%, down from 5.96% last week. The 5-year ARM was 5.36%, up from 5.30% last week. Rates were higher at the end of the week. Next week’s rates will be higher.