Weekly Market Recap

The latest mortgage industry news and analysis

Happy Thanksgiving! There will be no new Mortgage Market Recap this week. Check back on Monday, December 7, for the next edition.

 

 

Week Ending: November 18, 2022

 

The investor outlook for inflation, economic growth, and future Fed policy remained relatively stable this week. As a result, mortgage rates ended nearly unchanged.

Hurt by higher mortgage rates, sales of existing homes fell for the ninth straight month in October to the lowest level since 2011 and were 28% lower than last year at this time. Inventory levels were slightly lower than a year ago, at just a 3.3-month supply nationally. While the median existing-home price of $379,100 was 7% higher than a year ago, this was down from a record high of $413,800 in June.

A lack of inventory of homes for sale has been a lingering issue, yet the pace of new construction continues to be disappointing. In October, overall housing starts fell 4% from September and were 9% lower than a year ago. Single-family starts were down a much larger 22% from a year ago to the lowest level since May 2020, early in the pandemic. A survey of home builder sentiment from the NAHB declined for the eleventh straight month to 33, less than half what it was just six months ago, and the lowest reading since 2012. A level below 50 is considered negative. Higher prices and shortages for land, materials, and skilled labor remained major issues holding back builders.

Consumer spending accounts for over two-thirds of US economic activity, making it an important indicator of the health of the economy. In October, retail sales surged 1.3% from September, above the consensus forecast, and a strong 8.3% higher than a year ago. While some of this increase was simply due to higher prices, especially large gains were seen in spending at bars and restaurants, furniture stores, and auto dealers. This report helped ease investor concerns about a slowdown in shopping due to higher prices heading into the crucial holiday season.

Fed officials this week emphasized that they need to continue to aggressively fight inflation, which remains far above their stated target level of 2.0%. In particular, James Bullard said that the tightening already done has had only “limited effects” in achieving this goal and that the federal funds rate must be raised further to be “sufficiently restrictive.” He described one method of analysis which suggests that the peak for the federal funds rate will need to be between 5.0% and 7.0%. Investors currently anticipate that this terminal rate will be around 5.0%, so his potential range was a surprise for many. However, other Fed officials may not share his outlook, and his comments had little lasting impact on financial markets.

Investors will be hoping for more specific Fed guidance on the pace of future rate hikes and bond portfolio reduction. New Home Sales will be released on Wednesday. The core PCE price index, the inflation indicator favored by the Fed, will come out on December 1. The key Employment report will be released on December 2. Mortgage markets will be closed on Thursday and will close early on Friday in observance of Thanksgiving.

Copyright @ 2022 MBSQuoteline

Week Ending: November 10, 2022

 

While the election results had little impact on mortgage markets this week, the CPI report on Thursday caused an enormous reaction. It revealed that inflation was lower than expected, and mortgage rates declined substantially.

The Consumer Price Index (CPI) is a closely watched inflation indicator that looks at price changes for a broad range of goods and services. In October, CPI was 7.7% higher than a year ago, far below the consensus forecast of 8.0%. Core CPI excludes the volatile food and energy components and provides a clearer picture of the longer-term inflation trend. Core CPI in October was up 6.3% from a year ago, also well below the consensus forecast, and down from 6.6% last month, which was the highest annual rate since 1982.

Helping the figures come in below the expected levels, used car prices dropped 2.4% in October. Apparel and medical care services also posted steep monthly declines. Shelter (housing) costs, which account for roughly one-third of the CPI index, continued to post significant gains in October, but this component generally operates with a lag. Current indicators of shelter costs such as newly signed rental agreements suggest that this area will provide downward pressure on overall inflation readings in coming months.

Inflation remains far above the readings around 2.0% seen early in 2021, which is the stated target level of the Fed. To help reduce inflationary pressures and reach this goal, the Fed will continue to raise the federal funds rate at future meetings. However, the magnitude of additional rate hikes anticipated by investors dropped sharply due to the CPI data. For example, investors were nearly evenly split before the report between a 50 and a 75 basis point increase at the next meeting in December and now widely expect just 50 basis points.

Investors will be hoping for more specific Fed guidance on the pace of future rate hikes and bond portfolio reduction. Retail Sales will be released on Wednesday. Since consumer spending accounts for over two-thirds of U.S. economic activity, the retail sales data is a key measure of the health of the economy. Import Prices also will come out on Wednesday. Housing Starts will be released on Thursday and Existing Home Sales on Friday.

Copyright @ 2022 MBSQuoteline