Rudy Freno
Is Mortgage Rates Going Up Or Down – We estimate real domestic product (GDP) to be flat at 0.0 percent growth in 2022 and to contract at 0.5 percent in 2023, both on a Q4/Q4 basis. In the near term, we expect moderate economic growth in the second half of the year, as the large swing in net exports that was already ongoing in the first half should boost GDP in the second half of the year. However, in light of the continued tightening of monetary policy and the weakness of the global economy, we expect a further slowdown in housing activity and weak growth in consumer spending and business investment. We continue to expect a moderate recession through 2023 with the labor market weakening.
In general, inflation has moderated in the past two months; however, this is mainly due to the significant drop in gasoline prices. Core inflation, along with food prices, remains well above the Federal Reserve’s target. In line with our forecast, the August release of the Cost of Living Index (CPI) showed that core prices rose 0.6 percent on a monthly basis and 6.3 percent on an annual basis, four-tenths faster than July. have been Therefore, we expect the Federal Reserve to continue raising short-term interest rates and expect another 75 basis point increase at the September meeting, although the market is partial to the possibility of a full 100 basis point increase. are expensive Our baseline forecast is for Fed rates to peak in the 3.50-3.75 percent range in early 2023, but we see risks to that terminal rate.
Is Mortgage Rates Going Up Or Down
We lowered our forecast for total home sales in 2022 slightly to 5.71 million units, down 17.2 percent from 2021, down from our previous forecast of a 16.2 percent decline. The change was disproportionately due to lower expectations for new home sales, but sales of existing homes also declined, largely because mortgage rates rose again (up 6.0 percent since 2008, according to the most recent Freddie) . Mac survey). Our total home sales forecast for 2023 has been updated to 4.98 million units from 5.18 million. Due to the change in our outlook for home sales and mortgage rates, as well as reference to the latest Home Mortgage Association (HMDA) data, we have lowered our forecast for originations in 2022 slightly to 2.44 billion dollars (from $2.47 billion) and mortgage originations. projected to reach $2.17 trillion by 2023 (previously $2.29 trillion).
Redfin Reports Lurching Mortgage Rates Spook Homebuyers
Higher inflation rates continue to shift away from rising commodity prices and into services. While we believe headline inflation is likely to peak, strong rent growth and a tight labor market will lead to a sustained inflation trend, which is historically difficult to sustain without a general economic contraction.
A sharp 10.6 percent drop in gasoline prices marked the second consecutive month of lows in August, beating expectations by just 0.1 percent. On an annual basis, headline CPI slowed to 8.3 percent, from the previous peak of 9.1 percent in June. However, almost all other major categories rose during the month, with the core CPI rising 0.6 percent, again at an annualized rate of 6.3 percent. The strength in non-energy commodity prices was somewhat in line with other indicators, such as business surveys showing a decline in the share of companies raising prices. A stronger dollar exchange rate, driven in part by weaker economic growth abroad, also put downward pressure on import prices, which fell 1 percent in August. Going forward, we expect a slowdown in commodity price inflation, supported by August’s Producer Price Index (PPI) showing softer commodity price inflation.
Still, headline inflation, which rose 0.7 percent during the month (the biggest monthly gain since 1991), is likely to remain strong until at least mid-2023. As we mentioned earlier, there is a significant lag between movements in house prices, rents, and changes in the CPI measure of shelter costs. More worrisome, however, is accelerating inflation in non-energy, non-shelter services. While these services contributed only about 1.5 percentage points to annual headline inflation in August, this share increased by 1.0 percent in January and nearly tripled its share of average annual inflation in 2018. In 2019, it is 0.5 percent. work the market can lead to spiraling wage-price dynamics that are difficult to reverse.
While payrolls growth slowed in August, it remained brisk at 315,000 for the month. Continued strong job gains are supporting consumer spending and near-term economic growth. However, with a rising share of inflation driven by tight labor markets, continued strength may increase the likelihood of more or longer monetary policy tightening. The Fed has already made clear the need to cut job openings to moderate wage growth to a level consistent with its 2 percent inflation target.
Mortgage Rates Drop Below 3%—and Economists Say Rates Could Stay That Low For A Long Time
From the Fed’s theoretical standpoint, to moderate inflationary pressures in the labor market, the unemployment rate would need to exceed the non-accelerating unemployment rate (NAIRU), currently estimated by the Congressional Budget Office at 4.5 percent. do . The unemployment rate in August was 3.7 percent. Chairman Powell addressed this in August when he said that “some pain” would be needed to achieve price stability. Another complicating factor is the potential recovery in consumer confidence resulting from the rebound in gas prices and higher incomes. While core retail sales have remained modest to date, if weak gas prices increase consumer demand in other categories, then tighter monetary policy (all other things being equal) may be needed to adequately stimulate demand. cool down
Following the latest CPI report showing a rise in service sector inflation and persistent commodity inflation, financial markets reacted quickly and treasury yields rose. Even accounting for the Fed’s rate hikes to date, the current policy stance is still arguably close to neutral, meaning a rate that neither encourages nor discourages economic activity. We think market expectations are beginning to reflect the possibility that the Fed will have to raise its short-term interest rate from neutral and perhaps leave it for a while to create enough of a slowdown in the labor market to achieve price stability. . The 10-year Treasury yield closed at 3.45 percent on Sept. 15, up more than 80 basis points from late July. Meanwhile, the one-year Treasury yield closed at 4.0 percent, the highest since October 2007.
Existing home sales fell 5.9 percent in July to an annual pace of $4.81 million, in line with our expectations. Sales decreased by 20.2 percent year-on-year. Aside from the first COVID-19 shutdown in early 2020 and hurricane-related disruptions in 2015, this was the slowest pace of sales since 2014. Mortgage application data points to another decline in sales in the near term, with mortgage rates falling again, we have revised our current Home Sales Forecasts through 2023. We now forecast that total existing home sales in 2022 will decline by 16.5 percent from 2021, followed by a 13.3 percent decline in 2023. We will release Fannie Mae’s quarterly Home Price Forecast Update. Index in October.
New home sales and construction continue to be weaker than expected. New home sales fell 12.6 percent in July and were down 32.3 percent from a year ago. The temporary pullback in mortgage rates last month may have led to some stability in the number of new home sales in August, but we expect a further slowdown. In real sales, the monthly supply of new homes on the market was 10.9 in July, up from 9.2 in June. It was the highest level since 2009. At this point, it’s not clear that homebuilders are offering enough incentives to change the growth outlook, while many publicly traded companies continue to report historically high earnings margins in the second quarter, leaving room for suggest deeper cuts in the front. Homebuilders have been reluctant to do so until recently, as supply chain bottlenecks and labor shortages have resulted in a higher percentage of homes for sale still being built than the historical norm. Currently, there are few prefab homes on the market, which may limit the need for builders to price more aggressively. However, in the past few months, that number has started to move upwards, suggesting that manufacturers may soon offer bigger price concessions to boost sales.
California Mortgage Rates Trends: 30 Year Fixed Better Than Arm Loan?
Redfin reports that, for the first time since March 2021, the median sales price of an existing home fell below the median asking price. While housing inventory remains tight, the month’s supply of inventory is starting to increase. In August, the monthly supply of existing single-family homes at the current sales rate was 3.3, up from 1.6 at the start of the year. As a percentage of sales, inventory is now approaching pre-DIST levels, although the absolute number of listings remains very low.
Construction of multifamily housing continues strongly. However, we revised our forecast for multifamily starts in 2023 due to the expectation of higher interest rates. We hope that action will be taken
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