Here is the weekly market video:
This week explains what happened last week with the economy and how it will impact the markets this week, by Dan Rawitch
Sunday, July 31, 2022
Wednesday, July 27, 2022
Fed raised rates by 0.75%
Bloomberg) -- Federal Reserve officials raised interest rates by 75 basis points for the second straight month and Chair Jerome Powell left the same move again on the table for the next meeting in September, depending on how the data comes in.
Policy makers, facing the hottest cost pressures in 40 years, lifted the target for the federal funds rate on Wednesday to a range of 2.25% to 2.5%. That takes the cumulative June-July increase to 150 basis points -- the steepest since the price-fighting era of Paul Volcker in the early 1980s.
https://finance.yahoo.com/news/fed-raises-rates-75-basis-180001544.html
“While another unusually large increase could be appropriate at our next meeting,” that will depend on the data between now and then, Powell said during a press conference following a two-day policy gathering in Washington.
The Fed will also slow the pace of increases at some point, Powell said. In addition, he said officials would set policy on a meeting-by-meeting basis rather than offer explicit guidance on the size of their next rate move, as he has done recently.
Those comments sparked a rally in US stocks as Powell spoke, with Treasury yields tumbling along with the dollar.
Click here for Bloomberg’s TOPLive blog on the Fed decision and press conference
The Federal Open Market Committee “is strongly committed to returning inflation to its 2% objective,” it said in a statement, repeating previous language that it’s “highly attentive to inflation risks.” The FOMC reiterated it “anticipates that ongoing increases in the target range will be appropriate,” and that it would adjust policy if risks emerge that could impede attaining its goals.
What Bloomberg Economics Says...
While many are worried that the economy is verging on recession, Fed officials see the glass as half full, with the strong labor market allowing the economy to withstand rapid monetary tightening. Bloomberg Economics thinks there’s little chance that the Fed will pause its rate hikes later this year, as markets currently expect.
-- Anna Wong, Yelena Shulyatyeva, Andrew Husby and Eliza Winger
Click here for the full note
The FOMC vote, which included two new members -- Vice Chair for Supervision Michael Barr and Boston Fed President Susan Collins -- was unanimous. Barr’s addition to the board earlier this month ghereave it a full complement of seven governors for the first time since 2013.
Forceful Hikes
Criticized for misjudging inflation and being slow to respond, officials are now forcefully raising interest rates to cool the economy, even if that risks tipping it into recession.
Higher rates are already having an impact on the US economy. The effects are particularly evident in the housing market, where sales have slowed.
While Fed officials maintain that they can manage a so-called soft landing for the economy and avoid a steep downturn, a number of analysts say it will take a recession with mounting unemployment to significantly slow price gains.
The FOMC noted Wednesday that “recent indicators of spending and production have softened,” but also pointed out that job gains “have been robust in recent months, and the unemployment rate has remained low.”
Powell said that he did not believe the economy was in recession, citing a “very strong labor market” as evidence.
Read more: A Bloomberg survey of economists put the probability of a downturn over the next 12 months at 47.5%.
The latest increase puts rates near Fed policy makers’ estimates of neutral -- the level that neither speeds up nor slows down the economy. Forecasts in mid-June showed officials expected to raise rates to about 3.4% this year and 3.8% in 2023.
Investors are now watching to see if the Fed slows the pace of rate increases at its next meeting in September, or if strong price gains pressure the central bank to continue with super-sized hikes.
Futures Pricing
Traders saw a half-point hike at the Sept. 20-21 FOMC meeting as the most likely outcome, according to pricing earlier on Wednesday in interest-rate futures contracts. They see rates peaking around 3.4% by year-end, followed by cuts in the second quarter of 2023.
The US consumer price index rose by 9.1% in June from a year earlier, topping forecasts and hitting a fresh four-decade high. The price gains are eroding earnings and sowing discontent with the economy, creating challenges for President Joe Biden and congressional Democrats ahead of the midterm elections.
High inflation had briefly fueled speculation that the Fed would lift rates by a full percentage point this month. But those bets got dialed back after Fed officials voiced wariness and key readings on consumer expectations for future inflation were better than expected.
Central banks across the globe are engaged in a battle against surging prices. Earlier this month the Bank of Canada hiked rates by a full percentage point and the European Central Bank surprised with a larger-than-expected half-point move, its first increase in more than a decade.
(Updates with Powell comments at start of press conference)
Friday, July 22, 2022
Lack of inventory in half US
America's big coastal cities are known for their pricey real estate, driven by zoning restrictions and inadequate supply of homes. Now those problems are increasingly bedeviling once-affordable towns and cities across the U.S., a new study finds.
https://www.cbsnews.com/news/real-estate-housing-shortage-crisis/
More than half of the nation's metropolitan regions had an undersupply of homes in 2019, a sharp increase from one-third of cities in the 2012, according to a recent analysis from housing policy group Up For Growth. The nation is short 3.8 million homes to meet its housing needs — double the number from 2012 — Up for Growth found.
But the lack of housing is spreading beyond large coastal metropolises like San Francisco and New York and into communities across the U.S. As a result, home prices have surged even in smaller cities while exacerbating inequality, with high housing costs shutting out many people of color, young adults and low-income workers from the dream of homeownership
That could have long-term implications if many Americans are locked out of home buying, which is considered one of the primary avenues for building wealth over time.
"Clearly, affordability is at a crisis point for millions of Americans across the country," said Mike Kingsella, CEO of Up For Growth, which focuses on addressing the housing shortage. "Where we are seeing underproduction, we're seeing homeownership fall further and further out of reach."
As part of that growing shortage, 83 cities that had enough housing as of 2012 by 2019 had an undersupply of homes, Up for Growth found in its analysis of Census data. These now housing-starved cities include large metro areas such as the Phoenix-Mesa-Chandler region as well as smaller cities such as Merced, California, and Bend, Oregon.
To be sure, the report covers a period predating the pandemic's outsized impact on the real estate market, when work-from-home policies allowed people in big cities to relocate to less expensive regions. That housing demand, combined with a worsening shortage of homes and low interest rates, pushed prices to new heights, with the median home sales price reaching a record $416,000 in June.
At the same time, the Federal Reserve's recent interest-rate hikes are making it more expensive not only to buy homes, but also to build them, which could aggravate the undersupply problems, Kingsella said. "It's hard to imagine that we would see this get better."
However, he noted, policy changes such as zoning reform bills that allow accessory dwelling units and denser housing could help alleviate some of the issues.
Where housing is in short supply
The 83 metropolitan regions that shifted from having a sufficient housing supply to a shortfall are scattered across the U.S. Many of them are less affluent cities that lack the booming tech, finance and other major industries found in America's biggest urban hubs.
Take Merced, California, a small city in central California that's known for agriculture as well as serving as a base for visiting Yosemite National Park. The town's home prices was decimated by the 2008 housing bust, losing 31% of their value in a single year and making it the second worst-performing real estate market that year after Stockton, California, according to Zillow
But since 2012, Merced's housing market has faced another crisis: not enough homes available for those who want them. In 2019, the city had a shortage of homes that represented 8.7% of its total housing stock. That's even greater than Los Angeles' housing undersupply, which stood at 8.4% the same year, according to the analysis.
With a scarcity of homes, competition among house-hunters in Merced has pushed prices higher. The median home value in Merced stood at $282,900 in 2019, more than double its level in 2012, Up For Growth found. By comparison, the median home value across the nation's 310 metropolitan regions rose about 40% in the same period.
Other cities that shifted from enough homes to a housing shortage include Rust Belt cities like Wisconsin's Appleton, Racine and Green Bay. All three metros have an undersupply of about 5%, the analysis found. Some cities in the Southeast have also been hit by the trend, including the Atlanta area; Richmond, Virginia; and Hilton Head Island-Bluffton, South Carolina.
"California doesn't have a monopoly on exclusionary housing," Kingsella noted. "We're seeing the Southeast particularly falling deeper and deeper into a housing deficit, and at a rate that's much more rapid than places like California."
"We have a problem"
The current housing market is particularly tough on low-income Americans, said Peggy Bailey, vice president for housing policy at the research group Center on Budget and Policy Priorities, who testified on Thursday at a Senate hearing on the state of housing in America.
When new properties are developed, they are now often aimed at middle- and higher-income households, partly due to the pressures on developers from rising prices for land, supplies and labor — all costs that have sharply increased during the pandemic. As a result, low-income and affordable housing projects are becoming unaffordable for developers, according to Pew Stateline.
"We have partly been in a development boom over the last 18 months," but the typical rents for those properties are about $1,700 to $1,800 a month, Bailey said at the hearing. "The median renter can only afford about $1,000 month."
Housing shortages and affordability issues are hurting the economy, said Senator Jon Tester, a Democrat from Montana.
We have a problem," he said. "It is having some major impacts on economic growth in small towns because there's no place for the workforce to live, no place for entrepreneurs to live."
Widening wealth inequality
Changing zoning laws and supporting funding for more affordable housing are among the strategies that could help alleviate the housing shortage crisis, Kingsella said. For instance, areas that have job opportunities and strong infrastructure, but lack sufficient housing, could support up to 40% greater housing density, the Up For Growth report noted.
"It means supporting more homes and [Accessory Dwelling Units] and duplexes and triplexes and showing up at city council meetings and saying yes to more housing," he said.
Without expanding the nation's housing supply, in short, the market's dynamics aren't likely to change. A continued shortage will benefit existing homeowners, without helping those with lower rates of homeownership, such as Black Americans, experts say.
"If we are raising demand but not increasing supply, most of the benefits would go to current owners, who tend to be White Americans," noted Lawrence Yun, chief economist at the National Association of Realtors, at the Senate hearing.
It might feel good for current homeowners to see their Zillow "Zestimate" rising each year, but surging home prices divorced from a similar surge in household incomes are contributing to widening wealth inequality, Kingsella noted.
Because home prices are rising much faster than incomes, current homeowners are growing their wealth at a faster pace than people who can't get a foothold into the housing market, Kingsella said. "We're seeing housing costs in particular driving income and wealth inequality," he added.
— With reporting from Irina Ivanova
Thursday, July 21, 2022
Why now is the best time to buy?
Here’s why Americans think now is the best time to buy a home
Despite the crush of inflation, rising mortgage rates to battle and the ongoing woes of rising rent, a new study shows that, hey, maybe there’s some reason for optimism?
Some six in 10 Americans, or 56%, believe that “right now” is the time to buy a house, according to the study, conducted by OnePoll on behalf of the fintech mortgage lender Lower. The survey compiled responses from 1,000 homeowners and 1,000 renters, finding that 55% of respondents claim ongoing record-high inflation has made them want to buy a home even more.
https://nypost.com/2022/07/19/heres-why-americans-think-now-is-the-time-to-buy-a-home/
Specifically, 47% of that group said they aim to get one in the next year. The bulk of that individual sample, 74%, add that it would be their first time buying a house. Just 26% are existing homeowners who want to get something else.
Just more than half of the participants — 51% — said they see homeownership as an investment opportunity toward financial freedom, while 50% said they want to get their foot in the door of homeownership before appreciation rises more. Others with their eyes on their golden years — 42% to be exact — said they want to live comfortably in retirement. (Of the total pool, 41% admitted to feeling bored in their current residences, and 41% aim to get a home for their growing family.)
“Homeowners have gained tens of thousands in equity over the past few years. This is money renters have left on the table,” Lower co-founder and CEO Dan Snyder said in the report. “A lot of people are waiting until prices cool off, but the reality is, they’ll just slow down from their record-breaking pace. Now is the time to buy before appreciation continues to climb.”
Of the study’s pool, 30% felt optimistic that the housing market will cool off in the next year — while 43% saw the “very” concerning status quo continuing, while 25% believed things will take a turn for the worst.
And though headlines of the housing market cooling off are making their way through the media, 45% of the poll’s participants said the boom — and the high demand that came with it — is actually getting even hotter. (Just 10%, meanwhile, thought the boom has slowed down.)
For the 1,000 renters, 56% of them said they want to move but can’t afford to. Among them, 27% pay $2,001 to $3,000 per month, 20% pay between $1,001 and $2,000 — while 16% owe $3,001 to $4,000 per month. Still, 57% of those 1,000 polled hoped to own their own homes one day. Their reasoning included financial stability — 40% — and the chance to gain financial freedom, for 35%.
“It may seem daunting, but it doesn’t have to be,” Snyder added. “Find a real estate agent and a lender who value the customer experience by creating a certain, simple process. They’ll help you along the way and your biggest worry will be finding the perfect home.”
Freeze in housing market?
The US housing market is on the cusp of a “deep freeze” as rising mortgage rates and steep home prices conspire to limit buying and selling activity, a prominent economist warned this week.
https://nypost.com/2022/07/21/us-housing-market-headed-for-deep-freeze-as-mortgage-rates-soar/
Mark Zandi, the chief economist of Moody’s Analytics, pointed to a slowdown in demand among prospective home buyers. Sales of previously owned homes slumped by 14.2% in June compared to the same month one year earlier, even as the median sale price jumped to 13.4% to $416,000 over the same period, according to the National Association of Realtors.
“It makes sense, with the higher mortgages conflating with higher house prices, first-time homebuyers just can’t afford to buy in. They’re locked out,” Zandi told CNBC. “And trade-up buyers, they’re kind of locked in because if they sell and buy, they’ve got to get another mortgage at a higher rate and their monthly payments are going to rise.”
Zandi added that real estate investors are “going to the sidelines” until market conditions become more favorable
Demand is really weakening very rapidly and you’re right, I think housing is going into a deep freeze,” Zandi said.
All forms of borrowing are becoming more expensive as the Federal Reserve hikes interest rates to combat inflation. The volume of mortgage loan applications recently hit a 22-year low as the higher rates and steep home prices shut real estate shoppers out of the market.
Earlier this week, the National Association of Home Builders/Wells Fargo Housing Market Index showed home builder confidence fell 12 points to 55 in July, hitting its lowest level since May 2020 as builders react to the deteriorating conditions.
Zandi noted his view that “house prices have peaked,” with declines likely to follow later this year or early next year as sellers acknowledge the reality that their asking prices have become unaffordable.
“I’m not arguing we’re going to crash; I’m just arguing there’s a major comeuppance coming in regard to house prices. I think the market is under a lot of stress,” he added.
Earlier this week, Ian Shepherdson, chief economist at Pantheon Macroeconomics, said the housing market was on the verge of a “meltdown” due to sagging demand and confidence.
As The Post reported in June, Zandi and other economists warned that a housing correction was inevitable due to rising interest rates – though experts say the slowdown won’t reach the depths that occurred during the subprime mortgage crisis of 2008.
Wednesday, July 20, 2022
Fed's next rate hike
Word on the street is that the Federal Reserve may raise rates by 1% at their July 26 meeting — as they try to quell inflation that now sits at a 40-year high. Barron’s recently noted that: “With inflation so hot, the Fed’s next rate hike might be the biggest in decades,” and plenty of other sources — from CNBC to CBS News — are speculating about a 1% rate hike at the meeting. If the Fed does hike rates, what might that mean for mortgage rates? (See the lowest mortgage rates you can get now here.) We asked six pros their thoughts.
The first thing to note is that The Federal Reserve does not set mortgage rates, and there isn’t a direct relationship between the central bank’s moves and what happens with mortgage rates. But, “it’s often said that mortgage lenders price upcoming Fed rate hikes into the mortgage rates they offer before the Fed even makes an announcement,” says Jacob Channel, LendingTree’s senior economist. This means that rates might actually stay about where they currently are, even if the Fed does announce a larger-than-expected hike, he says. That said, “because inflation is as high as it is and because economic uncertainty appears to be growing among both consumers and businesses, some lenders may feel pressured to hike rates,” says Channel.
But if rates do rise, Channel doesn’t anticipate that they’ll rise above 6%; and he adds that even if they do spike following the next announcement, he says they could fall again shortly thereafter. “This is what happened after last month’s 75-basis point hike when mortgage rates spiked by 50 basis points to 5.78% before eventually cooling down to their current levels at around 5.51%,” says Channel. (See the lowest mortgage rates you can get now here.)
For his part, Greg McBride, chief financial analyst at Bankrate, says: “The prospect of the Fed front-loading their interest rate hikes and doing more sooner rather than later, may actually help keep a lid on mortgage rates or even bring them down.” In fact, more rate hikes now means fewer rate hikes later which means the timetable for peak interest rates gets moved up and the eventual decline in rates due to a weak economy also happens sooner, he notes. “But all of this depends on, and even assumes, that inflation peaks very soon. If not, all bets are off,” says McBride.
Sean Roberts, chief operating officer at home-selling start-up Orchard, says a 1% hike will likely not have a major impact on mortgage rates in the near-term. “Mortgage rates are much more correlated to the 10-year U.S. Treasury yield, which is determined by market forces and not driven by the Fed’s policy rate,” says Roberts. (See the lowest mortgage rates you can get now here.)
But for his part, Holden Lewis, mortgage and home expert at NerdWallet, says that while the immediate result might be an increase in mortgage rates of a quarter of a percentage point or less, after digesting the news, investors might conclude that the Fed is putting the economy at a strong risk of recession. “Fear of recession could actually send mortgage rates downward and the trajectory of mortgage rates depends not only on how much the central bank increases the federal funds rate, but the words they use to explain the action,” says Lewis.
Mortgage rates are heavily weighted on the future expectation of what will happen, so a Fed increase of this magnitude is already priced into the market, says Cameron Findlay, chief economist for AmeriSave Mortgage Corp. Because the market already factored this increase into mortgage rates, and it stands to reason mortgage rates may actually fall if the Fed does not increase the full 1%, Findlay says: “Be cautious when selecting your lender for how much time it will take to close your loan. Time in a volatile market is critical and can add thousands of dollars in cost to your loan if you’re not careful.”
Tuesday, July 19, 2022
Suze Orman's advice?
The median selling price of a U.S. home soared past $400,000 for the first time in May, the National Association of Realtors reported Tuesday. That news came just days after the 30-year fixed-rate mortgage rate hit 5.78%, the highest since the Great Recession.
https://finance.yahoo.com/news/suze-ormans-advice-on-buying-real-estate-164149528.html
Still, personal finance expert Suze Orman thinks the housing market holds promise for U.S. consumers even though she says "the tables have turned a little."
In a new interview with Yahoo Finance's editor-in-chef, Andy Serwer, Orman dispensed advice for homebuyers and renters on how to navigate a tough environment with both soaring mortgage rates and skyrocketing rents. Orman encourages renters to be in the best financial shape possible, so they can afford inflated costs and potentially negotiate lower leases. And she advises home hunters to be realistic about whether they can afford higher mortgage rates, property taxes, and insurance.
"Just see the entire picture before you jump in," she said. "I think it's a little different than it was a year or two ago." In general, though, Orman suggests a home is still a wise investment.
“I don’t think you’re going to see homes go down really in value. You know, the truth is, real estate always does pretty well during a recession,” Orman told Yahoo Finance on June 20. "..If you own real estate, I don't think you're going to see it go down dramatically. Maybe you'll only see it go up 5% or 7% a year."
Still, many experts are spotting signals that the housing market is cooling. Sales of previously owned homes dropped for the fourth straight month in May as interest rates creep up. This forecast came a week before the Federal Reserve voted to hike short-term interest rates by 75 basis points on Wednesday, the steepest hike since 1994.
Speaking to Yahoo Finance, Orman acknowledged that the housing market is changing. Specifically, she said buyers won't feel as rushed to bid for a house right away to beat out competing offers.
“You're not going to see a house go on the market, again, in my opinion, and get 30 offers over the asking price," Orman said. "I think now maybe you'll see three, four offers — maybe you have to lower your asking price a little bit."
'It is too late to refi'
The housing market was booming last year. The 2021 National Association of REALTORS Profile of Home Buyers and Sellers found the typical home sold was only on the market for one week. With near-zero short-term interest rates and low 30-year fixed-rate mortgages (2.65%) in January 2021, prospective homebuyers were in luck.
That luck is starting to shift, even for existing homeowners. Fannie Mae’s Refinance Application-Level Index estimated only 2% of mortgages have a 50+ basis point incentive to refinance as of Thursday.
“It is too late to refi. You got to sit tight without a shadow of a doubt,” Orman said.
Orman also alerts homebuyers to be careful about adjustable-rate mortgages.
“If you can only afford a home because you're doing an adjustable-rate mortgage, and you don't know how they really work. I would be very careful with them if I were you,” warns Orman.
Adjustable-rate mortgages may start with lower payments than fixed-rate mortgages, but you could experience a payment shock, negative amortization (when you owe more than you borrowed), or prepayment penalties if rates change.
Even if it turns out you can't buy a home, renters can take steps to reduce their monthly payments.
“A landlord will really value you if you keep up the property. You paint on your own, you make it even more valuable for them,” says Orman. She also encourages renters to maintain a high FICO credit score, so landlords trust that they will be paid.
Yaseen Shah is a writer at Yahoo Finance. Follow him on Twitter @yaseennshah22
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