Friday Market Update: July 15th 2022 with BRIAN MANNING

Will the Federal Reserve Hike Rates 1%?

Happy Friday! Brian Manning here with the weekly update. All kinds of stuff to talk about next, not next week, this week.

Let’s see Monday this week had a big report come out from Redfin with a lot of data on the housing market. Redfin said that 53% of all homes right now are still selling above asking price. The average sales price above list price is 2.2%. That means the homes are selling on average for 2.2% above the list price. 49% of all offers are being accepted in the first week. And what else is impressive is that 18 days is the average amount of days across the country from the list dates, the day that a home goes on the market for sale to going under contracts. They’re all really good housing info.

Tuesday this week, we got more info from Redfin that the media latched on to. And the media report for Redfin was at 15% of all purchase transactions are canceling, which sounds like a scary number. So, we went back and we looked and historically, 14% of all purchase transactions canceled. This is really based on whether you can’t qualify for a mortgage. Primarily, it’s really usually due over inspection issues. Maybe a buyer gets cold feet. There’s a bunch of reasons why someone would cancel. You know, certainly, moving from 14% to 15% is for something for us to pay attention to and we definitely want to watch this number going forward. But is it something for the media to latch on to and really just view the negativity associated with it the way they did? Definitely not, and I wouldn’t agree with that.

Wednesday this week, we’ve got CPI. So, CPI is the consumer price index. It’s a gauge of inflation in the US economy. It was a really hot reading. On a month-over-month basis, inflation was up 1.3%. On a year-over-year basis, inflation was up 9.1%. And what’s really notable about this is we have a Federal Reserve meeting coming up on July 27th. And you know, going into this meeting is really widely thought that the Federal Reserve would hike rates 75 basis points, or three quarters of a percent. But now you’re starting to see more and more Fed governors come out and say they’re in favor of a 1% rate hike.

I actually would not be surprised if you see on July 27th, 100 basis point or 1% Federal Reserve rate hike because they’re doing this to combat inflation. We’ve talked about this a bunch in the past. It does not mean that mortgage rates are going to rise 1%. Actually, it could be quite opposite. So, inflation is the arch enemy of mortgage rates. And as inflation moves higher and higher, it’s what’s causing mortgage rates to go up. So, as the Federal Reserve is combating inflation and they’re hiking rates, eventually it’s going to work. They will eventually bring down inflation and that’s going to be a positive for mortgage rates. So, again, July 27th, if the Fed hikes race 1%, that does not mean July 27th mortgage rates go up by 1%.

Another thing I want to bring up is, you know, there’s a lot of talk about peak inflation. I don’t really think we’re at peak inflation yet. The reason why it says because when you get an inflationary reading and the CPI report, the new reading that we’re getting removed the reading from last year, right! So, June 2022 reading that we just got did away with the June 2021 reading that we had last year. Well, if we look at the next three months going forward, July, August, September, and you look back in 2021 with the CPI reading was in July, August, September of 2021, those were all very low numbers. So, if we keep running this 1% per month inflation and we’re replacing very low numbers from the private year, that could push us up to a 10% range in inflation. So, we have to keep an eye on that. But I’m definitely not feeling like we hit peak inflation yet. Thursday this week, we’ve got initial jobless claims.

So, every Thursday we get initial jobless claims. That’s how many people file for our newly file for unemployment. This number was up by 4000. Normally, that’s not a sterling number, but on a week-over-week basis, we’re starting to see more and more unemployment claims be filed. The reason why we bring this up is because unemployment is typically going to be the leading indicator of a recession. We’ll look at a chart here for a minute and it’ll give us some feedback on what happens with unemployment and recessions.

On Thursday this week, we also got PPI. So, that’s the Producer price index. This measures inflation at a wholesale level. So, PPI in a month-over-month basis was up 1.1%. On a year-over-year basis of 11.3%. So, we’re seeing inflation everywhere. And then today, we got retail sales. Retail sales for the month of June was up 1%. Definitely hotter than expected. You’re still seeing a resilient US economy and money being spent. So, what I want to look at now is just some charts that I had that will reference back to what we’re talking about. Give me one second just to share my screen here.

So, I know we’ve looked at this in the past and I just want to look at it again. So, this is a chart that shows unemployment rates and recession. And every time you start to see unemployment change and move higher, you always see a recession to follow. This always goes back… I’m sorry, this goes back to the late forties. And every single time you could see right in the 70s, unemployment spiked in these dark lines up and down is when we went to recession 75, unemployment spiked, we went into recession, pushing back to 2008. 2009, unemployment spike went into recession. 2019, we started to see unemployment spike and we started to see moving into a recession. And then we had covid and right now we just seem to watch this closely because we have not seen unemployment spike yet and we’re not seeing the labor market deteriorate in the US. But if we keep getting higher and higher numbers for initial job listings, that’s going to be a good leading indicator of us for recession.

The second item I want to look at, since we already talked about inflation today, was just a CPI report and just where all these numbers are coming from. So, we had CPI or Consumer Price Index increase on a month-over-month and a year-over-year basis. The question though is like, where’s the cost going up? So, rents on a month-over-month basis were up 0.8%. On a year-over-year basis, rents are up 5.8%. We’re definitely seeing a strong market for first-time home buyers because if you’re renting and you’re seeing this cost going up and you’re looking at buying a home, surely it makes a compelling fight for becoming a first-time home buyer.

Energy prices on a month-over-month basis went up 7.5%. Year-over-year, 42%. Everyone knows, you know, the gas pump, you’re seeing higher prices and gasoline here as well up 11% and 60% year-over-year. Food 1% month-over-month, 10.4% year-over-year. Used car, 7% year-over-year. So, you know, without a doubt, you know, in many places in the US economy, we’re seeing costs go up on a year-over-year basis. One more thing I want to bring up and just looking at housing is, you know, you’ve heard me say this before, is that you just have to be so careful of what you pay attention to in the media. There was this article on CNBC and that just said, oh, demand for big mortgages is shrinking as it’s impacting the expense of homes in the market. So, I looked at this.

So, typically, in the prior month, the share of jumbo mortgages was 5.28%. So of all purchase transactions, 5.28% of purchase transactions were jumbo mortgage and that went from 5.28% to 5.25%. When I say that the demand is shrinking if you go from 5.28 to 5.5%, definitely not. Without a doubt, you have to be careful. The media is so negative, they get paid to sell negative headlines. And looking at this information here, it’s just kind of like baffling of where they even come up with this stuff. I do want to say thank you to MBS Highway, Barry Habib. We get a lot of our information from those guys. The slides that we have here, we get from them. So, I do always want to give credit to them and say thank you so much. I’m around all weekend. If you have any questions, let me know. If you want to go through our strategic buyer consultation, give me a call. Get pre-approved, give me a call. Call me on my cell phone, text me. Happy Friday. I hope you have a great day.











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