Friday Market Update: July 29th 2022 with BRIAN MANNING










Happy Friday! Brian Manning here with the weekly update. So much to talk about this week. So much economic news. Unbelievable! Let’s get right to it. So Monday this week was a relatively quiet news day, not much to talk about there.

Tuesday this week, we got some feedback from Case-Shiller. So, Case-Shiller gives us information on the housing market. This was for the month of June. On a month-over-month basis, home appreciation was up 1.5%. And on a year-over-year basis, home appreciation was up 19.7%. So, ridiculously strong numbers for home appreciation in June. We also got the FHFA and their reports. So, Case-Shiller looks at all homes, all prices across the country, whereas the FHFA only looks at homes across the country that have a conventional mortgage attached to them. So, it’s going to be really targeting more of the middle to lower price homes. And FHFA in a month-over-month basis said it was a 1.4% and year-over-year of 18.3%. So… really strong numbers.

We definitely expect to see these numbers moderate and certainly not sustainable to have pushing 20% appreciation in the housing market. But June was a really strong month for us. Then we got pending home sales on Wednesday. So, this is definitely a miss. This is signed contracts in the month of June. Please remember that interest rates were apex in June. They’ve come down since then, but they were at their highest level.

So, in a month-over-month basis, pending home sales were down 8.6%. And on a year-over-year basis, they were down about 20%. Certainly, some of these numbers are, you know, reflective of the lowest number since 2011. I’m not surprised by this. We had this cooling in the market. The chaos we were seeing before is not sustainable in June. It is, you know, still telling us we’re getting almost 20% appreciation, but definitely seeing all these numbers calm down and moderate, which is very much fine.

Wednesday this week, we get wrapping up of Federal Reserve, and this is Fed day. So, Federal Reserve hikes rates three quarters of a percent on Wednesday. We’ve talked about this in the past. I got endless phone calls on Wednesday. People freaking out of asking me if mortgage rates are now three quarters of a percent higher. And the answer is no, absolutely not. We’re going to look at this more in a second. So, the Federal Reserve’s mandate here is to keep employment stable and to fight inflation. And the reason why they’re hiking interest rates is to combat inflation. And we’ll look at some more inflationary reports later because we got some feedback on this today. So, inflation is anything from housing costs, food costs, energy.

But something a lot of people don’t think about as far as inflation is concerned is that when rates are being risen like they are by the Federal Reserve right now, it’s also impacting small business loans or just business loans in general. So, we’re very credit-driven society. So, you know, for quite a long time, businesses could expand and borrow money at 0%. But if the Fed funds raised at two in a quarter percent now and you’re looking at the cost of borrowing money for your business, that’s going to be inflationary pressure. So, the Federal Reserve, what they’re hiking is short-term interest rates.

So, they’re looking at rates that impact business loans, car loans, credit cards, personal loans, everything like that on the shorter end of the spectrum. Whereas mortgages, if you think about a 30-year fixed, that’s a longer loan, and that’s not impacted the same way by the Federal Reserve. So, it was good to see a three quarter percent hike.

Certainly, inflation is out of control everywhere we look. When the markets did react favorably to this, which we’re going to look at a little closer here in a minute. On Thursday this week, we got the first look at GDP for the second quarter. So… Q1 was negative. So, that means growth in the United States was negative in the first quarter. Q2 was negative as well. The first look of GDP came out at negative 9/10th of a percent. There are three looks at GDP, so this is just the first one. It does get revised as we go forward. A lot of people say that the textbook definition of recession is going to be two consecutive quarters of negative GDP. But really a third item we have to look at when we’re trying to identify a recession is going to be employment. And right now, employment is very strong. So, I kind of wouldn’t be surprised if they wouldn’t formally call this a recession right now because, yes, we do have two negative quarters of GDP, but employment across the country is holding really strong. So, we’ll have to keep an eye on that.

But first reading, negative GDP. Thursday this week, as we do every Thursday, we also get new unemployment filings. We’re paying very close attention to this right now. New unemployment filings were down $5,000, which seems really good, but the prior week was revised 10,000 higher. So, we are definitely looking at this, trying to figure out if this is the canary in the coal mine, because employment like we just talked about, if you start to see softening in unemployment and you have negative GDP, that’s certainly going to be the signs of a full-on recession.

Right now, we’re just seeing these new unemployment claims every single week just kind of slowly rise higher and higher and higher. So, we want to watch that closely to give us some feedback there of what’s going to happen with employment going forward Today, we get the PCE. PCE is the personal consumption expenditure. This is the Federal Reserve’s favorite gauge of inflation. We don’t agree with them. We really think CPI is a better gauge of inflation. The reason why we say that is because PCE does not include out of pocket housing expenses or out of pocket medical expenses where CPI does. Perhaps the Federal Reserve likes this better because it’s always going to show a lower gauge of inflation. But on a year-over-year basis, inflation moved from 6.3% to 6.8%. On a month-over-month basis, inflation was up 1%. There’s some of the highest numbers since 1982. So, everywhere we look, we’re seeing inflation right now.

We also got the core rate. The core rate strips out volatile items such as food and energy costs. And the core rate on year-over-year basis was up 4.8%. Another item we look at today is what’s called the employment cost index. If any of you remember Alan Greenspan, this is actually Alan Greenspan’s favorite gauge of inflation because this is measuring the cost of employment across the country. This is inflationary pressure as well. On a year-over-year basis, the employment cost index was up 1.3%. So, seeing inflationary pressure there as well. Lastly for this week, we got apartment list. So, apartment list gives us feedback on rents. And this is in the month of July, so rents are up right now, 1.1% on a year-over-year basis, and they’re up, I’m sorry, 1.1% month-over-month basis and 12.3% year-over-year. I would expect to see these numbers moderate a little bit, but you’re still seeing a lot of pressure in the housing market. Again, this is going to create a very compelling case for a first-time home buyer.

If you’re a first-time home buyer and your rent just got… I’m sorry, if you’re a tenant and your rent has got raised by 10%, that might be convincing for you to become a first-time home buyer and really look at the housing market. So, definitely seeing pressure there in the rental market. Something I want to look at real quick is just something in the charts with you, just to show you some feedback on mortgage rates and what they’ve done. So, this shows you mortgage-backed securities, interest rates go opposite of what this chart is doing.

But what’s important and what I want to show you here is that we had rates worsening for quite a while and then you had the Fed rate hike here in June, and again, mortgage rates go opposite of what this chart is doing. So, you had a Fed rate hike here in June, a lot of people freaked out, oh my gosh, does that mean the mortgage rates are going higher? No, it’s actually opposite because they’re fighting inflation. So after that Fed rate hike in June, you saw mortgage-backed securities move up, which means that interest rates came down. Then we came over here to our Fed rate hike this week. Once again, because the Federal Reserve Fed rate hike was looked at as combating inflation, you had mortgage markets react favorably.

So… from the first rate hike back in June through now, you slowly are seeing mortgage rates improving. And certainly today is a really good time to look at interest rates because we just see them slowly getting better and better and better. So as time goes on, if the Federal Reserve continues to combat inflation until they actually kind of get it under control, this is all very good news for mortgage rates because we’re seeing some phenomenal rates right now. I’m available all weekend. If you have any questions, let me know. If you want to go through our strategic buyer consultation, give me a call. I’d love to help you any way I can. Happy Friday. Have a great day.