Friday Market Update: June 2nd 2023

Will the Fed Skip the Next Rate Hike on June 14th?

Happy Friday. Brian Manning here with your weekly update. Let’s get right to it.

Monday this week, relatively quiet news day. Actually, no news on Monday. It was Memorial Day. We had an amazing Bolder Boulder party that was super fun. Thanks for everyone that came out and all the runners that participated.

Tuesday this week, we got some feedback from Case-Shiller. So, this looks at home appreciation. The report always lags a little bit. This is for the month of March. On a month-over-month basis, home appreciation was up 4/10th of a percent. From the peak in June of 22, it’s pretty amazing, home prices across country are only down 2.3%. Everyone that poo pooed the housing market and said, oh, we’re going to see a 20% decline in housing. We haven’t seen it.

In fact, we’re starting to see home appreciation gain speed across the country. If we look at the FHFA, FHFA also looks at the month of March and says the home appreciation was up 6/10th of a percent. So, the difference is this Case-Shiller looks at all transactions, primary residences, second homes, investor in properties, people that were attaining a mortgage, people that are paying cash. FHFA strips out the cash buyers and only looks at people that are getting a mortgage with a conventional loan across the country. And that was up 6/10th of a percent, on a year-over-year basis, up 3.6%.

You also see Black Knight up 5/10th of percent, Zillow up 9/10th of a percent. So, across the board, all the gauges of appreciation are up. And it’s really anticipated that this year will have appreciation in the 5 to 6% range, which is pretty amazing compared to a lot of people thought as far as a housing crash is concerned.

Wednesday this week, we got some feedback from Apartment List. This is on rents. May is up 9/10th of a percent. This is really important to look at because shelter is a really large portion of the Consumer Price Index. You know, a year ago, or so, the high was apartment rents going up 18.5% on a year-over-year basis. That’s changed significantly and we’re now up 9/10th of a percent, which is good to see.

Thursday this week, we’ve got a couple of Fed members talking. So, the plan is hopefully to skip Fed rate hike in June. I’m super excited to see what happens here. You know, June 13th, we get the CPI report. This is going to be for the month of May. That’s likely going to be a very inflation friendly report. June 13th also starts the two-day Fed meeting. June 14th, you had the Fed meeting adjourned and you have Jerome Powell will speak.

Likely, they’re going to skip a rate hike there. I think it’s going to be super positive. If you get a very favorable inflation report on June 13th and a Fed skip of a hike on the14th, I think it’s going to impact the markets favorably. You’re going to see some positive movement in interest rates there.

Thursday this week, we also got ADP. So, beginning of the month, first week of the month, we get employment reports. This is for the prior month. First employment report is the ADP, the largest provider of private payrolls across the US. ADP said we had 278,000 jobs that were created in the month of May. Anticipation was 180,000 jobs that were created. So, that was a strong number for hiring. But what was really important to look out for ADP is that there was an easing in wage pressure inflation. So, that just means that people that are starting new jobs or changing jobs were getting paid less than before.

So, when you see an easing in the inflation, that’s good, and that’s definitely going to be helpful for bond markets and for interest rates. Today, Friday, we get to put the debt ceiling debacle behind us. I kind of had a feeling this was all gonna, you know, go to the wayside. All these people are fighting about it but in the end, no one really wants the US Economy shut down and default on its debts because that’s bad for everyone, regardless of what side of the political line you’re on. So that’s behind us, thank goodness.

And then we also get the BLS report. This is the Bureau of Labor Statistics. So, this is the government’s employment report. So, there’s two types of reports that we get report here. The first one we get is what’s called the establishment survey. In the establishment survey, there’s a lot of modeling that takes place. One thing they look at is what’s called the birth-death ratio.

So, they look at how many companies were opened in the month of May and the companies that were open, so new companies that were started, what industry were they in? And based on the companies that were open, the industry they were in, how many people would they historically hire? Also, how many companies went out of business? The companies went out of business, what industry were they in? And based on the companies that went out of business and the industry they were in, how many people would they fire or lay off? So, that’s how you get a lot of modeling in there. That was a really strong number.

It came back and showed there’s 339,000 jobs created in the month of May. Expectations was 190,000. But… The flip side of that is then you get what’s called the household survey. So, household survey is when they call households and they start to determine how many people were hired, and this is also how they come up with the unemployment rate. Household surveys show that 310,000 jobs were lost across the country in the month of May. So, definitely, some conflicting info there.

What’s important to really note about the household survey is that the unemployment rate moved from 3.4% to 3.7%. If we look back in time, all the way back to the forties and fifties, anytime you see a move in unemployment, move from the lowest numbers and you start to see them up, that’s typically going to be a recession indicator.

Again, recessions are bond friendly and mortgage rate friendly and real estate friendly because it’s going to mean that rates will come down. But I do wonder if this is really going to be the first indicator here. Also, the BLS report was very friendly for wages as well. Just like ADP, we started to see easing in wage pressure inflation. Again, inflation data is coming down as good. That’s definitely going to help mortgage rates. I’m around a weekend. If you have any questions, let me know. If you want to go through our homebuyer consultation, you want to learn how we’re closing purchase transactions in 10 days, give me a call. I’d love to help you.

Happy Friday. Hope you have a great day.



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