by Calculated Risk on 12/14/2023 01:27:00 PM

Today, in the Calculated Risk Real Estate Newsletter: The Coming Fed Rate Cuts and the Impact on Mortgage Rates

A brief excerpt:

Following the FOMC meeting, Goldman Sachs economists wrote:

The soft PPI report on Tuesday morning combined with downward revisions to prior months implies that core PCE inflation was only 0.07% month-on-month and—as Chair Powell noted in the press conference—only 3.1% year-on-year in November. By some measures, the trend is already at or near 2%.

In light of the faster return to target, we now expect the FOMC to cut earlier and faster. We now forecast three consecutive 25bp cuts in March, May, and June to reset the policy rate from a level that the FOMC will likely soon come to see as far offside, followed by quarterly cuts to a terminal rate of 3.25-3.5% …
emphasis added

Market participants are also pricing in one 25 bp cut in March, and 2nd in May, and a 3rd in June, bringing the Fed Funds target range down to 4.50% to 4.75% by June 12, 2024. With the Ten-Year yield currently at 3.93%, the yield curve would still be inverted in June.

There is much more in the article. You can subscribe at https://calculatedrisk.substack.com/

by Calculated Risk on 12/14/2023 12:49:00 PM

Realtor.com has monthly and weekly data on the existing home market. Here is their weekly report: Weekly Housing Trends View — Data Week Ending December 9, 2023

• Active inventory increased, with for-sale homes 4.0% above year ago levels.

Active listings in the past week grew by 4.0% above the previous year, the 5th straight week of annual growth. However, active listings are still declining seasonally, with listings down 1.1% compared with the previous week and down 4.2% compared to the late seasonal peak in November. For the remainder of the season until March, we expect that inventory will experience a typical seasonal decline ...

• New listings–a measure of sellers putting homes up for sale–were up this week, by 6.8% from one year ago.

After an extended period of less listing activity from sellers due to the mortgage rate lock-in effect, newly listed homes have risen above last year’s levels for the 7th week in a row. ... However, the pace of new listings is still expected to be below typical pre-pandemic levels. In this past week, they were still 20.6% below similar weeks in 2017 to 2019.

Here is a graph of the year-over-year change in inventory according to realtor.com. 

Inventory was up year-over-year for the 5th consecutive week following 20 consecutive weeks with a YoY decrease in inventory.  

Inventory is still historically very low.

New listings really collapsed a year ago, so the YoY comparison for new listings is easier now - although new listings remain well below "typical pre-pandemic levels", new listings are now up YoY for the 7th consecutive week.

by Calculated Risk on 12/14/2023 08:40:00 AM

On a monthly basis, retail sales were down 0.1% from October to November (seasonally adjusted), and sales were up 4.1 percent from November 2022.

From the Census Bureau report:

Advance estimates of U.S. retail and food services sales for November 2023, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $705.7 billion, up 0.3 percent from the previous month, and up 4.1 percent above November 2022. ... The September 2023 to October 2023 percent change was revised from down 0.1 percent to down 0.2 percent.
emphasis added

Click on graph for larger image.

This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline).

Retail sales ex-gasoline was down 0.1% in November.

The second graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993.

Retail and Food service sales, ex-gasoline, increased by 5.3% on a YoY basis.

The increase in sales in November was above expectations, however, sales in September and October were revised down.

by Calculated Risk on 12/14/2023 08:30:00 AM

The DOL reported:

In the week ending December 9, the advance figure for seasonally adjusted initial claims was 202,000, a decrease of 19,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 220,000 to 221,000. The 4-week moving average was 213,250, a decrease of 7,750 from the previous week's revised average. The previous week's average was revised up by 250 from 220,750 to 221,000.
emphasis added

The following graph shows the 4-week moving average of weekly claims since 1971.

Click on graph for larger image.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased to 213,250.

The previous week was revised up.

Weekly claims were below the consensus forecast.

by Calculated Risk on 12/13/2023 07:18:00 PM

Note: Mortgage rates are from MortgageNewsDaily.com and are for top tier scenarios.

Thursday:
• At 8:30 AM ET, Retail sales for November will be released.  The consensus is for a 0.1% decrease in retail sales.

• Also at 8:30 AM, The initial weekly unemployment claims report will be released. The consensus is for 220 thousand, unchanged from 220 thousand last week.

by Calculated Risk on 12/13/2023 02:08:00 PM

Statement here.

Fed Chair Powell press conference video here or on YouTube here, starting at 2:30 PM ET.

Here are the projections.  Since the September projections were released, the economy has performed better than the FOMC expected, and inflation was below expectations.

In September, the FOMC participants’ midpoint of the target level for the federal funds rate was at 5.1% at the end of 2024. The FOMC participants’ midpoint of the target range is now at 4.6% at the end of 2024.  

Market participants expects the target range to be between 4.0% and 4.5% at the end of 2024.

The BEA reported real GDP increased at a 5.2% annual rate in Q3. GDP tracking estimates show Q4 at around 1.2% SAAR.  This would put Q4 over Q4 GDP at 2.6%. Even with slower growth in Q4, the FOMC projections for year-over-year growth in Q4 2023 was revised up.

GDP projections of Federal Reserve Governors and Reserve Bank presidents, Change in Real GDP1
Projection Date	2023	2024	2025	2026
Dec 2023	2.5 to 2.7	1.2 to 1.7	1.5 to 2.0	1.8 to 2.0
Sept 2023	1.9 to 2.2	1.2 to 1.8	1.6 to 2.0	1.7 to 2.0

¹ Projections of change in real GDP and inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.

The unemployment rate was at 3.7% in November. The FOMC's unemployment rate projection for Q4 was probably close. The FOMC's unemployment rate projection for Q4 was unchanged.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents, Unemployment Rate2
Projection Date	2023	2024	2025	2026
Dec 2023	3.8	4.0 to 4.2	4.0 to 4.2	3.9 to 4.3
Sept 2023	3.7 to 3.9	3.9 to 4.4	3.9 to 4.3	3.8 to 4.3

² Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

As of October 2023, PCE inflation increased 3.0 percent year-over-year (YoY), down from 3.4 percent YoY in September, and down from the recent peak of 7.1 percent in June 2022. Projections for PCE inflation were revised down.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents, PCE Inflation1
Projection Date	2023	2024	2025	2026
Dec 2023	2.7 to 2.9	2.2 to 2.5	2.0 to 2.2	2.0
Sept 2023	3.2 to 3.4	2.3 to 2.7	2.0 to 2.3	2.0 to 2.2

PCE core inflation increased 3.5 percent YoY, down from 3.7 percent in September, and down from the recent peak of 5.6 percent in February 2022.  Core PCE inflation likely declined to around 3.2% in November, and the FOMC revised down their projections. 

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents, Core Inflation1
Projection Date	2023	2024	2025	2026
Dec 2023	3.2 to 3.3	2.4 to 2.7	2.0 to 2.2	2.0 to 2.1
Sept 2023	3.6 to 3.9	2.5 to 2.8	2.0 to 2.4	2.0 to 2.3

by Calculated Risk on 12/13/2023 02:00:00 PM

Fed Chair Powell press conference video here or on YouTube here, starting at 2:30 PM ET.

FOMC Statement:

Recent indicators suggest that growth of economic activity has slowed from its strong pace in the third quarter. Job gains have moderated since earlier in the year but remain strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated.

The U.S. banking system is sound and resilient. Tighter financial and credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Committee remains highly attentive to inflation risks.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. The Committee will continue to assess additional information and its implications for monetary policy. In determining the extent of any additional policy firming that may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Lisa D. Cook; Austan D. Goolsbee; Patrick Harker; Philip N. Jefferson; Neel Kashkari; Adriana D. Kugler; Lorie K. Logan; and Christopher J. Waller.
emphasis added

by Calculated Risk on 12/13/2023 10:28:00 AM

Today, in the Calculated Risk Real Estate Newsletter: Part 2: Current State of the Housing Market; Overview for mid-December

A brief excerpt:

Yesterday, in Part 1: Current State of the Housing Market; Overview for mid-December I reviewed home inventory and sales.
...
Other measures of house prices suggest prices will be up further YoY in the October Case-Shiller index. The NAR reported median prices were up 3.4% YoY in October, up from 2.4% YoY in September. ICE / Black Knight reported prices were up 4.6% YoY in October, up from 4.2% YoY in September to new all-time highs, and Freddie Mac reported house prices were up 6.0% YoY in October, up from 5.1% YoY in September - and also to new all-time highs.

Here is a comparison of year-over-year change in the FMHPI, median house prices from the NAR, and the Case-Shiller National index.

The FMHPI and the NAR median prices appear to be leading indicators for Case-Shiller. Based on recent monthly data, and the FMHPI, the YoY change in the Case-Shiller index will increase further in the report for October.

There is much more in the article. You can subscribe at https://calculatedrisk.substack.com/

by Calculated Risk on 12/13/2023 07:00:00 AM

From the MBA: Mortgage Applications Increase in Latest MBA Weekly Survey

Mortgage applications increased 7.4 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending December 8, 2023.

The Market Composite Index, a measure of mortgage loan application volume, increased 7.4 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 6 percent compared with the previous week. The Refinance Index increased 19 percent from the previous week and was 27 percent higher than the same week one year ago. The seasonally adjusted Purchase Index increased 4 percent from one week earlier. The unadjusted Purchase Index decreased 1 percent compared with the previous week and was 18 percent lower than the same week one year ago.

“Mortgage rates dropped last week, as incoming data point to a slowing economy and support a pivot by the Federal Reserve to begin cutting rates next year. The average 30-year fixed mortgage rate declined to 7.07 percent, the lowest level since July,” said Mike Fratantoni, MBA’s SVP and Chief Economist. “Borrowers who had seen rates near 8 percent earlier this fall are now seeing some lenders quote rates below 7 percent. Refinance volume picked up in response to this drop in rates, with a particularly notable increase for FHA and VA refinance applications. Purchase volume was running about 18 percent below last year’s pace, as prospective homebuyers are still challenged by a lack of inventory, even if rates have decreased.”
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) decreased to 7.07 percent from 7.17 percent, with points decreasing to 0.59 from 0.60 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans
emphasis added

Click on graph for larger image.

The first graph shows the MBA mortgage purchase index.

According to the MBA, purchase activity is down 18% year-over-year unadjusted.  

Red is a four-week average (blue is weekly).  

Purchase application activity is up from the lows in late October and early November, but still below the lowest levels during the housing bust.

The second graph shows the refinance index since 1990.

With higher mortgage rates, the refinance index declined sharply in 2022, and even with the large week-to-week increase, activity is barely off the bottom.

by Calculated Risk on 12/12/2023 07:19:00 PM

Note: Mortgage rates are from MortgageNewsDaily.com and are for top tier scenarios.

Wednesday:
• At 7:00 AM ET, The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

• At 8:30 AM, The Producer Price Index for November from the BLS. The consensus is for a 0.1% increase in PPI, and a 0.2% increase in core PPI.

• At 2:00 PM, FOMC Meeting Announcement. No change to policy is expected at this meeting.

• Also at 2:00 PM, FOMC Forecasts This will include the Federal Open Market Committee (FOMC) participants' projections of the appropriate target federal funds rate along with the quarterly economic projections.

• At 2:30 PM, Fed Chair Jerome Powell holds a press briefing following the FOMC announcement.