Two signs inflation is slowing
During the supply problems of recent years, two products that seemed to be particularly affected – and whose prices rose sharply – were kitchen appliances and cars.
Here are two indications from my mailbox this week that the situation has changed (the first is from a car dealer, the second from Home Depot):
And read these articles:
Economic and mortgage commentary
Federal Reserve increase rates; Mortgage Rates drop
What drives Mortgage rates in one chart
How Marblehead’s 2023 Property Tax Rate is Calculated (more…)
May Inventory shows no improvement
No spring boost for Inventory so far.
Single Family Homes
Condos
Mortgage rates
The 30-year Fixed Rate Mortgage fluctuated around 3% for most of 2021. The Fed appeared to many commentators (read my “Party on, dude” says the Federal Reserve posted in March 2021) to be taking an overly optimistic view about inflation; its indication of a policy reversal late in 2021 sparked a jump in the crucial 10-year Treasury (10T) yield and hence in mortgage rates. With inflation continuing to soar well beyond the Fed’s preferred 2%, interest rates climbed in 2022, driving mortgage rates to a multi-year high.
As inflation appeared to slow, so the yield on 10T dropped, leading to a drop in the FRM of 1% in early 2023. Inflation, however, remains stubbornly high – and the labour market stubbornly strong- causing interest rates and the FRM to move up again, before the crises at a number of banks drove Treasury yields – and hence the FRM – lower again.
In recent weeks the FRM has been mainly in the 6.25-6.5% range.
And these recent articles:
Economic and mortgage commentary
Federal Reserve increase rates; Mortgage Rates drop (more…)
Federal Reserve increase rates; Mortgage Rates drop
Too often I see a headline like this one: “Mortgage Rates Continue to Slide Despite Fed Hike.” The 30-year Fixed Rate Mortgage (FRM) does NOT follow the Federal Reserve’s rate increases!
Look at this chart for the last few months:
Note the correlation between the 10T (red line) and FRM (green) – and the lack of correlation between FFR (blue) and FRM.
Let’s look at this another way, the spread (difference) between the FRM and 10T, and between FRM and FFR:
Over the last 6 months, the spread between FRM and 10T has been in a tight band between 2.69% and 3.04%, while that between FRM and FFR has dropped from 3.04% to 1.42%.
For a more detailed explanation of what drives mortgage rates – and why the FRM will fall at some point – read Why Mortgage Rates Will Fall
And these recent articles: (more…)
What drives Mortgage Rates in one chart
I can explain as often as I do that the 30-year Fixed rate Mortgage (FRM) is based upon the yield on the US 10-year Treasury (10T), not the Federal Reserve’s Fed Funds rate (FFR), but still I read regularly comments such as “mortgage rates will move up after the Fed increased its interest rate.”
Look at this chart for the last few months, the dates being those when the Federal Reserve increased its interest rate:
Note the correlation between the 10T (red line) and FRM (blue) – and the lack of correlation between FFR and FRM.
Let’s look at this another way, the spread (difference) between the FRM and 10T and between FRM and FFR:
Over the last 5 months, the spread between FRM and 10T has been in a tight band between 2.69% and 2.85%, while that between FRM and FFR has dropped by a huge 1.7%.
For a more detailed explanation of what drives mortgage rates – and why the FRM will fall at some point – read Why Mortgage Rates Will Fall
And these recent articles: (more…)
February Inventory as low as this weekend’s temperature
Inventory usually starts the year low. While current levels may be above 2022’s extremes, they are well under half those of 2020.
Single Family Homes
Condos
Condo inventory has followed a similar pattern:
Mortgage rates (more…)
Lies, Damned Lies and Inflation “Statistics”*
My daughter, who works for the Bank of England, is studying for her Master’s in Economics at the University of Edinburgh, and sent me one of her papers. It was filled with a vast array of complex mathematical equations of which I could make no sense, despite being a mathematician by training and studying Economics at Oxford…..a few years ago.
The Federal Reserve has teams of economists plus input from Reserve Banks all around the country. The Bureau of Labor Statistics, which produces the Consumer Price Index (CPI), has another battalion of experts. All this talent must, one could fairly assume, produce sophisticated and accurate models for inflation.
Imagine my surprise, therefore, to discover that one key element, housing inflation – which constitutes one-third of the CPI and 40% of “core” inflation (excluding food and energy) – is an imputed number (“assigned by inference”), not an actual one.
Read what Nobel prize-winning Economist Paul Krugman wrote recently: ”How does the bureau measure housing inflation? Not by looking at the prices at which houses are sold, which fluctuate a lot with things like interest rates. Instead, it looks at how much renters pay — and for the large number of Americans who own their own homes, it imputes what it calls Owners’ Equivalent Rent, an estimate based on rental markets of what homeowners would be paying if they were renters (or, if you like, the rent they are implicitly paying to themselves).
The trouble is that this measure relies on average rents, which to a large extent reflect leases signed many months ago. A new Fed study shows that official rent measures lag market rents by about a year. And here’s the thing: Market rental rates exploded in 2021, probably as a result of the rise in working from home, but have since leveled off and may in fact be falling.
So official inflation measures are telling us about what was happening a year ago; they overstate current inflation and, perhaps more important, grossly understate the extent to which the inflation picture has improved. If you try to measure inflation excluding those dubious housing numbers, plus other volatile elements, you get a picture of dramatic improvement, almost enough to declare the inflation surge over.”
Let’s look at inflation. There are more gauges of inflation than the UK had Prime Ministers in 2022, but let’s just look at Personal Consumption Expenditures (PCE is the value of the goods and services purchased by, or on the behalf of, “persons” who reside in the United States.). (more…)
Why Mortgage Rates Will Fall
I have read and heard several comments suggesting that the increase in the 30-year Fixed Rate Mortgage (FRM) this year has been a direct result of the increase in the Federal Reserve’s Fed Funds rate (FF).
This is not correct.
As I will demonstrate, the FRM is determined by market forces, and in particular by the extra yield – the “spread” – which investors require when buying pools of mortgages (Mortgage Backed Securities or MBS), as compared with the risk-free yield available with the 10-year Treasury Note (10T) which has the nearest duration to the expected life of a pool of mortgages.
In contrast, the FF is the rate that banks use when setting their Prime Rates. When the FF increases, banks increase their Prime Rates and therefore the interest rate on those loans whose rates are based upon Prime Rates – e.g. credit cards and auto loans.
And we will see that the FRM increased this year long before the Fed started to increase the FF rate.
Mortgage-Backed Securities (MBS)
A conventional mortgage or conventional loan is any type of home buyer’s loan that is not offered or secured by a government entity. Instead, conventional mortgages are available through private lenders, such as banks, credit unions, and mortgage companies.
Most conventional mortgages are packaged into mortgage-backed securities and sold to investors. This allows the bank or originator to use its capital to finance more mortgages.
The relationship between 10T and FRM
This chart shows how the two have moved in lockstep over the last 30-plus years:
Source: National Association of Realtors
Mortgage Rates peaked? I spoke too soon
In June I published Have Mortgage Rates peaked? when the 30-year national average Fixed-Rate Mortgage (FRM) reached 5.81% and commented:”..a realistic expectation would be that the spread (the difference beyween the FRM and the yield on the 10-year Treasury) will drop from its current 2.5% to at least 1.8% at some point. If the yield on 10T stays in the low 3% range that would suggest that the FRM will drop below 5% again.”
Well it did…for a while, dropping to 4.99% on August 4th.
But then this happened:
Why have mortgage rates jumped again? (more…)
No, the Federal Reserve does not control mortgage rates
There is widespread misunderstanding about what drives mortgage rates. Indeed, I read an article recenlty on the National Association of Realtors website which stated that mortgage rates had risen sharply following the increase in the Federal Reserve’s interest rate.
Not so. (more…)
Recession: what Recession?
The August jobs report published yesterday showed that the labour market remained red-hot in July despite expectations job growth would cool as tighter monetary conditions and company layoffs stoked fears of a recession.
Here were the key numbers from the report, compared to economist estimates compiled by Bloomberg:
Non-farm payrolls: +528,000 vs. +250,000 (more…)
Recession? Yes, no, maybe……..
When I proposed to my wife, she was taken by surprise and responded: “Yes, no, maybe.”
I was reminded of that response while listening to all the conversations in recent days about whether or not the US already in, is about to be in, or will escape a recession.
A lot of the confusion relates to the question: “how do you define recession?” and “who gets to decide if it is a recession?”
And no, it’s not by Punxsutawney Phil looking for his shadow.
What is a recession?
The most common defintion of a recession is two consecutive quarters of negative GDP growth. I used this defintion in my Are we already in a Recession? published on June 18th. This week’s preliminary Q2 GDP number was -0.9% which, following a first quarter print of -1.6%, ticked the GDP box.
If only life were that simple.
Who gets to decide if it is a recession?
Officially, it is the National Bureau of Economic Research’s Business Cycle Dating Committee (I didn’t even know there was such a thing as cycle dating) that declares a recession. In its books, recession is “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.”
Yet the last recession declared by the NBER — for the period from March to April 2020, when the country was hit by the first wave of the COVID-19 pandemic — met only the first half of that definition. It was the shortest recession in U.S. history. Historically, recessions have lasted for 17 months on average.
When will we know if we are in a recession?
The NBER’s Business Cycle Dating Committee takes a cautious approach to its job. It has typically taken the committee four to 21 months to declare a recession. It didn’t declare the recession that began in April 2001 until July 2003.
Are we in a recession?
Fed Chair Powell: “I don’t think it’s likely that the U.S. economy’s in a recession now.”
National Economic Council Director Brian Deese on Thursday argued that although economic growth is slowing, the economy as a whole is showing “extraordinary resilience,” and pointed to the jobs the nation has added in the past year. “We are in a transition, there’s no doubt. The economy is slowing and that is what most expected when coming off of an extremely strong and fast recovery last year. But all of the indications that we see right now are for an economy that’s showing extraordinary resilience in the face of global challenges,
President Biden: “Coming off of last year’s historic economic growth — and regaining all the private sector jobs lost during the pandemic crisis — it’s no surprise that the economy is slowing down as the Federal Reserve acts to bring down inflation.”
“The odds are very high, perhaps over three quarters, that in the next year or two we will have a recession,” says Larry Summers, former Treasury Secretary.
So the answer is…… yes, no, maybe
And these recent articles:
Economic and mortgage commentary
Federal Reserve tries to rewrite history
Has Inflation Peaked?
Have Mortgage Rates peaked?
Are we already in a Recession?
Federal Reserve in Fantasyland: Implications for Housing Market
Time to Consider an Adjustable Rate Mortgage
How Marblehead’s 2022 Property Tax Rate is calculated
Essex County 2022 Property Tax Rates: Town by Town guide
Market Reports
Essex County Mid-Year Market Summary in 5 slides
Massachusetts Mid-Year Market Summary in 5 slides
How quickly are houses selling?
Have Home Sales slowed?
June Housing Inventory: still way below 2020 levels.
Other
Free Property and Mortgage Fraud alert notification for homeowners
Guide to Buying and Selling in Southwest Florida
If you – or somebody you know – are considering buying or selling a home and have questions about the market and/or current home prices, please contact me on 617.834.8205 or ajoliver47@gmail.com.
Andrew Oliver, M.B.E.,M.B.A.
Market Analyst | Team Harborside | teamharborside.com
REALTOR®
m 617.834.8205
www.OliverReportsMA.com
“If you’re interested in Marblehead, you have to visit the blog of Mr. Andrew Oliver, author and curator of OliverReportsMA.com. He’s assembled the most comprehensive analysis of Essex County we know of with market data and trends going back decades. It’s a great starting point for those looking in the towns of Marblehead, Salem, Beverly, Lynn and Swampscott.”
__________________
Andrew Oliver, M.B.E., M.B.A.
Real Estate Advisor
Andrew.Oliver@Compass.com
www.TheFeinsGroup.com
www.OliverReportsFL.com
————
Compass
800 Laurel Oak Drive, Suite 400, Naples, FL 34108
m: 617.834.8205
Federal Reserve tries to rewrite history
Two comments from Federal Reserve Chair Powell struck me while I was listening to his Press Conference on Wednesday:
On the “speed” of the Fed’s move to increase rates:
“When inflation changed direction, really, in October. We’ve moved quickly since then. I think people would agree. But before then, inflation was coming down month by month. And we kind of thought we had the story. Probably had the story right. But then I think in October, you started to see a range of data that said no. This is a much stronger economy and much higher inflation than we’ve been thinking.”
Moved quickly? (more…)
July Inventory shows welcome increase
There has been a sharp increase in the number of properties for sale in the last four months, but while this takes inventory of SFHs above the year ago level, it remains below that of 2020:
Single Family Homes
Condos
The number of Condos available has also jumped, but in this case still remains below year ago levels:
Has Inflation Peaked?
After I published Have Mortgage Rates peaked? last week a reader asked me why I thought the yield on the 10-year Treasury Bill would not continue to increase, so that even if the spread over the 30-year Fixed Rate Mortgage (FRM) narrowed, the FRM rate itself might still increase.
In Are we already in a Recession?, published on June 18, I wrote: “Just as the yield on 10T has more than doubled since pre-COVID while the Fed Funds rate is unchanged, so the Fed Funds rate can increase sharply – the Fed is forecasting it will reach 3.4% this year, also double its pre-COVID level – without necessarily impacting the yield on 10T. That will depend upon the economic outlook. Ironically, perhaps, the more determined the Fed is to drive down inflation – even at the cost of a recession and higher unemployment – the greater the chance that the yield on 10T – and by extension the FRM – will decline – at some point.”
In the last few days, as more economists talked about a recession after the Atlantic Fed updated its Q2 GDP estimate to minus 2.1% (it was 0% when I wrote on June 18), the yield on 10T has dropped sharply, falling to 2.9% from a peak of 3.5% in the middle of May: (more…)
Have Mortgage Rates peaked?
With all the noise about the determination of the Federal Reserve (Fed) to continue to increase interest rates it might be tempting to asume that mortgage rates will continue to rise.
But I believe there are good reasons for thinking that mortgage rates may have peaked. Read on to find out why I think this.
Current rates
The 30-year Fixed rate Mortgage (FRM) reached its highest level since 2008 this week: (more…)
Recent Comments