2022 September 23

Our recap of the week in numbers from equities to bonds to commodities to the many indices and measures of the economy.

Equities and Bonds

Equities took a beating. The Dow closed at its lowest level in almost two years. The NASDAQ was off more than 5% to close at a level last seen in March 2020. The S&P 500 was off 4.7%. Investors expected the Fed’s 0.75% rate increase but scurried out of the equities markets for fear of the Fed’s planned 1.25% increase through December.
The Treasury Bond inversion continues with short-term rates reflecting the Fed’s intentions and long-term rates reflecting expectations of slowing economic growth. The two-year ended the week at 4.21% and the ten-year at 3.69%.
As the base rate for residential mortgages, the ten-year’s rise of more than 20 basis points added drag to the housing market. The National Association of Realtors reported existing home sales numbers that leave no doubt about a slow down. The thirty-year mortgage was priced over 6.3%.

The median home sales price declined in August by $24,300 from the record high earlier in 2022.
New home orders to major builders declined significantly in August. Lennar saw orders down 12%. KB experienced a 50% drop.
NAR data suggest strongly that single-family home inventory will be tight. Inventory declined almost 20% from August 2021. Over 90% of existing home owners enjoy a mortgage rate below 4%. These owners will not be moving up if the cost is a mortgage at a rate 50% higher or more. Tight inventory will keep prices from collapsing.
FNMA lowered its home sales forecast for 2023 to 4.98 million units and for 2022 to 5.71 million. Actual home sales in 2021 were 6.90 million units. If FNMA’s forecast is correct, 2023 sales will be down almost 28%.
Earlier in September, Redfin reported that the average home sold for below asking price for the first time since March 2021.

Realtor.com released its monthly report on rentals. The average rent for studio, one-bedroom, and two-bedroom apartment rose 9.8%. The first single digit increase since July 2021.
Rent affordability continued to deteriorate with the average tenant household spending 26.4% of income on rent versus 25.7% in August 2021. The calculation is based on 2021 average median monthly household income of $6,277. When utilities are added to rent, the median household likely spends more than 30% of its income on housing, which is the the U.S. Department of Housing and Urban Development (HUD) benchmark for affordability.
The median rent for a two-bedroom apartment rose $163 to $1,964 year-over-year and a substantial 23.2% from August 2020.
The least affordable cities are mostly major metros (Miami, New York City, Boston, San Diego, Los Angeles) plus Tampa, Orlando, Riverside in California, and Providence (RI) (all at 32% or more). The most affordable are Oklahoma City, Minneapolis, St. Louis, Kansas City, Louisville (KY), Columbus (OH), Cincinnati, Indianapolis, Birmingham, and Houston (all at 22% or less).

Lumber ended the week down over $70 per 1,000 board feet. As a substantial component of new home construction cost, lumber price declines will aid affordability, but not enough to offset an increase of more than 100% in mortgage interest rates over the last year.