Our recap of the week in numbers from equities to bonds to commodities and housing to the many indices and measures of the economy and the for-sale and rental housing markets.
Economics is extremely useful as a form of employment for economists.
John Kenneth Galbraith as reported by The Atlantic
We look to economists and other “experts” to inform us about the reasons for today and the appearance of tomorrow. We disdain uncertainty. We take unjustified comfort from forecasts.
Equities and Bonds
- The U.S. equities markets are prowling lows below the troughs early in the Covid-19 pandemic began. Monday of this week, the NASDAQ dropped to its July 2020 level after five straight days of losses.
- Some officials from the Federal Reserve voice understanding that the rapid rise in the Federal Funds Rate will take time to have full effect and that a pause may be judicious soon.
Home Sales and Starts
- Math can be scary at least in real estate. The National Association of Realtors calculates that home buyers have lost approximately $107,000 of home buying power since January 2022 because or rising interest rates.
- The impact of rates is easily seen in recent mortgage application statistics. Applications were down 13% just in the first week of October and down 37% since September 2021.
- The Fannie Mae Home Purchase Sentiment Index declined in September for the seventh straight month to its lowest level since October 2011. Fewer than 20% of surveyed consumers think the time is right to buy a home. Math sometimes can be enlightening, even uplifting:
- At January’s starting 30-year mortgage rate of 3.22%, the monthly payment on a $360,000 mortgage (a $400,000 median-priced house with 10% down) would have been $1,560. At last week’s 6.66% rate, the payment would now be $2,313 — a difference of $753.
- Over two years, the difference accumulates to $18,072 and to $27,108 before any adjustment for the tax deductions for mortgage interest and property taxes.
- The median price of a home would need to decline by about 6.8% to offset the increase in the pre-tax monthly mortgage payment, assuming no refinance until after at least three years.
- The time may be not far off that declining prices offset and more the steep rise in mortgage interest rates. Pay attention to the math.
- Real estate technology and marketing services firm Altos released its active inventory data for the week ending October 7, 2022, as reported by Calculated Risk.
- For the first time in two years, active housing inventory is above (although not by much) the inventory level of two years ago.
- Last week’s inventory level is down, however, from 2019 by 40.7%.
- Inventory has risen by 133% since March 2022.
- Realtor.com released a list of ten markets in which home prices are dropping most quickly in early October 2022.
- With a further modest drop in prices, the year-over-year comparison will turn negative in Austin (-10.3% since June 2022) and Durham NC (-7.5%). The September 2021 to 2022 change in prices in both markets was just 2.2%.
- Housingwire.com published an interesting and well-reasoned analysis of the interaction between housing inventory, prices, and mortgage rates. The article presents too much data to summarize. The read is less than 10 minutes and well worth your time.
Residential Rents
- Data from the National Association of Realtors survey of multi-family properties delivers a mixed message about the residential rental market.
- Tenants newly occupied fewer multi-family rental units in the past year than in time before the Covid-19 pandemic.
- Rents rose by less than a double-digit percentage in the second and third quarters of 2022.
- Vacancies are persistently low at 5.4%, indicating that supply still does not meet demand well.
- Realtor.com data showed rent rising in September an average of 7.8% year-over-year.
- The comparison to September 2021 masks the double-digit increase between that month and September 2020. Rents are up about 23% in two years.
- Nationwide, the median 2-bedroom rent was up 6.4% to $1,941.
- In Raleigh, the median rent for all units was up 7.4% and the median 2-bedroom rent was $1,791 up 8.0% since September 2021.
- In Nashville, the median rent for all units was up 8.8% and the median 2-bedroom rent was $1,754 up 9.1% since September 2021.
- According to Redfin, the median rent rose year-over-year by 8.8% in September 2022 to $2,002 but was down 2.5% from August.
- Redfin data also showed must steeper increases than Realtor.com in rent in most metros, including Raleigh (16.4%) and Nashville (17%).
- See below for Bureau of Labor Statistics data on rent increases.
Construction Costs and Supply Chain
- By Friday morning, lumber prices had risen almost 10% for the week. The price recovery likely reflects a rebound from over-reaction to the substantial decline in housing starts recently.
- Diesel and gasoline were up for the week 8% and 3.4%, respectively, after OPEC+ announced a production cut ambition of 2 million barrels a week.
Other News and Data
- Moody’s Analystics released a report on “stress testing” performed by the firm of the financial health of states. Moody’s concluded that 39 states have sufficient cash to relief the stress of a recession on their citizens and municipalities.
- A pitiful statistic from the Census Bureau: “The child poverty rate (for people under age 18) was 16.9% in 2021, 4.2 percentage points higher than the national rate.”
- The U.S. Bureau of Labor Statistics released the Producer Price Index (the wholesale version of the Consumer Price Index) for September and revised the data for July and August.
- Bottom line: Wholesale prices rose 0.4% (the highest month-to-month increase since May), indicating that inflation is not yet abating.
- Because the PPI tracks a diverse basket of goods and services, the breakdown of price increases and decreases can reveal inflationary nuances (i.e., the significant impact of one category of goods or services).
- The BLS also released the Consumer Price Index report for September, showing a 0.4% rise in the price for all tracked consumer items — the highest since March.
- For the year ending September 2022, prices rose 8.2%, down only slightly from August but down 90 points from the June high.
- Eliminating food and energy, consumer prices rose 6.6% compared to 6.3% in August.
- The rent index rose 0.8% in September. The owners’ equivalent rent index also increased 0.8%, reflecting the continuing rise in home prices and the largest monthly increase in that index since June 1990.
- Economists were surprised. The stock market dove.
- Initial claims for unemployment benefits rose 9,000 week-over-week to 228,000.
- The Social Security Administration announced an 8.7% cost-of-living adjustment for 2023 for an average increase of $140 per month — the highest in many years.
- The maximum income taxable for Social Security benefits will rise to $160,200 from $147,000. The government giveth and taketh.
- HousingWire forecasts (paywall) that mortgage originations will decline in 2022 to $1.9 trillion from $4 trillion in 2021 and to $1.3 trillion in 2023.
- The fallout among mortgage lenders has already begun with significant layoffs and credit line terminations.
- The Mortgage Bankers Association Market Composite Index report revealed a steady decline in purchase and refinance applications both down 2% week-over-week.
- Refinance applications were down a whopping 86% from September 2021 and purchase applications were down 39%.
- The U.S. Energy Information Administration (yes, there really is such an entity) forecasts that home heating costs will rise as much as 28% for natural gas systems and 10% for electricity powered heating systems.