July 6, 2021 – The Fed Mulls The Jobs Report. It is said that markets don’t react to what happened yesterday, but what they think will happen tomorrow.

Economic Commentary

The Fed Mulls The Jobs Report. Last month the Federal Reserve Board spoke loudly. They actually had the audacity to suggest that they expect to raise rates shortly. Define shortly? Sometime in 2023! That is literally two years from now. Years ago, the Fed never telegraphed what they were inclined to do in advance. Now they are signaling years ahead of time.

It is said that markets don’t react to what happened yesterday, but what they think will happen tomorrow. Even though two years is a long way away, the markets reacted as if rates were going up tomorrow—for a day or two. Long-term interest rates spiked and stocks fell sharply. Then they calmed down and things returned to normal pretty quickly.

The fact that the Fed even brought up rate increases is significant. This means that they are expecting the economic recovery to accelerate. The jobs report last week gave us the latest evidence of this recovery. The addition of 850,000 jobs was more than expected. The unemployment rate moved up to 5.9%, but even this can be seen as a sign of strength, as more are moving back into the labor force. Overall, this news was right on target with regard to the point the Fed was making when they spoke last month. The recovery is progressing.

Weekly Interest Rate Overview

The Markets. Rates eased in the past week.  For the week ending July 1, Freddie Mac announced that 30-year fixed rates decreased to 2.98% from 3.02% the week before. The average for 15-year loans fell to 2.26% and the average for five-year ARMs moved up one tick to 2.54%. A year ago, 30-year fixed rates averaged 3.07%, slightly higher than today. Attributed to Sam Khater, Chief Economist, Freddie Mac – “Economic growth remains steady and is bolstering more segments of the economy. Although low and stable mortgage rates have kept the housing market booming over recent months, a deterioration in affordability and for-sale inventory has led to a market slowdown.” Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

Real Estate News

More than a third of Americans say they have found at least one error in their credit report, according to a new study from Consumer Reports. The publication asked more than 5,800 study participants to get a copy of their credit report and check it for errors between Feb. 1 and April 1. A wide range of mistakes emerged. For example, 29% of respondents uncovered errors with their personal information, while 11% found mistakes regarding their account information, which could damage their credit score, Syed Ejaz, a Consumer Reports policy analyst, told CNBC. “Unfortunately, folks sometimes find out [about these errors] way too late—when they are in the middle of getting a loan for a new house or car,” Ejaz said. “That is why it is really important to make sure you check your credit report and assess it for accuracy.” The Consumer Data Industry Association, which represents the major credit reporting companies, has called the Consumer Reports investigation “completely false and misleading.” The CDIA claims the credit reporting industry has a 98% accuracy rate on credit profiles and cautioned against reading into the study’s conclusions because it’s based on a non-empirical survey of consumers. Still, financial experts recommend that consumers frequently monitor their credit reports at AnnualCreditReport.com. Credit reports from Equifax, Experian, and TransUnion are usually available for free once a year. However, the three firms are offering free weekly credit reports through April 20, 2022. Consumers should contact the reporting firms directly if they find any mistakes in their credit report. The Federal Trade Commission provides a sample letter you and your clients can send to credit bureaus to dispute errors. Source: CNBC

CoreLogic® released the Homeowner Equity Report for the first quarter of 2021. The report shows U.S. homeowners with mortgages (which account for roughly 62% of all properties) have seen their equity increase by 19.6% year over year, representing a collective equity gain of over $1.9 trillion, and an average gain of $33,400 per borrower, since the first quarter of 2020. While the coronavirus pandemic created economic uncertainty for many, the continued acceleration in home prices over the last year has meant existing homeowners saw a notable boost in home equity. The accumulation of equity has become critically important to homeowners deciding on their post-forbearance options. In contrast to the financial crisis, when many borrowers were underwater, borrowers today who are behind on mortgage payments can tap into their equity and sell their home rather than lose it through foreclosure. “Homeowner equity has more than doubled over the past decade and become a crucial buffer for many weathering the challenges of the pandemic,” said Frank Martell, president and CEO of CoreLogic. “Double-digit home price growth in the past year has bolstered home equity to a record amount. The national CoreLogic Home Price Index recorded an 11.4% rise in the year through March 2021, leading to a $216,000 increase in the average amount of equity held by homeowners with a mortgage,” said Dr. Frank Nothaft, chief economist for CoreLogic. Negative equity, also referred to as underwater or upside down, applies to borrowers who owe more on their mortgages than their homes are currently worth. In the first quarter of 2020, 1.8 million homes, or 3.4% of all mortgaged properties, were in negative equity. This number decreased by 24%, or 450,000 properties, in the first quarter of 2021. Source: CoreLogic

Americans are having fewer children, and the trend is apparent among home buyers, Jessica Lautz, vice president of demographics and behavioral insights at the National Association of REALTORS®, writes at the association’s Economists’ Outlook blog. The “baby bust” will likely continue even after the pandemic, Lautz notes. The fertility trend rate in the U.S. fell by 1% in 2019, reaching an all-time low compared to the last 100 years. The trend has been reflected across racial groups, too. The fertility rate has dropped 2% among non-Hispanic white women, 1% for Black women, and 1% for Hispanic women, Lautz notes. Among home buyers, the share who have children under the age of 18 has fallen from 58% in 1985 to 33% in 2020, according to NAR’s latest Profile of Home Buyers and Sellers report. “This trend has significant implications for home buyers,” Lautz notes. “What is important to a buyer with children will be different than what a buyer needs without children in the home.” For example, buyers with children may put higher importance on location and schools as well as home size. Buyers with children typically purchase a four-bedroom home with 2,200 square feet; those without children usually purchase a three-bedroom home with 1,800 square feet, the research shows. Source: National Association of Realtors® Economists’ Outlook blog