June 28, 2022 – July Will Be a Busy Month. The markets will not only be focused on the job creation, but also the all-important wage inflation factor.

Economic Commentary

July Will Be a Busy Month. July starts out with a bang with America celebrating the birth of our country on July 4th. The fireworks will be continuing within the financial sector as it will be a busy month for data and events. First, we will have the release of the jobs report the Friday after the July 4th holiday. The markets will not only be focused on the job creation, but also the all-important wage inflation factor.

Speaking of inflation, less than one week later we will have the consumer inflation report released for June. No data moved the markets more sharply in June than the May inflation report. We then move on to the end of July in which we will see a flurry of activity. First, we will get the initial reading of economic growth for the second quarter. This will be followed by the conclusion of a meeting of the Federal Reserve’s Open Market Committee.

Unless there is a turnaround in the inflation numbers and a sharp slowdown in economic growth, the Fed is certain to raise short-term interest rates for the fourth time this year. Meanwhile, companies will be reporting their second quarter earnings which the stock market analysts will be watching closely as we move into August with another jobs report. Get ready for a busy, busy month. No summer vacation for market watchers.

Weekly Interest Rate Overview

The Markets. Mortgage rates continued their upward climb last week.  For the week ending June 23, 30-year rates rose to 5.81% from 5.78% the week before. In addition, 15-year loans increased to 4.92% and the average for five-year ARMs rose to 4.41%. A year ago, 30-year fixed rates averaged 3.08%, almost 3.00% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “Fixed mortgage rates have increased by more than two full percentage points since the beginning of the year. The combination of rising rates and high home prices is the likely driver of recent declines in existing home sales. However, in reality many potential homebuyers are still interested in purchasing a home, keeping the market competitive but leveling off the last two years of red-hot activity.” 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

CoreLogic reported U.S. homeowners with mortgages saw their equity increase by 32.2% year over year, representing a collective equity gain of $3.8 trillion and an average gain of $63,600 per borrower. “Price growth is the key ingredient for the creation of home equity wealth,” said Patrick Dodd, President and CEO of CoreLogic. “Home prices were up by 20% in March compared to one year earlier in CoreLogic’s national Home Price Index. This has led to the largest one-year gain in average home equity wealth for owners and is expected to spur a record amount of home-improvement spending this year.” The company’s Homeowner Equity Report noted U.S. home prices continued their upward trajectory in the first quarter, with year-over-year growth averaging nearly 20%, allowing 62,000 owners to regain equity compared with the previous quarter. Only 2% of homeowners with a mortgage remain underwater, a slight decline from the fourth quarter. The report said from the fourth quarter to the first quarter, mortgaged homes in negative equity decreased by 5.3% to 1.1 million homes, or 2% of all mortgaged properties. A year ago, 1.4 million homes, or 2.6% of all mortgaged properties, were in negative equity. This number decreased by 23%, or 300,000 properties, in the first quarter. CoreLogic said should home prices increase by 5% in the second quarter, 130,000 homes would regain equity; if home prices decline by 5%, 167,000 properties would fall underwater. Source: CoreLogic

College grads are getting ready to start their careers, but they’re finding soaring rental costs could quickly zap away most of their newly earned paychecks. In 2020, the average starting salary for college graduates was about $55,000, up more than 14% about a decade ago, according to the National Association of Colleges and Employers’ most recent complete data. But rents are rising faster than paychecks. The median apartment rent has jumped more than 16% in the past year alone. Rents are up 28% since January 2017, according to Apartment List data. “That’s pretty astronomical rent growth,’ Chris Salviati, a housing economist at Apartment List, told The Wall Street Journal. “When we’re talking about recent grads entering the market right now, in many cases these are folks who are going to be struggling more than those who graduated just a couple years ago.” Financial advisers often suggest that consumers not spend more than 30% of their monthly income on rent. But in many places, college grads find that nearly impossible. Many renters also are now facing increased competition for rental units as demand outstrips supply in many large markets. Many college grads may turn to living with roommates to try to lower costs. The housemate-finding platform Roomster has seen roommate queries jump about 40% over one year in many cities. But even with a roommate, renters also must show property owners that they can afford the rent. Property owners often want to see cash savings, lengthy and stable work histories, and previous work experience, which new college grads typically lack, The Wall Street Journal reports. Some renters may be asked to have a guarantor, a person who will agree to take responsibility for lease obligations in case the renter is unable to pay. Source: The Wall Street Journal

Just like townhome demand is rising — so is condo demand. The first quarter proved to be the best quarter for condo construction since the third quarter of 2008—in about 14 years, according to the National Association of Home Builders. As buyers search for greater affordability, they may be drawn to condos. Still, the median existing condo and co-op sales price was $340,000 in April, an increase of 13.1% compared to a year earlier, according to the National Association of REALTORS®. But for comparison, the median existing single-family home price was $397,600 in April, up 14.8% annually. “The condo market has bounced back,” Chance Glover, a Redfin manager in Boston, told the media earlier this spring. “People are no longer afraid to live downtown, close to the crowds—and they often prefer it, because they’re close to the office and all the amenities of the city. Rising prices are pushing single-family homes out of reach for a lot of buyers, so condos are affordable in comparison.” The National Association of Home Builders expects multifamily building to stabilize overall as construction moves further out from urban cores and renters seek larger, more affordable housing. “Gains for condo construction could also lift multifamily unit size,” Robert Dietz, NAHB’s chief economist, writes on its association’s blog. Source: National Association of Home Builders’ Eye on Housing blog