The Cascade Team Blog

Weekly Review
Newsletter - 09/12/2022

Week of September 5, 2022 in Review

News about home price appreciation and unemployment claims highlighted an otherwise quiet economic calendar, while Fed Chair Jerome Powell’s comments about inflation moved the markets. Here are the crucial takeaways:

• Home Prices Still Forecasted to Appreciate at Meaningful Level
• Initial Jobless Claims Reach Lowest Level Since Late May
• Fed Talks Tough About Inflation

Home Prices Still Forecasted to Appreciate at Meaningful Level

CoreLogic released their Home Price Index report for July, showing that home prices declined by 0.3% from June but were 15.8% higher than July last year. This annual reading declined from 18.3% in June but is still significant. More importantly, CoreLogic forecasts that home prices will appreciate 0.3% from July to August and 3.8% in the year going forward.

What’s the bottom line? Four percent appreciation is still meaningful for wealth creation. For example, if someone bought a $400,000 home and put 10% down, that means they would gain $16,000 in appreciation over the next year and earn a 40% return on their investment due to leverage.

Initial Jobless Claims Reach Lowest Level Since Late May

The number of people filing for unemployment benefits fell by 6,000 in the latest week, as 222,000 Initial Jobless Claims were reported, the lowest level in just over three months. The previous week’s Initial Jobless Claims were also revised lower by 4,000. However, Continuing Claims increased by 36,000 to 1.473 million, the highest level since April.

What’s the bottom line? The 4-week average of Initial Jobless Claims had been rising steadily this spring and summer after reaching 170,500 on April 2. However, it has moderated slightly in recent weeks and now sits at 233,000 after the high of 249,500 on August 6. It appears that layoffs have slowed in recent weeks, but those who have already been laid off are continuing to receive benefits. This could be a sign that employers are reluctant to let go of workers for fear of not being able to replace them and may be slowing new hires instead.

Fed Talks Tough About Inflation

In an appearance last Thursday, Fed Chair Jerome Powell reiterated that the Fed is “strongly committed” to fighting inflation, which remains near 40-year highs and well above their target range.

To help cool inflation, the Fed has been hiking its benchmark Fed Funds Rate, which is the interest rate for overnight borrowing for banks and is not the same as mortgage rates. Recent news reports have indicated that the Fed is expected to hike the Fed Funds Rate another 75 basis points at its meeting on September 20-21.

What’s the bottom line? Inflation is one of the main drivers of interest rates, so counterintuitively, Fed rate hikes can be good for mortgage rates if they’re perceived to curb inflation. However, the Mortgage Bond market reacted negatively last Thursday to Powell’s comments, which can come as a surprise.

If the Fed sounds worried that they are far behind the curve in fighting inflation, it can scare the markets. On the other hand, if the Fed sounds confident that they have the job in hand and inflation under control, the markets respond well as they can look forward to lower inflation. Last Thursday, we saw the former reaction.

What to Look for This Week

All eyes will be on inflation data for August when the Consumer Price Index and Producer Price Index (which measures wholesale inflation) are reported on Tuesday and Wednesday, respectively.

Also on Tuesday, the National Federation of Independent Business Small Business Optimism Index will show us how small business owners were feeling last month. On Thursday, the latest Jobless Claims, August’s Retail Sales and September’s manufacturing data for the New York and Philadelphia regions will provide important updates on key areas of the economy. 

Technical Picture

Mortgage Bonds ended last week continuing to trade in a wide range between support at 98.64 and overhead resistance at 99.16. They also continue to battle with a falling trend line that has kept a lid on prices for the last month.

 Real Estate Weekly Report - Housing Market Affected by Higher Interest Rates and Continuing Low Inventory

Information (weekly review) was provided by Mark Hedman
Homebridge Financial Services  - Sales Manager, Mortgage Loan Originator