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Economic Update for the week ending June 25, 2022

Stock markets soared to rebound from three straight weeks of steep losses - Stocks markets jumped again on Friday and posted their second-best week of the year. Comments from Federal Reserve officials and testimony by Fed Chairman Powell to Congress this week led investors to believe that future rate hikes would not be as severe as previously thought. Powell also testified that he felt that even if there were to be a recession, which he felt could be avoided, it would be mild. He quoted many reasons for his belief in the strength of the economy which included: the strong position of U.S. banks, the strength of labor markets, the strength of the housing market and home equity, and a strong dollar. A key inflation index showed that commodity prices have fallen as recession fears have grown, indicating that the rate hikes are working and that inflation may be moderating.

  • The Dow Jones Industrial Average closed the week at 31,500.68 up 5.4% from 29,888.78 last week. It is down 13.3% year-to-date.

  • The S&P 500 closed the week at 3,911.74, up 6.5% from 3,674.84 last week. The S&P is down 18.0% year-to-date.

  • The NASDAQ closed the week at 11,609.62, down 7.6% from 10,789.35 last week. It is down 25.8% year-to-date.

U.S. Treasury bond yields - The 10-year treasury bond closed the week yielding 3.13%, down from 3.25% last week. The 30-year treasury bond yield ended the week at 3.26%, down from 3.30% last week. We watch bond yields because mortgage rates often follow treasury bond yields.

Mortgage rates – The Freddie Mac Primary Mortgage Survey reported that mortgage rates as of June 23, 2022, for the most popular loan products were as follows:

  • The 30-year fixed mortgage rate was 5.81%, up from 5.78% last week.

  • The 15-year fixed was 4.92%, up from 4.81% last week.

  • The 5-year ARM was 4.41%, up from 4.33% last week.

U.S. existing-home sales - The National Association of Realtors reported that existing-home sales totaled 5.41 million units on a seasonally adjusted annualized rate in May, down 3.4% month-over-month from the annualized number of sales in April. Year-over-year sales were down 8.6% from the annualized rate of 5.92 million in May 2021. The median price of a home in the U.S. in April was $407,600, up 14.8% from $355,000 one year ago. May marked a record 123 consecutive month of year-over-year increases in the median price. Inventory levels increased 12.6% from April, but are still 4.1% below the amount of homes for sale in May 2021. There was a 2.6-month supply of homes for sale in May, up slightly from a 2.5 month supply last May. First-time buyers accounted for 27% of all sales. Investors and second-home purchases accounted for 16% of all sales. All-cash purchases accounted for 25% of all sales. Foreclosure and short-sales accounted for less than 1% of all sales remaining at a historic low.

MBA Mortgage Applications

The MBA weekly mortgage applications index increased by +4.2% for the week ending June 17th. Purchase applications increased by +8.0% but were -10.0% lower than the same week last year. Refinance applications decreased by -3.0% and were -77.0% lower vs. the same week a year ago. "Mortgage rates continued to surge last week, with the 30-year fixed mortgage rate jumping 33 basis points to 5.98 percent – the highest since November 2008 and the largest single-week increase since 2009. All other loan types also increased by at least 20 basis points, influenced by the Federal Reserve's 75-basis-point rate hike and commentary that more are coming to slow inflation," said Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting. "Mortgage rates are now almost double what they were a year ago, leading to a 77 percent drop in refinance volume over the past 12 months." Added Kan, "Purchase applications increased for the second straight week – driven mainly by conventional applications – and the ARM share of applications jumped back to over 10 percent. However, purchase activity was still 10 percent lower than a year ago, as inventory shortages and higher mortgage rates are dampening demand. The average loan size, at just over $420,000, is well below its $460,000 peak earlier this year and is potentially a sign that home price-growth is moderating."

Philly Fed Index

The Philly Fed Non-manufacturing Index showed general activity improving to 24.7 in June from 22.8 back in May. It was reported that more than 46% of the firms responded that they had business activity expansion in June. New orders also rose sharply on the month, adding 12 points to 15.5. The sales/revenue index also showed improvement as it grew 18 points to 26.2. In addition, roughly 33% of businesses also reported an overall increase in both full employment and part-time employment.

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