Stock markets were almost unchanged this week – Data this week showed that the economy is still extremely strong. Two weeks ago we learned that over 500,000 new jobs were created, triple the number that economists expected. This week we saw that the CPI (consumer price index) increased 6.4% year-over-year in January, almost unchanged from a 6.5% increase in December. The CPI rate, the government’s gage of inflation, had been moving down steadily since peaking at 9.1% in June 2022, but those monthly drops appear to be stalling. The Federal Reserve wants the CPI rate at 2%. We are a long way off of that. On Wednesday the Commerce Department reported that Retail sales rose 3% in January, double the number that was expected. Consumer spending accounts for 2/3 of the U.S. economy. Consumers out spending fuels inflation. The Fed has increased interest rates for almost eleven months in order to cool the job market, slow spending and control inflation. So far they have been unsuccessful. While a strong economy, and a healthy consumer is good for stocks, it is bad for interest rates. The higher the prospect of inflation, the higher interest rates go. Mortgage rates are up about one full percent in the last two weeks. They rose after the release of the jobs report, the CPI report, and the retail sales report. The Dow Jones Industrial Average closed the week at 33,826.69, down 0.2% from 33,869.27 last week. It is up 2.1% year-to-date. The S&P 500 closed the week at 4,079.09, down 0.3% from 4,090.46 last week. It is up 6.3% year-to-date. The NASDAQ closed the week at 11,787.27, up 0.6% from 11,718.12 last week. It is up 12.6% year-to-date.
U.S. Treasury bond yields – The 10-year treasury bond closed the week yielding 3.82%, up from 3.74% last week. The 30-year treasury bond yield ended the week at 3.88%, up from 3.83% last week. We watch bond yields because mortgage rates follow bond yields.
Mortgage rates – The Freddie Mac Primary Mortgage Survey reported that mortgage rates for the most popular loan products as of February 16, 2023, were as follows: The 30-year fixed mortgage rate was 6.32%, up from 6.12% last week. The 15-year fixed was 5.51%, up from 5.25% last week. Rates were higher at the end of the week. Next week’s Freddie Mac rates will be higher.
California existing-home sales – The California Association of Realtors reported that existing-home sales totaled 241,520, on a seasonally adjusted annualized basis in January, down 47.7% from 444,400 homes on an annualized basis last January. The statewide median price paid for a home in January was $751,330, down 3% from $774,850 in December, and down 1.9% from $766,250 in January 2022. There was a 3.6-month supply of homes for sale in January, up from a 1.8-month supply one year ago. January closed sales represent homes that went into escrow in November and December. With so few people putting their homes up for sale we have seen a dramatic turn around in the last few weeks. We are seeing multiple offers and prices being bid higher, as we saw in early 2022. The homes that just went under contract and into escrow have sales prices much higher than they would have sold for a month or so ago. It appears that the median sales price in April will be significantly higher than it currently is, as these recent sales move to closing.