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Economic update for the week ending May 14, 2022

Despite a rally on Friday stock markets posted another large weekly loss – Stock markets rallied on Friday to end a turbulent week. The S&P and the Nasdaq posted their sixth weekly loss; their longest losing streak since 2012. The Dow has dropped for seven consecutive weeks, its longest losing streak since 1980. Over the past week, the Labor Department released four economic reports. Last Friday’s jobs report suggested that job growth is still strong which increases the chance of more aggressive rate hikes and tightening by the Fed. Thursday’s CPI, PPI and Import price reports suggested that inflation may have peaked in March. For example, the CPI report had inflation in April up 8.3% from one year earlier which is a very high inflation number but below the 8.5% year-over-year level in March, a 40-year high. First quarter corporate profits were strong with over 70% of companies beating expectations; however, investors expect inflation and rising interest rates to increase expenses and lower profits in the coming months. The Dow Jones Industrial Average closed the week at 32,196.66, down 2.1% from 32,889.37 last week. It is down 11.4% year-to-date. The S&P 500 closed the week at 4,023.89, down 2.4% from 4,123.34 last week. The S&P is down 15.6% year-to-date. The NASDAQ closed the week at 11,805.00, down 2.8% from 12,144.66 last week. It is down 24.5%, year-to-date.

U.S. Treasury bond yields – The 10-year treasury bond closed the week yielding 2.93%, down from 3.12% last week. The 30-year treasury bond yield ended the week at 3.10%, down from 3.23% last week. We watch bond yields because mortgage rates often follow treasury bond yields.

Mortgage rates – Home mortgage rates have continued to increase. Freddie Mac Primary Mortgage Survey reported that mortgage rates as of May 12, 2022 for the most popular loan products were as follows: The 30-year fixed mortgage rate was 5.30%, up slightly from 5.27% last week. The 15-year fixed was 4.48% down slightly from 4.52% last week. The 5-year ARM was 3.98%, up slightly from 3.96% last week.

California housing affordability dropped slightly in the first quarter of 2022 – The California Association of Realtors published their first-quarter housing affordability report this week. They found that 24% of California households could afford to purchase an $797,470 median-priced home. That is down from 25% in the fourth-quarter of 2021, and down from 27% from the same period one year ago. A minimum income of $158,000 was needed to qualify for the monthly payment of $3,950 which included principal, interest, and taxes on a 30-year fixed-rate mortgage at a 3.97% rate. Rates are substantially higher now than they were in the first quarter, but appear to be stabilizing. Condominiums were more affordable. The report found that 32% of California households were able to afford a $640,350 median-priced condo or townhouse. A minimum annual income of $126,800 was needed to qualify for the monthly payment of $3,170.

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