Stock markets had their best week since June – Stock markets surged this week as investors bet on stocks being oversold in the last six weeks. Most stocks surged despite some disappointing third quarter profit results that brought some companies’ shares lower. Bond yields and mortgage rates increased to their highest levels since 2008. On Friday, some Fed officials expressed caution and signaled that they may be in favor of pausing interest rate hikes in 2023. They cited the risk of raising rates at too quick of a pace. It seems like some Fed officials want to give the higher rates more time to slow the economy to combat inflation before going even higher, rather than letting them get so high that a deep recession cannot be avoided. The Dow Jones Industrial Average closed the week at 31,082.56, up 4.5% from 29,734.83 last week. It is down 14.5% year-to-date. The S&P 500 closed the week at 3,752.75, up 4.7% from 3,583.07 last week. The S&P is down 21.3% year-to-date. The NASDAQ closed the week at 10,859.72, up 5.2% from 10,321.39 last week. It is down 30.6% year-to-date.
U.S. Treasury bond yields – The 10-year treasury bond closed the week, yielding 4.33%, up from 4.0% last week. The 30-year treasury bond yield ended the week at 4.21%, up from 3.99% 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 for the most popular loan products as of October 20, 2022, were as follows: The 30-year fixed mortgage rate was 6.94%, up slightly from 6.92% last week. The 15-year fixed was 6.23%, up from 6.09% last week. The 5-year ARM was 5.81%, down from 5.81% last week. Rates were much higher at the end of the week so next week’s rates will be higher.
U.S. existing-home sales – The National Association of Realtors reported thatexisting-home sales totaled 4.71 million units on a seasonally adjusted annualized rate in September, down 1.5% month-over-month from the annualized number of sales in August. Year-over-year sales were down 23.3% from an annualized rate of 6.18 million in September 2021. The median price for a home in the U.S. in September was $384,800, up 8.4% from $361,500 one year ago. Month-over-month, the median price dropped for a third month from the all-time high of $413,800 in June. September marked a record 127 consecutive months of year-over-year increases in the median price. There was a 3.2-month supply of homes for sale in September, up from a 2.4-month supply last September. First-time buyers accounted for 29% of all sales. Investors and second-home purchases accounted for 15% of all sales. All-cash purchases accounted for 22% of all sales. Foreclosure and short sales accounted for 2% of all sales.
California existing-home sales – The California Association of Realtors reported that existing-home sales totaled 305,680, on a seasonally adjusted annualized basis in September down 30.2% from September 2021, when 438,190 homes sold on an annualized basis. Year-to-date existing-home sales are down 16.5%. The statewide median price paid for a home in September was $821,680, up 1.6% from $808,890 in September 2021. There was a 2.9-month supply of homes for sale in September, down from a 1.9-month supply one year ago.
The highest interest rates since 2008 has dramatically reduced the number of sales and caused prices to moderate. The number of sales is down 30% from last year’s pace. We are seeing the lowest number of sales since the financial crisis when home financing had the most stringent qualifying requirements ever. We expect this low number of sales to continue through the end of 2023. Home prices, which were up by over 10% year-over-year in May, are now just slightly higher than one year ago. Prices are down about 10% from their peak in May. Higher interest rates have made homes less affordable, but the decline in prices has created a good opportunity for buyers. The bidding wars we saw earlier in the year are less prevalent. Most homes are no longer selling with multiple offers. Only the homes priced at last year’s levels are selling. Experts feel that interest rates have peaked and will be lower in 2023 and 2024. That makes it a good time to buy! Basically the drop in price more than makes up for the higher payment until rates drop and buyers can refinance.