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The Line: Mortgage Rates Surge Higher

Gregory Heym is Chief Economist at Brown Harris Stevens. His weekly series, The Line, covers new developments to the economy, including trends and forecasts. Read on for the latest report and subscribe here to receive The Line in your inbox.

According to Freddie Mac, the average rate for a 30-year conforming mortgage just rose to 4.72%, their highest level since December 2018. Rates have climbed by 1.5% in just the past three months, thebiggest three-month increase since 1994.

This jump in rates has sharply reduced demand for mortgages, although applications for purchase mortgages are just 9% lower than a year ago. Refinance volume has taken a much larger hit, and is down 62% compared to the same week in 2021.

Not surprisingly, these higher rates are leading to more price drops for homes on the market across the U.S. Redfin reported this week that 12% of homes for sale had a price drop in the past month, up from 9% a year ago. That said, the inventory for homes for sale is still near record lows, so don’t expect prices to adjust too much just yet.

There’s no question that higher rates are the last thing the housing market wants, but remember to keep some historical perspective:

  • 30-year rates have averaged just under 8% over the past 50 years.

  • Rates were near 6.5% at the peak of the housing "bubble" 15 years ago.

  • We’ve been spoiled by record-low rates for most of the past 10 years.

As I’ve said before, you can expect mortgage rates to be very volatile over the next few months as the Fed pushes short-term rates higher. Comments this week by Federal Reserve Governors tell us to expect bigger rate hikes at thenext several FOMC meetings, starting with a 0.50% increase the first week of May.

Bringing up short-term rates should lower inflation, and eventually bring down 30-year mortgage rates. The big question is how long that will take. I wish I had an answer for you, but there’s just too much uncertainty to even guess at this point.

Jobless Claims Fall to Lowest Level Since 1968

Initial claims for unemployment recently fell to 166,000, their lowest weekly total since November 1968. This figure was much lower than the200,000 forecast, and 5,000 less than the prior week. The Labor Department announced a major change to the way it seasonally adjusts this data, which led to sharp revisions to prior numbers, including lowering the previous week’s figure down by 31,000. Don’t worry about what the change means—all you need to know is that weekly jobless claims are at a 53-year low. So, the news on the labor market continues to get better every week. In just the past two weeks we’ve learned:

  • 1.685 million jobs were added in the first quarter of 2022.

  • The unemployment rate is just 0.1% higher than before thepandemic.

  • Companies are looking to fill over 11 million jobs, which equals 1.8 jobs for every person looking for work.

  • Not since March 2020 have so many Americans been either employed or looking for work.

All this tells us to expect hiring to remain very strong over the next several months.

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1 Comment

Yumi Vega
Yumi Vega
Jan 20, 2023
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