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.
Initial claims for unemployment fell to 290,000 during the week ending October 16th, their lowest level since March 14, 2020. A year ago, weekly claims were 798,000, so the labor market’s come a long way in the past 12 months. And the progress since the worst of the pandemic is even more impressive. Look at this chart showing initial claims back to the start of 2020. They peaked the week ending April 4, 2020 at 6.149 million. Just a little over 18 months later, they have fallen by an amazing 95%. Continuing claims for unemployment also hit a pandemic-era low, falling by 122,000 to 2.48 million. Remember that this data trails initial claims by one week. Mark your calendar for November 5, when the October employment figures are released. Hopefully, we’ll see the big spike in employment we’ve been looking for after two very disappointing months in a row.
Freddie Mac announced yesterday that the average 30-year conforming mortgage rate rose to 3.09% this week, their highest level since the beginning of April. One year ago, 30-year rates were averaging 2.80%.
The recent surge in inflation, which should lead the Federal Reserve to reduce their monthly bond purchases next month, is the real culprit here. Since inflation isn’t going away any time soon, the big question is how much rates will go up through the end of this year and in 2022.
The Mortgage Bankers Association just released their forecast, which has 30-year rates ending 2021 at 3.1%, before rising to 4.0% at the end of next year. They expect rising rates to reduce mortgage originations by 33% next year, but that’s all on the refinance side. Purchase applications are forecast to increase 9% next year, to a record $1.73 trillion.
Before you get too concerned, meet my friend FRED. FRED is short for Federal Reserve Economic Data, a database filled with all kinds of great stats maintained in St. Louis. Look at the chart below:
You’ll see from this chart that even if rates rise to 4% by the end of next year, they will still be at historically low levels. And if you look at 2006-2007, you’ll see we had an unprecedented "housing bubble" when rates were hovering between 6.0%-6.5%.
While none of us want higher rates, they are a side effect of a stronger economy and rising inflation. Now that the Fed has finally realized they’ve screwed up, hopefully they will act fast enough to get inflation under control so it truly will be "transitory."