NATIONAL MARKET UPDATE – 5/9/2022

Residential construction spending rose 1.0% in March to an $882.0 billion annual rate, an 18.4% gain over a year ago. For single-family homes, construction spending is up 19.4% the past year.
Part of that spending increase is due to the cost of building supplies. The National Association of Home Builders says that lumber prices raised the price of a typical single-family home more than $18,600 in a recent four month period.
The Mortgage Bankers Association forecasts mortgage rates “are likely to plateau near current levels. The financial markets have attempted to price in the impact of Fed actions over this cycle, and…the economic slowdown that will result.”

REVIEW OF LAST WEEK

GOOD FED, BAD FED… The stock markets suffered another week of losses as investors wondered: was the Fed’s half percent rate hike–the largest in 22 years–good for inflation but bad for the economy?
The market rallied Wednesday after Fed Chair Powell said three quarter percent hikes were off the table, quelling concerns big hikes would spark a recession. But stocks sank Thursday on fears the Fed wasn’t being tough enough on inflation.
Friday, we got a decent April jobs report–though labor force participation fell, signaling a need for higher wages to attract workers to the record number of job openings. Of course, that would lead to more inflation!
The week ended with the Dow down 0.2%, to 32,899; the S&P 500 also down 0.2%, to 4,123; and the Nasdaq down 1.5%, to 12,145.
Inflation-hating bonds took a heavy hit, the 30-year UMBS 4.5% down 0.87, to $100.30. Lower bond prices signal higher rates, so the national average 30-year fixed mortgage rate was up 17 basis points in Freddie Mac’s Primary Mortgage Market Survey. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up-to-the-minute information.
DID YOU KNOW… Attom Data found that from 2011 to 2021, home sales closing in mid-to-late May went for the highest price premium of the year. The best day to close was May 23 when homes went for an 18.3% premium!

THIS WEEK’S FORECAST

INFLATION ADVANCES, JOBLESS CLAIMS, CONSUMER SENTIMENT RECEDE… Inflation is expected to keep rising in March, though at a slightly slower pace in both the Consumer Price Index (CPI) and the wholesale Producer Price Index (PPI). Initial Unemployment Claims should drop, but so will University of Michigan Consumer Sentiment, still posting historical lows.

FEDERAL RESERVE WATCH

Forecasting Federal Reserve policy changes in coming months. Last week, the Fed said it would stick to half percent rate hikes at each of the next three meetings. Wall Street at the moment is buying that scenario. Note: In the lower chart an 83.4% probability of change is an 83.4% probability the rate will rise.
AFTER FOMC MEETING ON: CONSENSUS
Jun 15 1.25%-1.50%
Jul 27 1.75%-2.00%
Sep 21 2.25%-2.50%

Probability of change from current policy:
AFTER FOMC MEETING ON: CONSENSUS
Jun 15 83.4%
Jul 27 98.3%
Sep 21 64.7%

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