Vital Statistics:
| Last | Change | |
| S&P futures | 4,155 | 4.25 |
| Oil (WTI) | 103.72 | -1.59 |
| 10 year government bond yield | 2.93% | |
| 30 year fixed rate mortgage | 5.49% |
Stocks are marginally higher as we begin the two-day FOMC meeting. Bonds and MBS are up.
Job openings hit a series high, according to the JOLTs report. The quits rate rose to 3%. Quits are important because they are a good predicter of future wage growth. Quits jumped in construction, reflecting the dire shortage of workers in this area. Overall, this report gives the Fed the comfort to raise rates, which is what they are going to do tomorrow.
Home prices rose 22% YOY in April, according to the Clear Capital Home Data Index. On a quarterly basis, home prices rose 6%, which means that we are seeing an acceleration in home price appreciation. Some of the usual suspects like San Jose saw a 10.7% increase. The South and the West Coast were the leaders, however even the Midwest and Northeast saw improving conditions.
Rising home prices and mortgage rates have taken a bite out of affordability. The percentage of median income that a mortgage payment taken out on the median home has jumped to about 26% from 20% late in 2020. While this is a huge leap compared to recent history, it is about average going back to the early 1980s. In fact, during the 81-82 recession, when mortgage rates were in the high teens, the P&I payment accounted for 50% of the median income.
Separately, CoreLogic reported that home prices rose 21% in March, although it forecasts that home price appreciation will slow to 6% over the next year. “The annual growth in the U.S. index was the largest we have measured in the 45-year history of the CoreLogic Home Price Index,” said Dr. Frank Nothaft, chief economist at CoreLogic. “Couple that price increase with the rapid rise in mortgage rates and buyer affordability has fallen sharply. In April, 30-year fixed mortgage rates averaged nearly 2 percentage points higher than one year earlier. With the growth in home prices, that means the monthly principal and interest payment to buy the median-priced home was up about 50% in April compared with last April.”
Redfin noted the same thing, saying that the typical borrower’s monthly payment has increased 39% YOY. “Rising mortgage rates are taking a bite out of pending sales as both buyers and sellers take a step back from the turbulent market,” said Redfin Chief Economist Daryl Fairweather. “It seems as though the ratio of buyers to sellers remains mostly the same, which is why we have yet to see a substantial drop in bidding wars or the share of homes selling quickly. It’s still early days though when it comes to 5% mortgage rates. The number of buyers willing to pay such high mortgage payments could evaporate by late summer.”
The Daily Tearsheet 