Stock markets - The month began with positive news on inflation. The Consumer Price Index (CPI), the broadest measure of inflation, showed that consumer prices rose 5% year-over-year. While still a long way off the Fed's 2% target, it was the lowest reading in one year and far below its peak of 9.2% last June. The Fed increased their key interest rates by another 1/4% but signaled that they were close to pausing on future increases. Near the end of the month, stocks dropped, and mortgage rates rose on fears that the debt ceiling would not be raised, causing a default on U.S. debt. A deal was agreed to on May 30. It is expected to pass Congress and be signed by the president next week. The Dow Jones Industrial Average closed the month at 32,908.27, down 4.5% from 34,098.16 on April 30, 2023. It is down 0.7% year-to-date. The S&P 500 closed the month at 4,179.83, up 0.2% from 4,169.48 last month. It is up 8.9% year-to-date. The NASDAQ closed the month at 12,935.29, up 5.8% from 12,226.58 the previous month. It is up 23.6% year-to-date.
U.S. Treasury bond yields - The 10-year treasury bond closed the month yielding 3.64%, up from 3.44% last month. The 30-year treasury bond yield ended the month at 3.85%, up from 3.67% last month. 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 June 1, 2023, were as follows: The 30-year fixed mortgage rate was 6.79%, up from 6.43% at the end of February. The 15-year fixed was 6.18%, up from 5.71% at the end of April.
The jobs report is released on the first Friday of the month. Home sales figures are released on the third week of the month by the California Association of Realtors and the National Association of Realtors. These are the April employment and home sales data.
The unemployment rate dropped to its lowest level since 1969 in April - The Department of Labor and Statistics reported that 253,000 net new full-time jobs were added in April. That exceeded economists' expectations of 180,000 new jobs. The unemployment rate fell to 3.4%, tied with January for its lowest level since 1969. The Federal Reserve wants an unemployment rate in the 4.25% - 4.6% range to cool inflation. Still, despite one year of steady interest rate increases, the labor market is extreme, and the unemployment rate is moving in the opposite direction of what the Fed is trying to achieve. The Fed wants to cool the labor market because a shortage in labor causes wages to rise, giving people more money to spend, which is inflationary. Average hourly wages increased 4.4% from one year ago, up from a 4.2% year-over-year increase in March. The labor-force participation rate (the share of workers with a job or actively looking for an appointment) was 62.6% in April, unchanged from March. While that is the highest level since the start of the pandemic, it is below the 63.4% level before the pandemic. The May jobs report will be released tomorrow.
U.S. existing-home sales - The National Association of Realtors reported that existing-home sales totaled 4.28 million units on a seasonally adjusted annualized rate in April, down 23.2%from an annualized rate of 5.57 million in April 2022. The median price for a home in the U.S. in April was $388,800, down 1.7% from $395,500 one year ago. There was a 2.9-month supply of homes for sale in April, up from a 2.2-month pool last April. First-time buyers accounted for 29% of all sales. Investors and second-home purchases accounted for 17% of all sales. All cash purchases accounted for 28% of all sales. Foreclosure and short sales accounted for 1% of all sales.
California existing-home sales - The California Association of Realtors reported that existing-home sales totaled 267,880 on a seasonally adjusted annualized basis in April, down 36.1% from the 418.970 homes that closed escrow on an annualized basis last April. The statewide median price for a home in April was $815,340, up 3% from March but down 7.8% from $884,680 one year ago. There was a 2.5-month supply of homes for sale in April, up from a 2.2-month supply one year ago. We are seeing prices that peaked in May of 2022 and dropped about 18% by February, rising quickly due to a lack of inventory in most price ranges. I expect the May median price to be slightly higher than April. The market is quite robust because the median price rose 7.6% month-over-month in March and another 3% month-over-month in April. This is due to a historic drop in inventory.
We don't have enough homes for sale to satisfy the demand for the number of buyers out there. We have never seen so few homes come up for sale. This is due to high tax liabilities on gains over $250,0000 for single and $500,000 for joint filers exclusions and the jump in interest rates. Over 50% of home buyers are move-up buyers. They sell a home to buy another. Many of them have put off their move because it's challenging to sell a home with a 3% mortgage interest rate and buy one with a rate over 6%. The lack of inventory has created a situation where it is not uncommon to see homes priced correctly get many offers. Homes that are not priced correctly are not selling. The high-end market is also a little sluggish. There is more inventory there.
The graph below shows sales data by county in Southern California.
