Stock markets continued to climb in July - Despite interest rates hitting their highest levels in 22 years, stocks have continued their massive 2023 rally. Essential economic news in July included: The CPI rate in June dropped to 3%, its lowest annual inflation rate since March 2021, and down from its peak of 9.1% in June 2022. The second quarter GDP report indicated that the economy grew 2.4% annually in the second quarter, beating economists' estimates of 1.8%. The unemployment rate dropped to 3.6% in June, near a 60-year low. 70% of companies that have reported second-quarter profits beat expectations. The Fed raised interest rates in July, the 11th raise in one year, bringing their key overnight rates to the highest since 2001.
The Dow Jones Industrial Average closed the month at 35,559.53, up 3.3% from 34,407.60 on June 30. It is up 7.3% year-to-date.
The S&P 500 closed the month at 4,588.96, up 3.1% from 4,450.58 last month. It is up 19.5% year-to-date.
The NASDAQ closed the month at 14,346.02, up 4% from 13,787.92 the previous month. It is up 37.1% year-to-date.
U.S. Treasury bond yields - The 10-year treasury bond closed the month yielding 3.97%, up from 3.81% last month.
The 30-year treasury bond yield ended the month at 4.02%, from 3.85% 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 July 27, 2023, were as follows:
The 30-year fixed mortgage rate was 6.81%, up from 6.71% on June 1. The 15-year fixed was 6.11%, up from 6.06% at the end of June.
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 June employment and home sales data.
Job growth cooled in June - The Department of Labor and Statistics reported that 209,000 new full-time jobs were added in June. That was nearly 100,000 fewer new jobs than the 306,000 positions created in May and below economists' expectations of 225,000 new jobs. The
unemployment rate was 3.6%, down from 3.7% in May. Average hourly
wages increased 4.4% from one year ago. The
labor-force participation rate (the share of workers with a job or actively looking for an appointment) was 62.6% in June, unchanged for the fourth consecutive month. It was 63.4% before the pandemic. The Fed has mentioned the imbalance in the labor market as one of the causes of inflation. A shortage of workers drives wages higher, which is inflationary. The labor market has not responded to the Fed's campaign on raising interest rates and tightening credit, which has historically slowed hiring.
U.S. existing-home sales - The National Association of Realtors reported that
existing-home sales totaled 4.16 million units on a seasonally adjusted annualized rate in
June, down 18.9% from an annualized rate of 5.13 million in June 2022. The
median price for a home in the U.S. in June was $410,200,
down 0.9% from $413,800 one year ago. There was a 3.1-
month supply of homes for sale in June, up from a 2.9-month pool last June.
First-time buyers accounted for 27% of all sales.
Investors and second-home purchases accounted for
18% of all sales.
All cash purchases accounted for
26% of all sales.
Foreclosures and short sales accounted for 2% of all sales.
California existing-home sales - The California Association of Realtors reported that existing-home sales totaled 277,490 on a seasonally adjusted annualized basis in June,
down 19.7% from an annualized 378,640 homes that closed escrow last June. Year-to-date, the number of homes sold was down 32.9% from the previous year's period. The statewide
median price for a home in May was
$838,260, up 0.3% from May
but down 2.4% from $858,800 last June. There was a
2.2-month supply of single-family homes for sale in June, down from a 2.4-month pool one year ago.
Current Real Estate market conditions - It is essential to think about the domino effect of Real Estate. About 60% of homes are sold to people who need to sell a house to buy another. High-interest rates have detracted many people from moving up to a larger home. That is causing a ripple effect in the market. Currently, we are seeing three different markets in California. Homes bought by
first-time homebuyers and investors are scarce. That market is robust. People who
need to sell to buy are staying put. This tightens the supply for first-time homebuyers, pushing those prices higher. It's hard to give up a 3% interest rate to buy a larger home with a 6.5% rate. Unfortunately, the people that would traditionally sell their home to move up to a larger home in the middle and higher price ranges that are holding off due to interest rates have led to mid and high-priced homes sitting on the market longer, even the new construction and investor remodels, which have been very scarce up to now. The third market is
extremely high-end. While there has been a historic number of homes sold for over $30 million, there are so many currently for sale that many are sitting on the market. While these buyers don't need to sell a home to buy, too many new homes have hit the market to satisfy the demand. Some areas have a 7-year supply of these high-end homes! Developers went crazy and built way more homes than buyers. Fortunately, we expect mortgage rates to come down significantly next year. We will not be surprised to see rates under 5% by the end of next year as inflation continues to tame. Frankly, long-term mortgage rates are higher now than they should be because lenders know there is a high likelihood of new loans being refinanced at lower rates in the next year or two. The origination process of a loan is very costly for lenders. Expectations of loans being paid off quickly make it necessary to charge higher rates to recoup the origination costs quicker.
The chart below shows June home sales data by county in Southern California.
