Market Update 3/22/2023
Mortgage Applications Surge Amid Rate Swoon
Last week, an unexpected drop in mortgage rates following two bank failures led to a 6.5% increase in home loan applications. Purchase loan applications rose by 7%, while refinance requests increased by 5%. These numbers highlight how sensitive some homebuyers and homeowners can be to sudden changes in mortgage rates.
Single-Family Production Remains Slow, but Builder Confidence Grows
Although single-family production continued at a sluggish pace in February, overall housing starts increased by 9.8% to 1.45 million annual units. Builders are grappling with challenges such as elevated mortgage rates, inflated costs, and tightened credit. However, rising builder confidence suggests a turning point may be on the horizon later in 2023, given the significant demand that exists on the sidelines.
Permitting Activity Increases in February
Permits experienced an uptick in February following a lackluster January, mainly due to multifamily projects. Single-family permits rose by 7.6% to 777,000 units, while a 17% increase in multi-family permits led to an overall permitting growth of 13.8%. It’s important to note that this number is significantly lower than the same period in 2022, with a 17.9% decrease.
Treasury Secretary Yellen Assures Bank Stability
In economic news, Treasury Secretary Janet Yellen assured lawmakers that government protection for failing banks is only applicable to those posing a “systemic risk.” Many depositors at the two collapsed banks lost amounts exceeding the federally insured limit of $250,000, but an emergency plan will compensate them.
Investors Flock to Treasuries Amid Bank Failures
Bank failures and a rout in global banking shares led to $9.8 billion flowing into Treasuries. Additionally, investors turned to cash, resulting in an influx of $112.7 billion. Although uncertainty shook the markets, fears have subsided as a series of lifelines for struggling banks helped restore investor confidence.
U.S. Supplier Prices Fall, Possibly Easing Inflation
In February, U.S. supplier prices decreased, signaling a potential easing of inflation. Prices rose 4.6% on a 12-month basis, down from January’s 5.7% gain and significantly lower than the 11.7% peak in March 2022. However, the often-volatile core categories, including food, energy, and supplier margins, experienced a 0.2% increase.
Market Predictions and Global Liquidity Measures
As the Federal Reserve meets this week, market pricing and most Wall Street experts predict a quarter-percentage-point interest rate hike. Expectations have fluctuated over the last two weeks, ranging from a half-point increase to a rate cut due to the financial sector’s turmoil. Regardless of the Fed’s decision, criticism is expected.
Traders currently believe that further rate hikes may not be sustainable, indicating potential rate cuts in the future. The Fed’s benchmark funds rate is predicted to reach a target range around 4% by year-end. Some argue that more hikes could trigger a recession. Last week, the European Central Bank increased rates by 0.50%.
In response to global liquidity concerns, the Fed has joined other major central banks in a coordinated effort to ensure dollars are available, mitigating the effects on credit supply for households and businesses. These operations will continue at least through April.
In conclusion, the housing market and the economy are experiencing a complex interplay of factors, including mortgage rate fluctuations, builder confidence, and inflation concerns. As central banks worldwide take coordinated action to address liquidity issues, the impact on both housing and economic sectors will be closely monitored. While there is optimism for a turning point later in 2023, market participants and policymakers must continue to navigate these challenges with prudence and adaptability to maintain stability and foster sustainable growth.