moderation

Apache is functioning normally

Home prices slipped a record 15.4 percent in the second quarter of 2008 from the same period a year ago, according to the S&P/Case-Shiller U.S. National Home Price Index released today.

The record fall outpaced the 14.2 percent year-over-year decline reported during the first quarter of 2008, though the acceleration of decline seemed to moderate in June.

The 10-City and 20-City indexes also posted record declines, falling 17.0 percent and 15.9 percent annually.

“While there is no national turnaround in residential real estate prices, it is possible that we are seeing some regions struggling to come back, which has resulted in some moderation in price declines at the national level” said David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s, in a statement.

“Record year-over-year declines were reported in both the 10-City and 20-City Composites in June; however, they are very close to the values reported for May. The rate of home price decline may be slowing.”

“For the month, the 10-City Composite was down 0.6% and the 20-City Composite was down 0.5%. While still falling, these are far less than the 2-2.5% monthly drops seen earlier in 2008.”

Since home prices peaked in the summer of 2006, the 10-City index has fallen 20.3 percent and the 20-City index is off 18.8 percent.

Over the last year, Las Vegas has been the weakest performer, with home prices down 28.6 percent, followed by Miami (-28.3%) and Phoenix (27.9%).

The metro areas of Charlotte, Dallas, Denver, and Boston have been some of the recent winners, seeing positive returns over the last quarter.

OFHEO Says Home Price Declines Slow in Second Quarter

Meanwhile, the OFHEO said the rate of home price declines slowed in the second quarter, as its purchase mortgage-only house price index fell 1.4 percent on a seasonally-adjusted basis from the first quarter.

That compares to a 1.7 percent decline seen in the prior quarter, though prices are still off 4.8 percent year-over-year.

The all-transactions home price index, which includes refinancing, fell 1.4 percent during the second quarter and was off 1.7 percent year-over-year.

The OFHEO noted that the larger home price declines seen in the S&P/Case-Shiller indexes could be attributed to weakness related to a lack of Enterprise financing and a reliance on higher-risk options.

Source: thetruthaboutmortgage.com

Apache is functioning normally

With mortgage rates near 20-year highs and relatively few homes listed for sale, the Atlanta-area housing market in August reached something of a precarious — and possibly temporary — plateau with prices rising, but slowly.

The median price of a home sold last month was $404,000, according to data released this week by the Georgia Multiple Listing Service.

That was just 1% higher than in July and only 2.3% above the median price of a home sold a year earlier, compared to double-digit increases for previous years, said John Ryan, chief marketing officer of the Georgia MLS.

The dampener on price hikes has been mortgage rates, pushed higher by the Federal Reserve’s campaign to tame inflation by raising borrowing costs.

When that changes, the market will see a flood of buying, predicted broker Kristen Jones, owner of Re/Max Around Atlanta. “Eventually, the Fed will stop, and mortgage rates will come down. At that point, we expect the floodgates to open.”

But right now, those gates are high and they’re holding.

The average rate for a 30-year mortgage was 7.18% at the end of August, the highest it has been since March 2002, according to the Federal Home Loan Mortgage Corp., which insures loans in secondary markets.

Many who do buy now are betting that can’t continue, Jones said. “Buyers crossing their fingers that they can refinance in the next few years.”

Higher rates not only make monthly payments dramatically higher for new buyers, they freeze many potential sellers who don’t want to trade their current low rates for a high rate if they move, Jones said. “Sellers are not motivated to list. About 61% of all outstanding mortgages have an interest rate below 4%.”

With so many potential sellers standing pat, inventory — that is, the number of homes listed for sale — was 12.1% lower in August than it was a year earlier, according to the Georgia MLS.

Fewer than 11,000 homes in the region were listed for sale, which represents barely two months of sales. In a healthy, balanced market, the inventory level should represent at least six months of sales.

Part of the problem is an overall housing shortage in metro Atlanta.

After years of exuberant overbuilding, construction came to a virtual halt during the 2007-09 recession and has never regained its previous pace despite the region’s population growth. Since 2012, the shortage — and the flow of millennials into the market — has kept home prices rising, which increasingly made affordability an issue.

Then came the pandemic, which roiled expectations about commuting and home offices, and spurred federal efforts to protect household finances by driving interest rates down to historic lows and pumping money into the economy.

The rebound from the pandemic has meant rapid job growth, along with higher pay for many.

But at least until recently, Atlanta home price gains far outpaced income growth. That made down-payments for homes a challenge, shoving many potential buyers out of the market.

Demand for housing has spurred construction, most of it well outside the city of Atlanta. Even so, high land prices and various zoning restrictions have made construction for first-time buyers rare.

In Alpharetta, Blue River Lifestyle Communities this week announced a 24-unit development that includes both townhomes and single-family houses. The homes will be listed at $1.3 million or more.

Nearly 80% of baby boomers own a home, but only about half of the nation’s millennials do, according to national brokerage Redfin. About 1 of every 5 millennials say they don’t think they’ll ever be able to afford one, according to a Redfin poll.

But at least renters have also seen a moderation in the market. Metro Atlanta’s median rent is $2,127 a month, according to Rent.com, which tracks rentals nationally. That is virtually unchanged from a year ago, the group said.

And rate hikes are also biting homeowners who stay put.

The Fed’s campaign ripples through to virtually all borrowing, from car loans to credit cards. So even homeowners with low-rate mortgages will pay more than before if they want to tap their mortgage for a loan, said Andy Walden, vice president of research at Black Knight, a real estate analysis firm recently purchased by Atlanta-based Intercontinental Exchange.

Nationally, mortgage holders withdrew $39 billion in equity from their homes in the second quarter of this year, which is only about half as much as before interest rates started to climb, he said. “Rising rates are having a clear impact on how — and how much — equity mortgage holders are willing to withdraw from their homes.”

Metro Atlanta housing market, August

Median sales price: $404,000

Number of sales: 5,299

Number of homes listed for sale: 10,927

Price compared to year earlier: up 2.3%

Sales compared to year earlier: down 15.8%

Price compared to January 2020: up 50%

Average rate, 30-year, fixed-rate mortgage

Aug. 31, 2023: 7.18%

Aug. 31, 2022: 5.66%

Aug. 31, 2021: 2.87%

Aug. 31, 2020: 2.91%

High since 1999: 8.64% (May 2000)

Last time above 7%: March 29, 2002

Source: Georgia Multiple Listing Service, S&P Case Shiller Index, Federal Home Loan Mortgage Corp.

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Source: ajc.com

Apache is functioning normally

Even though the average interest rate for the 30-year fixed loan fell 5 basis points from last week, they remain elevated as the Federal Reserve considers another hike of its own.

The Freddie Mac Primary Mortgage Market Survey found the average for the 30-year FRM was 7.18% for the week of Aug. 31, down from 7.23% seven days prior. A year ago, it was at 5.66%.

Meanwhile the 15-year fixed remained unchanged at 6.55%. For the same week in 2022, the average rate was 4.98%.

“Despite continued high rates, low inventory is keeping house prices steady,” said Sam Khater, Freddie Mac’s chief economist, in a press release. “Recent volatility makes it difficult to forecast where rates will go next, but we should have a better gauge in September as the Federal Reserve determines their next steps regarding interest rate hikes.”

Between Aug. 14 and Aug. 29, the benchmark 10-year Treasury yield was above 4.2%, with an Aug. 22 high point of 4.36%. But while some expected spreads between Treasurys and mortgages to narrow to more normal levels, the recent movements show this has yet to happen.

Zillow’s rate tracker had an 18 basis point decrease as of mid-morning Aug. 31, to 6.88% from an average of 7.06% for the prior week.

“After reaching their highest level in more than two decades last week, mortgage rates fell this week on economic data showing more modest economic growth in the second quarter and a cooling labor market,” said Orphe Divounguy, senior macroeconomist at Zillow Home Loans, in a Wednesday evening statement. “Revisions to the second quarter estimate of economic growth, which showed a moderation in consumer spending and large downward revisions to business investment — two factors frequently pointed to as sources of strong economic activity — helped push bond yields and mortgage rates downward.”

An inflation gauge the Federal Reserve looks at in its decision making process, the Personal Consumption Expenditures Index, rose 3.3% annually in July, higher than June’s 3% increase but still lower than 3.8% in May and 4.3% in April.

Besides investors reaction to this data, mortgage rate volatility will be driven by Friday’s monthly Bureau of Labor Statistics report.

At noon Thursday, following the PCE announcement, the 10-year Treasury yield was down 3 basis points to 4.09%.

“Signs of a cooling labor market also helped rates trend lower this week,” Divounguy said. “Labor demand is still far above pre-pandemic norms but is slowly easing: Job openings fell in June to their lowest level since March 2021.”

Source: nationalmortgagenews.com

Apache is functioning normally

The nationwide delinquency rate decreased for the second consecutive quarter, dropping to a decades-long low, the Mortgage Bankers Association said.

The share of outstanding mortgages for one-to-four unit properties with a missed payment stood at a seasonally adjusted 3.37% at the end of June, according to the MBA. The percentage reflected a 19 basis-point drop from 3.56% at first-quarter’s end, the second lowest delinquency rate at the time since at least 1979, when the MBA first began reporting the data. At the end of second quarter 2022, the national delinquency rate was 3.64%.

rawGenerally favorable economic data, including wage growth and historically low unemployment figures, are helping to keep borrowers from distress, according to Marina Walsh, MBA vice president of industry analysis.

“Buoyed by a resilient job market, homeowners are continuing to make their mortgage payments,” she said in a press release. 

Second-quarter numbers fell across all primary mortgage types: conventional loans and government products guaranteed by the Federal Housing Administration and the Department of Veterans Affairs. The delinquency rate for conventional mortgages declined 15 basis points quarter-to-quarter to 2.29%, its lowest since 2004. For VA-backed loans, the share of delinquent mortgages relative to overall volume was 3.7%. The FHA rate came in at 8.95%, reflecting a 32 basis point reduction. 

On an annual basis, both conventional and VA delinquency rates also dropped by 35 and 52 basis points, respectively. But the share of FHA-guaranteed loans in arrears grew by 10 basis points, a possible sign of economic and credit stress hitting some segments of consumers, Walsh said.

‘Delinquencies are rising for other forms of credit such as credit cards and car loans,” she said. “As the economy slows and labor market cools, homeowners with FHA loans are likely to feel the distress first.” 

The MBA’s report comes after Federal Reserve economists revealed this week credit card balances surpassed $1 trillion for the first time ever. Late payments on credit cards also rose compared to a year ago but showed more recent signs of moderation.

MBA calculates delinquencies based on the volume of loans at least one payment past due but does not include mortgages in the foreclosure process. In its research, MBA asks servicers to report loans in forbearance as delinquent if the payment was not made based on the original terms of the mortgage.

By stage, the rate of mortgages with payments 30 days past due came in at 1.75%, while the 60-day delinquency share stood at 0.55%. Loans delinquent by 90 days or more equaled 1.07%. 

Foreclosure numbers, while not included in the MBA’s delinquency data, appeared to be on a similar downward track. The total share of mortgages going through some stage of the foreclosure process was 0.53% as of June 30, down by 4 and 6 basis points quarterly and annually. New foreclosure starts in the second quarter inched down to a rate of  0.13%, 3 basis points lower from where they sat at the end of March.

The MBA’s findings corresponded somewhat to similar trends reported by real estate business intelligence provider Attom, who this week said both starts and foreclosure inventory were decreasing this summer. But Attom found the total number of properties with a foreclosure notice against them higher on a year-over-year basis.

Source: nationalmortgagenews.com

Apache is functioning normally

We think we know what will make us happy, but we don’t. Many of us believe that money will make us happy, but it won’t. Except for the very poor, money cannot buy happiness. Instead of dreaming of vast wealth, we should dream of close friends and healthy bodies and meaningful work.

The Psychology of Happiness

Several years ago, James Montier, a “global equity strategist”, took a break from investing in order to publish a brief overview of existing research into the psychology of happiness [PDF]. Montier learned that happiness comprises three components:

  • About 50% of individual happiness comes from a genetic set point. That is, we’re each predisposed to a certain level of happiness. Some of us are just naturally more inclined to be cheery than others.
  • About 10% of our happiness is due to our circumstances. Our age, race, gender, personal history, and, yes, wealth, only make up about one-tenth of our happiness.
  • The remaining 40% of an individual’s happiness seems to be derived from intentional activity, from “discrete actions or practices that people can choose to do”.

If we have no control over our genetic “happy point,” and if we have little control over our circumstances, then it makes sense to focus on those things that we can do to make ourselves happy. According to Montier’s paper, these activities include sex, exercise, sleep, and close relationships.

What does not bring happiness? Money, and the pursuit of happiness for its own sake. “A vast array of individuals seriously over-rate the importance of money in making themselves, and others, happy,” Montier writes. “Study after study from psychology shows that money doesn’t equal happiness.”

The Happiness Paradox

Writing in The Washington Post last June, Shankar Vedantam described recent research into this subject. If the United States is generally wealthier than it was thirty or forty years ago, then why aren’t people happier? Economist Richard Easterlin of the University of Southern California believes that part of the problem is the hedonic treadmill: once we reach a certain level of wealth, we want more. We’re never satisfied. From Vedantam’s article:

Easterlin attributes the phenomenon of happiness levels not keeping pace with economic gains to the fact that people’s desires and expectations change along with their material fortunes. Where an American in 1970 may have once dreamed about owning a house, he or she might now dream of owning two. Where people once dreamed of buying a new car, they now dream of buying a luxury model.

“People are wedded to the idea that more money will bring them more happiness,” Easterlin said. “When they think of the effects of more money, they are failing to factor in the fact that when they get more money they are going to want even more money. When they get more money, they are going to want a bigger house. They never have enough money, but what they do is sacrifice their family life and health to get more money.”

The irony is that health and the quality of personal relationships are among the most potent predictors of whether people report they are happy — and they are often the two things people sacrifice in their pursuit of greater wealth.

Why aren’t rich people happier? Perhaps it’s because many of them are workaholics, because they’re more focused on money than on the things that would bring them joy. A brief companion piece to The Washington Post story notes that researchers have found that “being wealthy is often a powerful predictor that people spend less time doing pleasurable things, and more time doing compulsory things and feeling stressed.”

In general, rich people aren’t much happier than those of us in the middle class. Yes, money can buy happiness if it elevates you from poverty, but beyond that the benefits are minimal. So why do so many people believe that money will make things better?

Stumbling on Happiness

In 2006, Harvard psychology professor Daniel Gilbert published Stumbling on Happiness, a book about our inability to predict what will really make us happy. Here is is a 22-minute video of a presentation Gilbert made at TED 2004, in which he compresses his ideas into bite-sized chunks.

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Gilbert says that because humans can plan for the future, we naturally want to structure our lives in such a way that we are happy, both now and later. But how do we know what will make us happy? We don’t. In fact, we’re surprisingly bad at predicting what will bring us joy. Gilbert asks:

Which future would you prefer? One in which you win the lottery? Or one in which you become paraplegic? Which would make you happier? […] A year after losing their legs, and a year after winning the lotto, lottery winners and paraplegics are equally happy with their lives.

The problem is impact bias, the tendency to overestimate the “hedonic impact” of future events. Put another way, the things that we think will make us happy usually don’t make us as happy as we think they will. Winning the lottery isn’t a panacea. Having an affair with your hot new co-worker won’t be as thrilling as you imagine. And losing a leg isn’t the end of the world.

It turns out that humans are able to synthesize happiness. Many people look outside themselves for fulfillment; they expect to find it in things, or in relationships, or in large bank accounts. But true happiness comes from within. True happiness comes when we learn to be content with what we have.

13 Steps to a Better Life

What does all this mean to you? If money won’t bring you happiness, what will? How can you stop making yourself miserable and start learning to love life? According to my research, these are the thirteen actions most likely to encourage happiness:

  1. Don’t compare yourself to others. Financially, physically, and socially, comparing yourself to others is a trap. You will always have friends who have more money than you do, who can run faster than you can, who are more successful in their careers. Focus on your own life, on your own goals.
  2. Foster close relationships. People with five or more close friends are more apt to describe themselves as happy than those with fewer.
  3. Have sex. Sex, especially with someone you love, is consistently ranked as a top source of happiness. A long-term loving partnership goes hand-in-hand with this.
  4. Get regular exercise. There’s a strong tie between physical health and happiness. Anyone who has experienced a prolonged injury or illness knows just how emotionally devastating it can be. Eat right, exercise, and take care of our body. (And read Get Fit Slowly!)
  5. Obtain adequate sleep. Good sleep is an essential component of good health. When you’re not well-rested, your body and your mind do not operate at peak capacity. Your mood suffers. (Read more in my brief guide to better sleep.)
  6. Set and pursue goals. I believe that the road to wealth is paved with goals. More than that, the road to happiness is paved with goals. Continued self-improvement makes life more fulfilling.
  7. Find meaningful work. There are some who argue a job is just a job. I believe that fulfilling work is more than that — it’s a vocation. It can take decades to find the work you were meant to do. But when you find it, it can bring added meaning to your life.
  8. Join a group. Those who are members of a group, like a church congregation, experience greater happiness. But the group doesn’t have to be religious. Join a book group. Meet others for a Saturday morning bike ride. Sit in at the knitting circle down at the yarn shop.
  9. Don’t dwell on the past. I know a guy who beats himself up over mistakes he’s made before. Rather than concentrate on the present (or, better yet, on the future), he lets the past eat away at his happiness. Focus on the now.
  10. Embrace routine. Research shows that although we believe we want variety and choice, we’re actually happier with limited options. It’s not that we want no choice at all, just that we don’t want to be overwhelmed. Routines help limit choices. They’re comfortable and familiar and, used judiciously, they can make us happy.
  11. Practice moderation. Too much of a good thing is a bad thing. It’s okay to indulge yourself on occasion — just don’t let it get out of control. Addictions and compulsions can ruin lives.
  12. Be grateful. It’s no accident that so many self-help books encourage readers to practice gratitude. When we regularly take time to be thankful for the things we have, we appreciate them more. We’re less likely to take them for granted, and less likely to become jealous of others.
  13. Help others. Over and over again, studies have shown that altruism is one of the best ways to boost your happiness. Sure, volunteering at the local homeless shelter helps, but so too does just being nice in daily life.

Remember: True wealth is not about money. True wealth is about relationships, about good health, and about continued self-improvement.

Related >> Is it More Important to be Rich or to be Happy?

Source: getrichslowly.org

Apache is functioning normally

Mortgage Q&A: “Does refinancing hurt your credit score?”

Consumers seem to be obsessed with their credit scores and what impact certain actions may have on them.

Perhaps the credit bureaus and credit score distributors are to blame, as they’re constantly urging us to check our scores for any changes.

Let’s cut right to the chase. When it comes to mortgage refinancing, your credit score probably won’t be negatively impacted unless you’re a serial refinancer. Like anything else, moderation is key here.

When you refinance your home loan, the bank or mortgage lender will pull your credit report and you’ll be hit with a hard credit inquiry as a result.

It’ll stay on your credit report for two years, but only affect your scores for the first 12 months.

The credit inquiry alone won’t necessarily lower your credit score, but if you’re constantly refinancing and/or applying for other types of new credit, the inquiries could add up to a point where they’re deemed unhealthy.

The credit score scientists found out long ago that individuals who apply for a ton of new credit are often more likely to default on their obligations.

But that doesn’t mean you can’t apply for mortgages and other types of credit if and when you feel it’s necessary.

You Could See a Credit Score Ding When Refinancing Your Mortgage

  • All 3 of your credit scores may fall temporarily
  • As a result of a mortgage refinance application
  • But the impact is usually quite minimal, say only 5-10 points
  • And fleeting, with score reversals happening in a month or so

Because a mortgage refinance is a new credit application, your credit score(s) could see a bit of a ding, though it probably won’t be anything substantial unless you’ve been applying anywhere and everywhere for new credit.

By a “ding,” I mean a drop of 5-10 points or so. Of course, it’s impossible to say how much your credit score will drop, or if it will at all, because each credit profile is completely unique.

Simply put, those with deeper credit histories will be less affected by any credit harm related to the mortgage refinance inquiry, while those with limited credit history may be see a bigger impact.

Think of throwing a rock in an ocean vs. a pond, respectively. The ripples will be a lot bigger in the pond.

But in either case, the ripple shouldn’t be much of a ripple at all, and nowhere close to say a late payment because it’s not a negative event in and of itself.

[What credit score is needed to buy a house?]

You Get a Special Shopping Period for Mortgages

  • FICO ignores mortgage-related inquiries made in the 30 days prior to scoring
  • And treats similar inquiries made in a short period (14-45 day window) as a single hard inquiry
  • Instead of counting multiple inquiries against you for the same loan
  • This may help you avoid any negative credit impact related to your mortgage search

First off, note that when it comes to FICO scores, mortgage-related inquiries less than 30 days old won’t count against you.

And for mortgage inquiries older than 30 days, they may be treated as a single inquiry if multiple ones take place in a small window.

For example, shopping for a refinance in a short period of time (say a month) may result in a large number of credit pulls from different lenders.

But they will only count as one credit hit because the credit bureaus know the routine when it comes to shopping for a mortgage.

And they actually want to promote shopping around, as opposed to scaring borrowers out of it.

After all, if you’re only looking to apply for one home loan, it shouldn’t count against you multiple times, even if you inquire with multiple lenders.

This differs from shopping for multiple, different credit cards in a short period of time, which could hurt your credit score more because you’re applying for different products with different card issuers.

Even if you shop for a mortgage refinance with different lenders, if it’s for the same single purpose, you shouldn’t be hit more than once.

However, note that this shopping period may be as short as 14 days for older versions of FICO and as long as 45 days for newer versions.

If you space out your refinance applications too much you could get dinged twice. Even so, it shouldn’t be too damaging, and certainly not enough to prevent you from shopping different lenders.

The potential savings from a lower mortgage rate should definitely trump any minor credit score impact, which as noted, is short-lived.

The mortgage, on the other hand, could stay with you for the next 30 years!

You Lose the Credit History Once the Account Is Closed

  • When you refinance it results in the closing of the old loan
  • That account will eventually fall off your credit report (in 10 years)
  • And closed accounts are less beneficial than active ones
  • But the new account should make up for the lost history on the old account

Another potential negative to refinancing is that you’d lose the credit history benefit of the old mortgage account, as it would be paid off via the new refinance.

So if your prior mortgage had been with you for say 10 years or more, that account would become inactive once you refinanced, which could cost you a few points in the credit department  as well.

Remember, older, more established tradelines are your credit score’s best asset, so wiping them all out by replacing them with new lines of credit could do you harm in the short-term.

Additionally, it could affect the average age of all your credit accounts (credit age), which is also seen as a negative.

But the savings associated with the refi should outweigh any potential credit score ding, and as long as you practice healthy credit habits, any negative effect should be minimal.

[Does having a mortgage help your credit score?]

Cash Out Refinance Means More Debt, Possibly a Lower Credit Score

  • A cash out refinance could hurt even more
  • Because you’re taking on more debt as a result
  • And larger amounts of outstanding debt
  • Along with higher monthly payments can make you a riskier borrower

Also consider the impact of a refinance that results in a larger loan balance, such as a cash-out refinance.

For example, if your current loan balance is $350,000, and you take out an additional $50,000, you’ve now got $400,000 in outstanding debt.

The larger loan balance will increase your credit utilization, and it could result in a higher monthly payment, both of which could push your credit score lower.

In short, the more credit you’ve got outstanding, the greater risk you present to creditors, even if you never actually miss a monthly payment.

In summary, a refinance should have a compelling enough reason behind it to eclipse any credit score concerns, so focus on why you’re refinancing your mortgage first before worrying about your credit score.

Ultimately, I’d put it on the no-worry shelf because chances are the refinance won’t lower your credit score much, if at all. And score drops related to new credit typically reverse very quickly.

So even if your credit score fell 20 points, it would probably gain those points back within a few months as long as you made on-time payments on the new loan.

And most people are only concerned about their credit scores right before applying for a mortgage, so what happens shortly after your home loan funds may not matter much to you.

But to ensure you don’t get denied as a result of a credit score drop, it’s helpful to have a buffer, such as an 800 credit score in case your score does drop a bit while shopping around.

If you’re right on the cusp of a credit scoring threshold and your score dips slightly, you could wind up with a higher interest, or at worst, be denied a mortgage outright.

Read more: When to refinance a home mortgage.

Source: thetruthaboutmortgage.com

Apache is functioning normally

We had a few times in the previous cycle where the 10-year yield was below 1.60% and above 3%. Regarding 4% plus mortgage rates, I can make a case for higher yields, but this would require the world economies functioning all together in a world with no pandemic. For this scenario, Japan and Germany yields need to rise, which would push our 10-year yield toward 2.42% and get mortgage rates over 4%. Current conditions don’t support this.

The backstory

The lifeblood of my economic work depends greatly on the ebbs and flows of the 10-year yield, even more than mortgage rate targeting, which is unusual for a housing analyst. 

When I first dipped into 10-year yield and mortgage rate forecasting in 2015, during the previous expansion, I said the 10-year yield will remain in a channel between 1.60%-3%. I’ve stuck to that channel forecast every year since — and for the most part that 10-year yield channel stuck. That range dictated that mortgage rates would roughly stay between 3.5%-4.75%.

When COVID-19 was about to hit our economy, I forecasted that the 10-year yield recessionary yields should be in a range between -0.21%-0.62%. We got to as low as 0.32% on that Monday morning in March when the crisis was hitting the markets the hardest. About a month later, I published my AB (America is Back) recovery model, which said that the 10-year yield should get back toward 1%. We got there in December of 2020 so I was able to retire my America is Back recovery model.

I said that when the economy was beginning the new expansion, the 10-year yield would create a range between 1.33%-1.60%. This couldn’t happen in 2020 but should happen in 2021. Even with the hot economic growth, the hottest inflation data in decades, and the Fed rate hike discussion picking up, this range of 1.33%-1.60% has held up nicely for most of 2021, meaning mortgage rates were going to be low in 2021.

My forecast for the 10-year yield range in 2021 was 0.62%-1.94% which translates to a bottom-end range in mortgage rates of 2.375%-2.5%, and an upper-end of 3.375%-3.625%. Single mortgage rate target forecasts have not fared well over the decades because these forecasters did not respect the downtrend in bond yields since 1981.

The X factor

Can there be a bond market sell out short term, sending yields above 1.94%, like what we saw early in the COVID-19 crisis? Yes, but if the markets do overreact for any reason, typically bond yields would fall back. Why do I not believe bond yields will push higher aggressively? The economic rate of growth peaked in 2021. The economy was on fire this year, and inflation data was super-hot. Even so, the highest the 10-year yield got was 1.75%. The economic disaster relief that boosted the recovery in 2020 and 2021 has been drawn down.

Government spending plans have also been watered down and new legislation might not even pass at all. Economic growth peaked in 2021 and some of the hotter inflation data has the potential to fall next year. The Federal Reserve wants to hike rates to cool the economy. Typically what happens before the first Fed rate hike is that the U.S. dollar has its biggest percent move higher ,which tends to hurt commodity prices and world growth. This is something to watch for next year as it could slow down world growth.

The economy won’t be as hot in 2022 as it was in 2021, but it will remain in expansionary mode. This type of backdrop will make it challenging for rates to rise in a big way and stay higher. The key with all my 10-year yield channel work is how long the 10-year stays in that channel during the calendar year. I have always believed this type of forecast is more useful than targeting a mortgage rate. 

Existing-home sales

The forecast

For 2022, I am forecasting the same sales trend range as 2021 of about 5.74 million to 6.16 million. If monthly sales prints are above 6.16 million for existing homes, then I would consider the market more robust than expected. If sales trend toward 5.3 million then we will be back to 2019 levels. This would still be healthy sales considering the post-1996 trend, but it will mean housing demand has gotten softer.

This has happened before when higher rates have impacted demand. This is why since the summer of 2020 I have written about how if the 10-year yield can get above 1.94%, then things should cool down. However, as you can see it’s been hard to bond yields over that level and thus mortgage rates above 3.75%.

The backstory

If the last two reports of the year on existing home sales are above 6.2 million, I will admit that sales have slightly outperformed what I predicted for 2021. Early in 2021, I wrote that home sales would moderate after the peaks caused by the COVID-19 shutdown make-up demand and that readers should not overreact to this slowing. I wrote that sales would range between 5.84 million and 6.2 million, and that we could anticipate a few prints under 5.84 million — but sales would consistently be above the closing level of 2020 of 5.64 million. We got one print below 5.84 million and a few recent prints over 6.2 million, with two more reports. Mortgage demand was solid all year long and has picked up in the last 15 weeks. 

One of my longer-term forecasts in the previous expansion was that the MBA Index would not reach 300 until 2020-2024. We got there in the early part of 2020, then the Index got hit by the COVID-19 delays in home buying to only have a V-shaped recovery that led to the make-up demand surge, moderation down and back to 300.

As you can see, it’s been like Mr. Toad’s wild ride here. We will still have some COVID-19 year-over-year comps to deal with up until mid February and then we can get back to normal. However, one thing is for sure: demand has been solid and stable in 2020 and 2021. Also, the market we have today doesn’t look like the credit boom we saw from 2002-2005.

I didn’t believe total home sales could get to 6.2 million in the years 2008-2019, this is new and existing home sales combined. We simply didn’t have the type of demographics in the previous expansion. We are in different times.

New home sales and housing starts

The forecast

My long-term call from the previous expansion has been that we won’t start a year at 1.5 million total housing starts until the years 2020-2024 and we have finally gotten here much like the 300 level in the MBA index. My rule of thumb has always been to follow the monthly supply data for new homes, and as long as monthly supply is below 6.5 months on a three-month average, they will build.

The backstory

Housing starts, permits and builders confidence are ending the year on a good note. Even though new home sales aren’t booming this year, it’s good enough to keep the builders building more homes even with all the drama of labor shortages, material cost and delays in finishing homes.

As you can see below, the uptrend has been intact even with the slowdown in 2018 and the brief pause from COVID-19.

The new home sales sector gets impacted by rates much more than the existing home sales marketplace. The last time this sector saw some stress from mortgage rates was in 2018 when rates were at 5%. Today’s 3% mortgage rates are good enough to keep things going. We should see slow growth in new home sales and housing starts as long as the monthly supply of new homes is below 6.5 months on a 3-month average. This sector has legs to walk forward slowly. I have never believed in the housing construction boom premise as mature economies don’t have construction booms with slowing population growth. More on that here.

The X factor

The one concern I have for this sector in 2022 is if the builders keep pushing the limits of home price growth to make their margins look better. When rates are low, they have the pricing power to do this. This is why the sector has done so well in 2021. If I am wrong about mortgage rates  staying low in 2022, and rates  go above 3.75% with duration, then demand for new homes should get hit. The longer-term concern for this sector is price growth because if demand slows down, this means a slowdown in construction and the builders really maximized their pricing power in 2020 and 2021. 

Home prices

The forecast

I am looking for total home-price growth to be between 5.2% and 6.7% for 2022. This would be a meaningful cool down in price growth but would still be a third year straight of too much price growth for my taste. 

The backstory

My biggest fear for the housing market during the years 2020 to 2024 was that real home-price growth can be unhealthy. When you have the best housing demographic patch ever recorded in history occurring at the same time as the lowest mortgage rates ever, with housing tenure doubling as it has in the last 12 years, it’s the perfect storm for unhealthy price growth.

Housing inventory has been falling since 2014 and mortgage purchase applications have been rising since then. As you can see below, 2021 wasn’t looking good for me regarding my fear for home prices rising too much.

The X factor

When I talk about real home-price growth being too hot, I mean that nominal home price growth is above 4.6% each year during the five-year period of 2020 to 2024, for a cumulative 23% growth. This would not be a positive for the housing market. If we end 2021 with 13% home price growth, (and it looks like we will do that or higher), then we have already achieved 23% of the price growth that I am comfortable with in just two years. 

While I do believe home-price growth is cooling from the extreme high rate of growth we had earlier in the year, I would very much like to see prices get back in line with my model for a healthy market. In order for this to happen, we would need to have no increase in home prices for the next three years. Because inventory levels are falling again, and we are at risk of starting the 2022 spring season at fresh new all-time lows, this outcome is very unlikely.

Early in 2021, I had raised concerns that prices overheating should be the main concern, not forbearance crashing the market. When demand is stable, it’s extremely rare for inventory to skyrocket and American homeowners have never looked better on paper. In fact, a few months ago I talked about inventory falling again should be the concern going out.

Housing demand

The forecast

Everyone is talking about rates going higher and no one, it seems, is talking about the possibility that mortgage rates could go under 3% in 2022, except me. This is front and center in my mind. I want to see a B&B housing market: boring and balanced. In a B&B market, buyers have choices, sales move at a reasonable pace without bidding wars, and the whole home-buying experience is less stressful and more sane. I would like to see inventory get toward 1.52 – 1.93 million, (which is still historically low). However, this will be a more stable housing market.

The backstory

Millions of people buy homes each year. The only thing that cooled demand for housing in the previous expansion was mortgage rates going over 4% with duration. The increase in rates didn’t crash the market or even facilitated negative year-over-year home price declines; but it did increase the number of days homes stayed on the market.

Currently the biggest demographic patch ever recorded in U.S. history are ages 28-34, the first-time homebuyer median age is 33. When you add move-up, move-down, cash and investor demand together, demand will be stable and hard to break under the post-1996 trend of 4 million plus total sales every year in the years 2020-2024. 

The X factor

Frankly, I’m getting tired of calling this market the unhealthiest since 2010. This is not due to a massive credit boom or exotic loan products contaminating the market with excess risk — it’s the lack of choice for buyers. If mortgage rates go under 3%, which I believe they can, it just keeps the low inventory story going on. The Federal Reserves wants to cool down the economy, the government is no longer providing disaster relief anymore and the world economies should get hit if the U.S. dollar gets too strong. So, my concern is about rates falling in year three of my 2020-2024 period. This is also a first-world problem to have and we aren’t dealing with the housing market of 2005-2008 when sales were declining and the U.S. consumer was already filing for bankruptcy and having foreclosures before the great recession started in 2008. This is to give you some perspectives here with my thinking.

The economy

The forecast

I expect the rate of change to slow in 2022 but the economy will still be expansionary. Retail sales have been off the charts, and this data line, which I expected to moderate, still hasn’t. The rate of growth will cool. Replicating the growth we saw in 2021 will be nearly impossible. As the excess savings have been drawn down and the additional checks that people got are no longer coming, this data line will find a more suitable and sustainable trend in 2022. Still I am shocked that moderation hasn’t happened already and I was the year 2020-2024 household formation spending guy, too.

The backstory

The U.S. economy has been on fire this year. Even with the excess savings, good demographics, and low rates, not even I thought we would see economic growth like we did in 2021. However, like all things in life, despite the peaks and valleys, the overall trend will prevail.

The X factor

I recently raised one of my six recession red flags after the most recent jobs report as the unemployment rate got to a key level for myself. These red flags are more of a progress checklist in the economic expansion, and when all six of my flags are raised, I go into recession watch. The economy is in a more mature phase of expansion since the recovery was so fast. Like everything with me, it’s a process to show you the path of this expansion to the next recession. 

For housing, a strong labor market means more people are getting off forbearance, which is already under 1 million, much smaller than the nearly 5 million we had early in the crisis. I want to wish a Merry Christmas to all my forbearance crash bros who promised a housing crash in 2020 and 2021. You guys are the best trolling grifters ever!

More jobs and more robust wage growth mean the need for shelter will grow. The housing market is already dealing with too much rent inflation, but as wage growth picks up on the lower end, this means landlords will charge more rent. Again, this the problem you want to have, a tighter labor market means wage growth will pick up and we have 11 million job openings currently.

So, look for the rent inflation story to be part of the 2022 storyline, as well as the rate of growth of home prices cooling down.

There is nothing like a fifth wave of COVID-19 and a new highly transmissible variant to crank up the personal stress meter. While the continuing COVID crisis can cause havoc on some short-term data lines for the economy, we will, as we have done, get through this and move forward. Our reality is that, as a nation, we have learned to consume goods and services with an active virus infecting and killing us every day.

The St. Louis Financial Stress Index, which was a key data line to track for the America Is Back recovery model, has still been in a calm zone for the entire year, currently at -0.8564. When we break over zero — which is considered normal stress — then we have some market drama. However, that wasn’t the storyline in 2021 and we didn’t have a single day where the S&P 500 was in correction mode. It’s not normal to not have a stock correction, so a stock market correction in 2022 is in the works and this can lead more money into bonds and drive rates lower. 

For more discussion on this index and the America is Back recovery model, this podcast goes over everything that has happened in 2020-2021. 

Conclusion

What a ride it has been for all of us since April 7, 2020 when I wrote the America Is Back economic recovery model for HousingWire. We end 2021 with one of the greatest economic recovery stories ever in the history of the United States of America, and a terrible, dark, two-year period of failure for the extreme housing bears. Now we are well into a recovery and looking forward to a new year with its new challenges.  

The job of the analyst is to forecast the positive or negative impacts that a whole slew of variables have on the economy based on carefully formulated economic models. The variables, such as demographics, the unemployment rate, what the Federal Reserve is doing, commodity prices and so many others, are constantly in flux and feed off of and influence one another. Additionally, new economic variables pop up all the time. My job, with every podcast and article, is to show you how the changes in these variables light the path to where the economy and the housing market is heading. 

Take a deep breath — in through the nose and out through the mouth. The last two years have been crazy, but I am glad you are here to read this. This is our country, our world and our universe, and everyone is part of team Life on Earth. Merry Christmas, Happy Holidays and have a wonderful Happy New Year. We will get through 2022 one data line at a time.

“We have always held to the hope, the belief, the conviction that there is a better life, a better world, beyond the horizon.” Franklin D. Roosevelt

Source: housingwire.com

Apache is functioning normally

Whenever my siblings and I misbehaved growing up, my mom knew the perfect punishment for each of her children. 

Josh, the social butterfly, would be grounded. Will, the gamer, would get no screen time. And whenever I disobeyed, mom was quick to announce my dreaded sentence. “No sweets.”

As an adult, I’d take a glass of wine with cheese and crackers over a bowl of ice cream any day, but the 12-year-old Kate was devastated every time my parents deprived me of sugar; and although my mom hasn’t punished me in years, my budget has assumed the role of disciplinarian in adulthood.

For the sake of our present and future, we, the grown-ups, must limit frivolous purchases to prioritize saving. Yes, it’s a challenge to monitor your own spending habits (especially when you’re the one to determine those habits), but I hope we can also agree it’s absolutely necessary.

With all this said, here’s the good news: budgeting doesn’t have to suck!

Next time you’re struggling to say “no” to dinner and drinks or that fancy new TV, revisit the following tips to keep your spending in check and stay focused on saving for tomorrow!

What’s Ahead:

1. Remember why you’re budgeting

If money wasn’t a limiting factor, I’d be quite the shopaholic. I’d buy some waterproof hiking boots, a new rug for my living room, a Patagonia sweater, an exercise ball and desk, and so on and so forth.

This is why my budget is essential. While spending money isn’t inherently bad, letting your spending habits run wild will come back to bite you in the long run.

Whenever you feel frustrated and limited by your budget, remember that it’s there to help you, not hurt you. It may not feel like it at the moment, but that’s why it’s imperative that you pause to remind yourself why you’re budgeting in the first place. The same can be said for eating one thin mint and not the whole box or watching one episode of Schitt’s Creek and not a whole season. 

For the sake of your health and your wellbeing, you need to maintain a little restraint every once in a while. Your future self will thank you for it.

2. Accept all the help you can get

It’s not easy to decline dinner with friends or ignore a sale at your favorite retailer. It’s even harder to do it over and over again.

Luckily, there are a number of budgeting services available to help you manage your spending and keep up the healthy habits. PocketSmith integrates with more than 12,000 financial institutions so you can monitor all your money in one convenient location. You can break your budget down into manageable chunks of time, such as weekly or even daily, and categorize and organize your past transactions and upcoming bills.

With all this said, one of the best features PocketSmith has to offer is you can forecast your saving and spending habits up to 30 years in the future! 

3. Set aside some “fun money”

A couple of years ago, I had the opportunity to chat with a nutritionist. I asked her opinion on individual ingredients like eggs and tofu. We talked about multiple small meals versus breakfast, lunch, and dinner. But, there’s one statement she made I clearly remember.

“I don’t like diets,” she said.

Her reasoning wasn’t that diets are ineffective or unhealthy, but that they’re not sustainable. Sure, you can lose 15 pounds in a couple of months, but then what? If you want to keep the weight off, she said, you need to find a long-term solution.

The key to sustainable dieting is moderation, and personal finance fits this same rationale. If you deprive yourself of dinner out indefinitely, not only will you feel a little sour when your friends grab a drink without you, but your relationships may suffer too. Whether you enjoy splurging on clothes, food, experiences, travel, or something else entirely, cutting those joys from your life completely will probably do more harm than good.

The best long-term solution for your budget is to make “fun money” a priority. Evaluate your budget and set aside a little cash each month for a few pleasant purchases. When you want to spend on a new pair of boots or a weekend vacation with friends, you’ll have some money available to make the purchase.

4. Make a list of what you want to buy

About a year ago, I had a conversation with a former coworker about money.

He was preparing to transition to a new job, and I was getting ready to start freelance writing full-time. We both had some major modifications to make to our budgets, and he told me that one habit that has helped him and his wife monitor their spending was making a list of everything they wanted to buy. Every time they had extra cash to spend, they’d refer to their list and buy whatever item or experience sat at the top.

I went home that day and made my own list.

Instead of feeling like you don’t have enough money to buy the things you want, restructure your spending habits so it feels like a positive experience. Every time you have the money to buy something you want, checking that item off your list will feel like you’re accomplishing a goal rather than missing out on a new gadget or adventure. 

5. Become a bargain hunter

One of my husband and my favorite activities is thrift shopping. In fact, many of our date nights include a quick trip to Goodwill before heading to the local brewery.

We certainly love the quirky paraphernalia, the surprise deals, and the one-of-a-kind finds; but, our appreciation for secondhand goods has also risen out of necessity. I really enjoy shopping, for instance, but if I shopped at Lululemon I’d run out of fun money in the first few days of the month.

Whether you opt for clearance racks or not, there are always ways to cut costs so you can save (or spend) more each month. If you’re like me and are prone to overspending on groceries, seek out budget-friendly meals and stock up on non-perishable items like pasta and dry beans. If trips are your kryptonite, try a hostel instead of an Airbnb, learn how to hack travel rewards, and make use of vacation packages on travel booking sites like Expedia and Kayak.

With just a little research, you’ll find there are a variety of sites and services available to help you put away a little extra money each month. Take some time to seek these out and start implementing some new, cost-cutting habits today!

6. Prioritize easy investing

I feel like investing is one of those tasks I’ve always been encouraged to do, but have never felt motivated to learn how and have even been intimidated to try.

Fortunately, investing doesn’t have to be a time-consuming, daunting to-do. There are a variety of financial services out there that have designed investing platforms uniquely for the folks who feel ill-equipped to jump right into the process.

With Acorns, for example, you can invest a little spare change whenever you make a purchase. They call the feature “Round-Ups,” and it’s designed to make investing automatic, so you don’t have to spend time thinking about it.

You can also schedule automatic “micro-investments” as often as daily. Acorns is a multi-function financial app, but the Acorns Invest service provides an easy, low-cost introduction to investing, so you can familiarize yourself with the process without committing too much money or time.

7. Make budgeting a pleasant experience

At the beginning of every month, my husband and I sit down to review our spending from the previous month. I won’t lie; it’s not my favorite to-do. It typically takes a couple of hours to make sure every transaction is categorized correctly, reassess our budget categories, and make sure we’re both prepared for the upcoming month’s expenses.

To help us stay focused and happy through those two hours, we’ve implemented a couple of things to make budget meetings something to look forward to. We’ll grab a couple of glasses of wine or tea, turn on some jazz, and maybe even pick up a couple of bars of dark chocolate. Sometimes those simple joys make the evening feel a little less like a meeting and a little more like a date.

When it’s time for you to sit down at the kitchen table with a stack of receipts and bills, grab a treat first. It’s a once-a-month occasion, so pick up something you’re craving. Make the environment a little more relaxing with some music and maybe a cozy fire or candles. Associate budgeting with positive things, so you’ll feel more motivated to keep up the habit and happier while you do it.

8. Give yourself grace

When I started dating my now-husband Steve, it was apparent immediately which one of us managed money best.

Not only had Steve paid down his student loans, but he’d also even purchased his own house. I, on the other hand, was still buying boxes of ramen and frozen pizzas. So when we got married, I told him to take the lead when it came to finances.

It’s been six years, and I’m sad to say I still end some months wondering where all my cash went. It’s a little embarrassing to review my “whatever I want” fund’s long list of iced coffees, shopping trips, and dinner out, next to Steve’s occasional purchase for outdoor equipment.

But, here’s the important detail to remember: I have improved.

It’s not always easy to see the progress you’re making, but don’t let that deter you! Every minor success is worth celebrating. Every step in the right direction deserves a little praise. And when you look back on the month and wonder where your money went, don’t beat yourself up. Instead, give yourself a little grace and keep trying. If you keep up the hard work, you’ll look back someday with pride at how far you’ve come.

Summary

For the vast majority of Americans, I think it’s safe to say spending is a little easier than saving. Unfortunately, spending too much is also pretty easy.

Budgets are incredibly helpful when it comes to keeping your finances in check, but they’re also a little depressing. It’s not fun to say “no” to a spontaneous trip to the movies or a sudden sale at your favorite online retailer — but it’s also not fun to run out of money.

Fortunately, there are ways you can get the best of both worlds! To stick to your budget and stay happy, take advantage of budgeting services like PocketSmith and learn how to cut costs by bargain hunting. In addition, be sure to check in with yourself every so often. Remind yourself why your budget matters and find ways to make the experience of budgeting a little more enjoyable.

Next time you’re feeling short on cash and down in the dumps, remember you are capable of taking charge of your finances and your mental wellbeing. You can do this, and your future self will thank you for it!

Read more:

Source: moneyunder30.com

Apache is functioning normally

Jobless claims data recently hit levels last seen in 1969.

With that said, the household survey jobs data is much stronger, showing an average three-month gain of 723,000 versus the BLS data running at 365,000. We do have enough labor to get back to pre-COVID-19 levels and I do expect over time to see significant positive revisions to jobs data this year. I have been counting the months to see if my forecast would be correct.

With nine months left until the end of September 2022 (the milestone in my forecast), let’s see how much progress we need:

  • Feb 2020: 152,553,000 jobs
  • Today: 148,951,000 jobs
  • That leaves 3,602,000  jobs left to gain in the next 9 months, which is 400,222 jobs per month. With a 3.9% unemployment rate!

Here is a look at the job gains and losses reported today. Construction jobs came in positive but we still have a fairly high level of construction job openings currently. The lack of construction productivity over the decades has been one reason why I have never believed in a housing construction boom in America. The other reason is that the builders don’t ever oversupply a housing market, so when demand fades, so will construction.

The builders have been complaining about labor for many years. However, the builders confidence index has picked up because they believe they can sell their product and make money since they have pricing power. This also means housing starts are rising. Don’t make it more complicated than it needs to be. 


Remember that when looking at jobs data, it’s always about prime-age employment data for ages 25-54. The employment-to-population percentage for the prime-age labor force is 1.5% away from being back to February 2020 levels. The jobs recovery in this new expansion has been much better than we saw during the recovery phase after the great financial crisis.

Education and employment

Most people who want to work in our country are employed on a regular basis. I know that some people blame COVID-19 for not going back to work, but context is key: the majority of the country’s population is working today. The part of the labor force with the least educational attainment tends to have a higher unemployment rate. On Twitter, I started the hashtag A Tighter Labor Market Is A Good Thing to remind everyone that the economy runs hot when we have a tighter labor market.  We want to see the kind of unemployment rates that college-educated people have spread to everyone, because we have tons of jobs that don’t need a college education.

The unemployment rate for those that never finished high school has been falling sharply lately, which means the labor market is getting tighter and tighter every month. You want to have this problem rather than the other way around.

Here is a breakdown of the unemployment rate and educational attainment for those 25 years and older: —Less than a high school diploma: 5.2%.
—High school graduate and no college: 4.6%.
—Some college or associate degree: 3.6.
—Bachelor’s degree and higher: 2.1%.

As you can see above, life is great for those looking for a job. For companies that need labor, it’s not the best news, but again, it’s first-world American problems — the economy is hot! As I have stressed from April 7, 2020, the U.S. recovery was going too fast, which would shock many people because they had no faith in their economic models.

With near record-low unemployment and massive job openings, you would assume mortgage rates should be skyrocketing, but they’re not.

The 10-year yield and mortgage rates

My 2022 forecast said: For 2022, my range for the 10-year yield is 0.62%-1.94%, similar to 2021. Accordingly, my upper end range in mortgage rates is 3.375%-3.625% and the lower end range is 2.375%-2.50%. This is very similar to what I have done in the past, paying my respects to the downtrend in bond yields since 1981.

We had a few times in the previous cycle where the 10-year yield was below 1.60% and above 3%. Regarding 4% plus mortgage rates, I can make a case for higher yields, but this would require the world economies functioning all together in a world with no pandemic. For this scenario, Japan and Germany yields need to rise, which would push our 10-year yield toward 2.42% and get mortgage rates over 4%. Current conditions don’t support this.

Yes, it does seem strange, we have the hottest economy in decades and inflation is hot but the 10-year yield as I write this is at 1.75%. Don’t forget the trend is your friend on bond yields and mortgage rates for decades. We had a major fall in headline inflation that didn’t take bond yields lower in the same way in 2009-2010 and now you’re seeing the reverse with a short-term spike in the inflation rate of growth with yields not rising either.

Even though we haven’t tested 1.94% yet, we are getting to an exciting area where we might be able to see the first real test of 1.94% since 2019. Keep an eye on the close of the 10-year yield today and see if we get some bond market sell-off next week. If not, the bond market can rally and yields can fall short term as we are oversold on the bond report.

Economic cycle update

Now for an economic update. So far, so good, even with the Omicron cases exploding higher, we simply don’t see the economic and market reacting any more as we have learned to consume goods and services with an active virus infecting and killing us each day. This has been the case since the second surge in 2020, and even though sectors of the economy will not perform at total capacity with cases rising, it’s just not like what we saw in March of 2020.

The St. Louis Financial Stress Index, a crucial variable in the AB recovery model, is still acting bored out of its mind with a recent print of -0.9201%. This will rise when the markets react to stress, so don’t assume we will be at these low levels forever. We still haven’t had a stock market correction of 10% plus since the March lows in 2020. 

The leading economic index has been very solid lately, when this data line falls for 4-6 months straight, then the topic becomes different. However, this hasn’t been the case, it bottomed in April of 2020 and has had a sharp rebound. 

Retail sales are still off the charts, but I don’t believe we can have the type of growth we saw last year. Moderation is the key to retail sales data going out, but what a crazy ride in 2021. Expect less purchases on goods and more service spending going out, especially when we are finally done with COVID-19.

The personal savings rate and disposable income are very healthy to keep the expansion going! Even though the disaster relief has faded from the economic discussion, both these levels are good to go as employment has picked up a lot from the COVID-19 lows.

However, just like I had an America is Back recovery model on April 7, 2020, I have recession models and raise recession red flags as the expansion matures. In the previous month’s jobs report, I raised one of the flags as the unemployment rate got to 4% and the 2-year yield was above 0.56%, which means the Fed rate hike is on.

Once the Fed raises rates, the second recession red flag will be raised. My job is to show you the progress of the economic expansion, into the next recession, and out — over and over again. My models don’t sleep! Once more red flags are raised, I will go over each and every single one. At some point in the future, I will be on recession watch, when enough red flags are up. However, we are not in that time yet. Even though I no longer say we are early in the economic expansion, we are still on solid footing.

Source: housingwire.com