2022 Indicators, Rates Increase, Yield Curve Flattening?

Three indicators to follow in 2022:
Real Wages will it keep up with inflation?
Global Supply Chain Pressure Index – a brand new index that tracks supply change problems
Architecture Billings Index – tracks commercial projects

Mortgage Rates – increased again this week as the price of Mortgage Backed Securities (MBS) continued their 30 day downward trend. Economic reports showing inflation indicators are driving the increase in rates which are up are up approximately 0.75% from this time last year.

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Jobs – the number of people filing for unemployment for the first time bumped up significantly to 286,000 which is up nearly 100k from last month. This is the sample week for the monthly job report so we could see an uptick in unemployment with the monthly jobs report.

Home Sales – The sales of existing homes (not including new construction) were down 4.6% in the month of December and are down 7% year over year. The decline in sales is largely due to lack of inventory, there were only 910,000 homes listed for sale which is 14.2% lower on a year over year basis. During the 2007 Housing bubble there were 3.7M homes for sale and that was nearly 15 years ago when there were significantly less homes in the marketplace. The median home price is now at $358,000 up 15.8% year over year. First time homebuyers accounted for 30% of sales in December.

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New Construction – builders remain confident expecting strong sales in the near future despite material costs which have increased nearly 19% from Dec. 2020. Housing Starts are up by 1.4% from the previous month and up 2.5% year over year. Unfortunately starts for single family homes are down 11% year over year. Single family permits are also down 8.5% year over year. This points to continued lack of supply in the single family market.

Recession Indicator? – the 10-year minus 2-Year yield curve is flattening. The red areas in this chart show where it is negative, meaning you would get a better return on a 2 year treasury bond than a 10 year treasury bond (so who would buy the 10 year???). Historically when this spread runs negative it has correlated with a future recession. We aren’t negative yet but it’s good to keep an eye on this. Generally during recessions mortgage rates go down.

Mortgage Applications – to purchase homes rose 8% from the previous week and are down 12% year over year. Refinances fell 3% and are down 49% from this time last year.

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