Welcome to my May newsletter featuring insights and economic news impacting our local housing market.
Interest Rates
Benchmark Rates
The Fed raised the fund rate a quarter-point as expected. Chairman Powell indicated that rate hikes are probably over and didn’t rule out the possibility of rate cuts later in the year if inflation drops marketably. However, several factors are overhanging the markets – the national debt ceiling and the continued stubbornness of elevated inflation.
Mortgage Rates
Rates have stayed relatively flat in the last 30 days. Jumbo loans are in the 5.5% to 5.625% rate range. Interestingly, the most improved part of the mortgage market is the non-QM market which is for borrowers who can’t show tax returns but qualify on business bank statements. Those rates are now in the high 6’s and low 7’s, down a full point in the past 60 days, with pricing dependent on loan-to-value and credit score. The non-QMs are an increasingly popular and important part of the market and easily obtainable to $5M and more.
Economic Reports Impacting Our Housing Market
Jobs Report
Employment numbers and wage growth defied the Fed’s efforts in April. According to the U.S. Bureau of Labor Statistics Employment Summary reported an addition of 236,000 jobs to the economy., the U.S. added 253,000 jobs last month, and unemployment dropped to 3.4%. April also reversed a Q1 trend of slowing hourly wage growth by posting a gain of 4.4%. In previous months strong job report numbers have been revised down, which raises the question of whether this month’s report will also be edited. It’s hard to believe the April numbers are entirely accurate because of the number of layoffs in recent headlines. The bond markets seem to agree because the data precipitated a slight drop this week in rates.
The troubling data for the market is wage gains which continue to be a problem the Fed is closely monitoring. Wage gains are once again one of the reasons the Fed had a cautious stance on inflation earlier this week.
However, jobs and wage growth are a net positive for the economy and essential for our real estate market because employment is a necessary ingredient to buy a house.
On Tuesday, the Job Openings and Labor Turnover Survey (JOLTS) reported 9.6 million job vacancies in the U.S. This reflected lower job openings which is what the Fed is looking for as an initial indication of a slowdown in the job market.
At the state level, California’s Unemployment Rate Report remained relatively flat at 4.4%. Our state currently employs over 19.5M individuals making us the largest work population in the country.
Local Activity
A healthy job market means working people are buying houses. The residential market under $5M, and our corresponding loan activity are buoyant. The market over $5M is more selective, and the ULA rush is over, so most high-end buyers are not in a have-to position.
Recent Transactions
Here are some recent examples:
New Home Purchase | Beverlywood | $5.2M
80% LTV financing
10/1 ARM
Rates in the mid- 5’s
30-day escrow
New Home Purchase | Palos Verdes | $3.65M
80% LTV financing
10/1 ARM
Rates in the mid 5’s
Closed in 18 days as major Wall Street bank could only do 70% LTV
New Home Purchase | Sherman Oaks | $2.2M
90% LTV Financing
30 YR fixed
Full income documentation
5.875% interest rate | 5.99% APR
No major WS banks will do 90% LTV on one loan
Key Economic Reports to watch for this month:
May 10 – Core Consumer Price Index (CPI)
May 17 – Building Permits, Housing Starts
May 18 – Existing Home Sales
May 23 – New Home Sales
May 25 – Pending Home Sales
Finally, on April 12, I was named the Top Individual Mortgage Broker in the U.S. by National Mortgage News. As we head into Q2, I am well-positioned to continue my success by providing the best loan products and pricing in town while servicing buyers and homeowners at all ends of the market. Contact me to learn what financing may be available to help you reach your real estate goals.
Sincerely,
Mark Cohen