As the markets continue to digest the blow out jobs report from last week (labor markets showed 517,000 new jobs created when the market anticipated 175,000) we saw mortgage rates move up from the lows the week before.
The 30 Year Fixed Mortgage touched just under 6% last week and now moved back up to 6.375%. Undoubtedly, this sting, as we were starting to see what we have been calling for months, mortgage rates coming down in the early part of 2023, on the back of lower inflation. However, this may not be a bad thing, as we were starting to see the housing market pick up speed like that of 2022, creating a ton of pressure on a very under supplied market.
Supply has been out of balance for months, with rates falling, demand was heating up and creating an environment like what was experienced over the Spring/Summer season of ’21. We still firmly believe mortgage rates will land somewhere in the low 5’s high 4’s, sometime this year. However, the path there will be rocky, as we just witnessed. Moving down too quickly would not serve the greater cause, which is creating a balanced market.
CoreLogic released their Home Price Index this week for the month of December, which showed home prices declined 0.4% nationwide, but were still up 6.9% from this point last year. CoreLogic also forecasted home prices will fall 0.2% in January but gain 3% in the year going forward.
In total, CoreLogic reported that home prices have only declined 3% from their peak…not exactly a housing bubble. And this comes after 121 months of straight gains in home prices. and they believe home prices will rise 3% in 2023, which is meaningful for wealth creation.
Back to the world of rates and what is coming next week. Markets are looking to the next round of inflation data (CPI for January) which will be released on Tuesday the 14th, which is expected to remain at the same levels from last month. Assuming this comes in at expected levels, mortgage rates will hold. The following reports (March, April and May) is where we really expect to show a more meaningful decline in inflation which is where and where we will see rates benefit. The snip below outlines what we can expect with inflation in the months to come, as we have said before, we firmly expect inflation to come down in a very meaningful way by May, which will be just in time for the spring and summer months.