Overview: Investors became more cautious over the past week ahead of an upcoming annual speech by Federal Reserve Chair Jerome Powell, during which he is likely to reveal guidance about future policy. Investors are concerned about aggressive talk on tightening monetary conditions to fight inflation, which could cause mortgage rates to increase.
Higher mortgage rates have continued to restrain activity in the housing market. In July, sales of existing homes, which make up about 90% of the market, declined for the sixth straight month and were 20% lower than a year ago. This marked the lowest level since November 2015, excluding a short period near the start of the pandemic. The median existing-home price was 15% higher than a year ago at $403,800, near record levels. Due to the rise in prices and mortgage rates, buyers are now spending roughly 25% of their income on mortgage payments on average, up from about 15% prior to the pandemic.
July new-home sales, which account for the remaining 10% of the market, dropped far more than expected from June to the lowest level since January 2016. They were a massive 30% lower than last year at this time. The median new-home price of $439,400 was 8% higher than a year ago. There were 464,000 new homes on the market at the end of July, the most since March 2008.
The impact of higher mortgage rates can also be seen in depressed mortgage application volumes, which remained near the lowest levels since 2000. According to the latest data from the Mortgage Bankers Association (MBA), average 30-year fixed rates are over 2.5% higher than a year ago. Purchase applications are down 21% from last year at this time, and applications to refinance a loan have plunged a shocking 83% from one year ago.
Existing-Home Sales (millions)
Looking ahead, investors will listen closely to comments from Fed officials for guidance on the pace of future rate hikes and bond portfolio reduction. Most important by far, Fed Chair Jerome Powell will be making a highly anticipated speech on Friday at the Jackson Hole economic summit. Upcoming reports include:
Aug 26 — Core Personal Consumption Expenditures (PCE) Price Index
Sep 1 — Institute for Supply Management (ISM) Manufacturing Index
Sep 2 — Employment Report