What’s Ahead For Mortgage Rates This Week – April 10, 2023

What's Ahead For Mortgage Rates This Week - April 10, 2023

Last week’s economic reporting included readings on construction spending and labor sector readings on employment and the national unemployment rate for March. Weekly readings on mortgage rates and jobless claims were also released.

Commerce Department: February Construction Spending Falls

The U.S. Commerce Department reported less construction spending in February than in January as construction spending fell by 0.10 percent to a year-over-year reading of $1.844 trillion for all types of construction. Year-over-year construction spending increased by 5.20 percent.  While total construction spending fell in February, residential construction spending increased.

Spending on single-family home construction slowed due to builders’ concerns over materials costs, supply chains, and a possible economic recession.  Seasonal weather conditions can also contribute to less construction spending during winter. Homebuilders continue to focus on high-end homes, which leaves limited options for first-time and moderate-income homebuyers. High demand for homes and increasing numbers of cash buyers are competing with owner-occupant home buyers who require mortgages to finance their homes.

High home prices and strict mortgage lending standards caused some would-be buyers to rent homes. Multi-family residential construction increased as demand for rental housing expends.

Mortgage Rates Mixed as Jobless Claims Fall

Freddie Mac reported a lower average rate for 30-year fixed-rate mortgages last week. Rates fell by four basis points to 6.28 percent. The average rate for 15-year fixed-rate mortgages rose by eight basis points to 5.64 percent. Initial jobless claims fell to 228,000 new claims filed as compared to the expected reading of 200,000 new claims filed and the previous week’s reading of 246,000 initial jobless claims filed. Continuing jobless claims were unchanged at 228,000 claims filed.

During March the U.S. unemployment rate was 3.50 percent as compared to the expected rate of 3.60 percent and February’s jobless rate of 3.60 percent.

What’s Ahead

This week’s scheduled economic reporting includes readings on inflation, minutes of the Federal Reserve’s recent Federal Open Market Committee meeting, and weekly readings on mortgage rates and jobless claims.

Case-Shiller: Home Price Growth Continues

November home prices grew by 5.60 percent year-over-year on a seasonally adjusted basis according to Case-Shiller’s reading on National Home Prices. National average home prices rose 0.80 percent from October to November. Case-Shiller’s 20-City home price index revealed that the West and Mountain regions continue to hold the top three growth rates for home prices. Seattle posted a seasonally adjusted growth rate of 10.40 percent which was closely followed by Portland, Oregon’s year-over year average home price gain of 10.10 percent. Denver rounded out the top three home price growth rates included in the 20-CityiIndex with a year-over-year gain of 8.70 percent.

Top readings for month-to-month home price gains for the 20-City home price index were 0.20 percent for Seattle, Washington and Portland, Oregon. Denver, Colorado posted a month-to-month gain of 0.60 percent. Analysts said that home prices may be topping out in some cities; San Francisco, California was one of two cities posting lower home prices in November than for October. San Francisco home prices enjoyed rapid and stratospheric gains in recent years, but may have reached a threshold as fewer buyers can afford to purchase such high-priced homes.

Home Prices Approach PreRecession Levels

September’s national home price gains matched the pre-recession peak achieved in mid- 2006. While this is positive news, the 20-city index currently averages 7 percent below its prior peak level. It’s important to note that the 20-city index does not include Philadelphia, Pennsylvania and Houston, Texas metro areas, which have enjoyed significant growth in home prices. Home prices for cities included in the 20-city index remain about 7 percent lower than their previous peak, but are 40 percent higher than their lowest point in 2012.

David M. Blitzer, Managing Director and Chairman of the S&P Dow Jones Indices committee, said that November’s readings on home prices appear to indicate that home price gains have escaped the boom-or-bust cycles seen in the last dozen years or so.

Rising Mortgage Rates, Home Prices Present Obstacles for Buyers

While homeowners listing their homes for sale continue to enjoy appreciation home values, would-be home buyers are being sidelined by the effects of accelerating home price growth and higher mortgage rates, which are expected to continue increasing. As with San Francisco, more cities included in the Case-Shiller home price indices may see slowdowns in home price growth and home sales as affordable homes and home loans slip out of reach.