Economic update for the week ending February 16, 2019
Stock markets had another strong week - Stock markets surged again this week. The S&P which was down nearly 20% from its all time high in December is now just 6% below its all time high. It’s up 10.7% in just the first 6 weeks of the year. This week’s highlights: Investors were optimistic that a trade deal would be made soon ending the tariffs that have been put in place by both the US and China. President Trump said the March 1 deadline would be extended, leading investors to believe progress has been made. In fact, he said “it will be the best deal ever!” Another government shutdown was averted. Oil prices rose after Saudi Arabia agreed to cut output to reduce surplus oil levels which helped energy stocks. This all seemed to offset disappointing final December retail sales figures. The Dow Jones Industrial Average closed the week at 25,883.25 up 3.1% from 25,106.33 last week. It’s up 11.0% year to date. The S&P 500 closed the week at 2,775.50, up 2.5% from 2,707.88 last week. It is up 10.7% year to date. The NASDAQ closed the week at 7,472.41, up 2.4% from 7,298.20 last week. The NASDAQ is up 12.6% year to date.
Treasury Bond Yields almost unchanged this week - The 10-year treasury bond closed the week yielding 2.66%, up slightly from 2.63% last week. The 30-year treasury bond yield ended the week at 3.00%, up slightly from 2.97% last week. We watch treasury bond yields because mortgage rates follow bond yields.
Mortgage rates continue to drop - Rates are at the lowest levels since February 2018 - The February 14, 2019 Freddie Mac Primary Mortgage Survey reported that the 30-year fixed mortgage rate average was 4.37%, down from 4.41% last week. The 15-year fixed was 3.81%, down from 3.84% last week. The 5-year ARM was 3.88%, down from 3.91% last week.
Homes were more affordable in the fourth quarter of 2018 - The California Association of Realtors announced that their home affordability index rose in the fourth quarter of 2018 to 28%, up from 27% in the third quarter, but still less affordable than one year ago when the affordability index stood at 29%. Lower prices and higher wages offset higher interest rates in the fourth quarter and affordability rose.
In the fourth quarter the median priced detached home was $564,270. The California Association of Realtors reported that a minimum annual income of $122,340 was needed to qualify for a monthly payment of $3,060, including principal, interest and property taxes on a 30-year fixed loan of 4.95%.
Affordability on a $460,000 median-priced condo or town-home was 37% in the fourth quarter of 2018. An annual income of $99,730 was needed to qualify for a monthly payment of $2,490. On a regional basis the affordability index in Los Angeles Country was 24%, up from 22% in the second quarter, but down from 25% in Q4 2017. In Orange County affordability was just 20% in both Quarter 3 and Q4 2018, down from 21% in Q4 2017. Ventura County Q4 affordability was 29%, up from 28% in Q3, and up from 26% in Q4 2017.
Interest rates peaked in the fourth quarter of 2018. In October the 30-year fixed rate hit 5%! Rates are now down over one half percent. They are at the lowest levels in one year. That should boost affordability when the first quarter of 2019 figure is announced in May. Prices were also lower in the fourth quarter of 2018 than at their peak in the second quarter. In fact, it appears that the median price peak of $602,760 in June was an outlier, as buyer’s panicked just to get a home with inventory levels at record lows. Inventory levels rose in the fourth quarter and prices stabilized back down to first quarter 2018 levels. The median price was $564,760 and $557,600 In November and December respectively. I’m looking forward to seeing the first quarter 2019 affordability level. I won’t be surprised if affordability is back up to almost 30% as rates are lower, incomes which have been increasing about 3.2% annually are higher, and prices I expect will be about the same as in the fourth quarter.
The California Association of Realtors has not released January sales data yet. That should be tabulated and released any day. I’ll update you with these figures next week.
Have a great weekend,