Stock markets down slightly for the week – This week the December CPI number, a key indicator of inflation, showed that consumer prices had risen 7% year-over-year, the largest increase since 1982. The Commerce
Department reported that U.S. retail sales dropped 1.9% in December, indicating that higher prices have consumers holding off on some purchases. Higher inflation often equates to higher interest rates. To combat inflation the Federal Reserve has indicated that they intend to hike short-term interest rates this year. They have also indicated that they intend to reduce their balance sheet by dialing back bond and mortgage security purchases. That has already caused long-term mortgage rates to rise. It should be pointed out that interest rates are still near historic lows, but they are above the all-time low levels in the depth of the pandemic. The Dow Jones Industrial Average closed the week at 35,911.81, down 0.9% from 36,231.66 last week. The S&P 500 closed the week at 4,662.85, down 0.2% from 4,677.03 last week. The NASDAQ closed the week at 14,893.75, down 0.3% from 14,935.90 last week.
U.S. Treasury bond yields – The 10-year treasury bond closed the week yielding 1.78%, almost unchanged from 1.76% last week. The 30-year treasury bond yield ended the week at 2.12%, almost unchanged from 2.11% last week. We watch bond yields because mortgage rates often follow treasury bond yields.
Mortgage rates – The January 13, 2022 Freddie Mac Primary Mortgage Survey reported mortgage rates for the most popular loan products as follows: The 30-year fixed mortgage rate was 3.45%, up from 3.22% last week. The 15-year fixed was 2.62%, up from 2.43% last week. The 5-year ARM was 2.57%, up from 2.41% last week.
Housing sales numbers for December will be out next week. We had a call with the California Association of Realtors on Friday. The housing numbers for December are quite strong. When they release their final numbers next week, they will report that more homes sold in 2021 than any year since 2006, which was when sub-prime mortgages allowed virtually anyone to qualify for a home loan.