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Mortgage applications at 22-year low; 30-year rate flattening – June 8, 2022

Wednesday, June 8, 2022

Premarket futures are returning some of the gains the indices had racked up over the first two trading days of this week. We kind of relied on light data from economic reports and what’s left of the first quarter earnings season. The Dow is at -200 points at this hour, the S&P 500 at -25 and the Nasdaq at -75 points.

All eyes will be on this Friday Consumer Price Index (CPI) results, where market participants will pay close attention, especially to year-over-year figures. Last month we saw very high growth of +8.3%, but that was at least lower than the +8.5% CPI growth we saw in March. Equally important, we will look at the market reaction whether the news is very good or not so good.

This morning, Mortgage applications fell to -6.5%, its lowest level in 22 years, after -2.3% last time. The report further highlights what we were seeing earlier in the year: a flurry of mortgage activity before the Fed raised interest rates in early March. The Fed has been very deliberate and transparent about its direction; homebuyers and landlords looking for a lower rate have brought in a ton of business, and we’re seeing it dry up quite dramatically now.

The Buys Index fell -7.1% – a sharp drop from -0.6% in the previous reading. Refi activity was also down, but that ball had already started to slide: -5.6% in today’s report versus -5.4% last time. 30-year mortgage rate averages have flattened somewhat: +5.4% vs. +5.33% previously – but we expect this to rise once more as Fed rate hikes are below the belt, including the telegraphed 50 basis point hike next week.

Finally, we’re not really done discussing inflation in the economy—both domestic and global—not to mention oil prices: the WTI and Brent spot prices are $120 per barrel and $121 per barrel, respectively. An average gallon of gasoline in the United States is quickly approaching $5 and is already well over that in many of our most populous states.

Oil prices are currently encroaching on recent highs, which peaked in late February weeks when Russia launched its unprovoked attack on Ukraine. Since then, NATO and much of the West have cut off Russian oil and gas in a full-scale boycott. There are signs that this is having a profound effect on the Russian economy, but it sure has had a profound effect on the American consumer.

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