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Economic Update for the Week Ending May 15th, 2021

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Inflation fears pushed stock markets down this week – Fears of inflation after a CPI index report showed that consumer prices increased 4.2% year-over-year in April caused a large sell-off.  That marked its largest monthly year-over-year increase in consumer prices since September 2008. Much of the increase was attributed to the COVID shutdown last April which had prices deflated year-over-year from April 2019. It’s difficult to compare April 2020 to April 2021 because most of the country was under stay-at-home orders last April. On Friday analysts began explaining that the breakdown of the CPI report had large price increases in sectors like Airline fees, used cars, sporting events, computers, hotels and other products and services which have been affected by Covid. For example, computer chip production was cut to protect workers. That led to a shortage of computers and cars. As production ramps up those prices are expected to drop back. Hotels had to cut back on the amount of occupancy which removed rooms and drove prices up for the remaining rooms. Look at spotting events. Stadiums that hold 40,000 only allowed 3,000 fans. That drove up prices for fewer seats. Airlines had cut the number of flights and some were not selling the middle seat in April. There were so many examples like this that investors calmed down and discounted Wednesday’s CPI report and stocks surged to make up much of their losses on Friday.  More data released on Friday also saw an unexpected drop in retail sales and consumer confidence which are other factors that could calm inflation. The Dow Jones Industrial Average closed the week at 34,382.13, down 1.2% from 34,777.76 last week. It is up 12.3% year-to-date. The S&P 500 closed the week at 4,173.85, down 1.4% from 4,232.60 last week. It is up 11% year-to-date. The NASDAQ closed the week at 13,429.98, down 2.2% from 13,742.24 last week. It is up 4.3% year-to-date.

U.S. Treasury bond yields – The 10-year treasury bond closed the week yielding 1.63%, up from 1.60% last week. The 30-year treasury bond yield ended the week at 2.35%, up from 2.28% last week. We watch bond yields because mortgage rates often follow treasury bond yields. 

Mortgage rates – The May 13, 2021 Freddie Mac Primary Mortgage Survey reported mortgage rates for the most popular loan products as follows: The 30-year fixed mortgage rate was 2.94%, almost unchanged from 2.96% last week. The 15-year fixed was 2.26% down slightly from 2.30% last week. The 5-year ARM was 2.59%, down from 2.70% last week. 

First-quarter 2021 California home affordability  – The California Association of Realtors reported that 27% of households could afford to purchase a $740,490 median-priced home in the first quarter of 2021, down from 35% in the first quarter of 2020, and unchanged from the fourth quarter of 2020. A median income of $131,200 was needed to make a monthly payment of $3,280. That included principal, interest and taxes on a 30-year fixed-rate mortgage at a rate of 3.08%.  Condominiums and townhomes were more affordable. 40% of households were able to purchase a median-price condo or townhome. It required an annual income of $97,600 to make the monthly payment of $2,440. Below are regional data for Southern California affordability.

Sources:

  1.  Rodeo Realty, Inc.
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