Rates, Consumer Sentiment, US Debt Downgrade, Existing Home Sales, Rent Growth, and Jobless Claims

Good morning and happy Memorial Day weekend. Jordan Keck here, your lender buddy, with your weekly market update. Kicking off, interest rates continuing to move the trend higher, going from 6.94% last week to 7.07% this week, more than about 10 basis points higher. So it's always Make sure that you are talking with your clients, getting them locked in as quickly as possible when they're under contract, because very few lock and shop programs around anymore. So again, as soon as you get a contract on a property, want to get that locked in as quickly as possible or risk having that trend be against your clients. As far as our weekly mortgage tip this week, wanted to talk about using retirement accounts or assets as income. Specifically, I've had a few clients recently who this has come up with, so I wanted to talk about where if they're of retirement age, maybe they're on Social Security fixed income, but have a really good lump sum amount in their retirement accounts, whether it's a 401(k) or an IRA. Well, in those situations, we still have to count income to be able to qualify. It doesn't matter if they have $2 million in the bank and they're buying a $500,000 home, that alone isn't enough to be able to qualify. But if they have it in a retirement account, in an IRA, in a 401k and they're at least 62 years old, what we can do is have them set up monthly distributions from that account to themselves and be able to count that as income as long as we can show it will continue for at least 3 years. So if you've got $36,000 in an account, $1,000 a month meets that 3-year continuum. They don't have to continue these distributions after closing. They just have to make sure they take at least one distribution Show that it's set up to come out monthly and then show the balance in their account. And that's enough to be able to qualify. So you can take this quite a bit farther as well, because if you've got $400,000 in an account, you can use over $10,000 a month as income to be able to qualify for a home purchase in addition to whatever you might have for Social Security, pension-related income, you name it. So this is a great move if somebody has a bunch of money set aside in retirement accounts. Wants to use that to help qualify, but again, doesn't necessarily have a consistent income outside of that. As far as updates this week, Consumer Sentiment Index fell to 50.8% in May, which is the second lowest reading ever since they started tracking this metric at the University of Michigan in 1952. Consumers expect inflation to rise to 7.3% over the next year, and over 60% of respondents said that they expect unemployment to increase in the next year which is the highest number since 2008-2009 financial crisis, even more so than COVID. Now again, this is consumer sentiment. Whether or not that's a predictor of what will happen, who knows, but it just shows that people do not expect the next 12 months, 24 months to be better than where they are now. Next up, credit rating agency Moody's, one of the big 3 rating agencies in the US, has downgraded the rating for US debt after S&P and Fitch, the other two have done the same previously. Now all three of those big rating agencies have moved the US debt from AAA, which is the highest rating, to AA1, which is the second-highest rating. Still very, very creditworthy, but it is an indication the market is— because an indication to the market that the US might be getting further and further out of control because of the amount of total debt. They said that they downgraded because result of the U.S. approaching total debt of $37 trillion, which if you think about is $37,000 billion, absolutely astronomical number. Bellowing back, S&P downgraded the U.S. in 2011, Fitch did in 2023. So again, this isn't brand new, but it is showing another indication now that all three have downgraded. The federal deficit as a percentage of GDP has risen to 6.4%, which is the highest of any country. Public debt to GDP is 123%, which is still very, very high compared to some countries, but it is still below that of Japan, so not a completely unprecedented number. Existing home sales fell for April 0.5% or a total half of a percent to a 4 million annualized pace, which did come in quite a bit below expectations of eking out a small gain. This was a big surprise to the downside because if you look at a 0.1%, 0.2% gain expected, you're looking at virtually 3/4 change in the wrong direction. Year-over-year sales are down 2%, most likely due to economic uncertainty and continually high interest rates. As we've typically seen in the past, anytime interest rates go down, even if it's temporarily for a week or so, there's usually a big uptick in new purchase applications and definitely refinance applications for mortgages. And that translates to higher home sales. Inventory rose from a 4-month supply to 4.4, and first-time homebuyers made up 34% of all purchases. Cash buyers were 25%, and investors 15%. Next up, Cotality Single-Family Rental Index showed a 2.9% year-over-year rise for the month of March in rents. This matched the February report and is showing a much lower number than the 4% that's factored into the PCE and PCI inflation reports that the Fed gets. So again, as we've talked about in the past, hopefully this number continually comes down because there's a big lag effect. So they are looking at rent rates that were in the past, hopefully getting caught up more and more to reflect some lower inflation numbers. Lastly here, initial jobless claims fell 2,000 to 27,000, fairly normal number for that even post or pre-COVID. But continuing claims rose to 36,000 to 1.9 million. This is more of the one to watch here. While the continuing claims number hit 1.9 million for the second time here in the last few weeks and is the second highest level since November of 2021. So as a result, we're, I mean, still watching all these economic factors. We're looking at inflation, consumer consumer spending, retail sales, looking at savings rate, default rate, all of this to try and get an indication for where the economy is going, any signs of trouble, and of course more optimism or pessimism, because that's ultimately going to impact behavior, it's going to impact inflation, and that's going to impact interest rates in the real estate market. All this interconnected mix of things. So as always, hopefully this analysis and report is helpful. If there's anything you'd like to see me cover in more depth, let me know. I am here and available for you this weekend if you need anything for your clients, getting new clients pre-approved, getting second opinions. So let me know. Happy to help. Have a great weekend. We'll see you next time.