The Olympics is officially over, and the market’s attention is back on inflation. Two reports on inflation will be released this week and will hopefully provide more evidence that prices remain on a cooling trend. Another report on retail sales is also scheduled to come out before the end of the week and should offer more insights on the well-being of the economy. Mortgage rates had declined to the lowest point since April 2023 before bouncing back up in the last several days, and a positive spin from these reports could help bring them back down.

Homebuying optimism pulled back: Home Purchase Sentiment released by Fannie Mae dipped slightly in July as near record low levels of affordability remained a challenge for homebuyers. The share who said that it is a good time to buy decreased two percentage points to 17% in July after climbing five points to 19% in the prior month. Despite mortgage rates sliding down throughout the month of July, consumer sentiment toward the housing market remained less than optimistic last month. With rates moderating further since a couple of weeks ago and home prices expected to come down as the market transitions into the off season, costs of borrowing should decline in coming months which should help push up homebuyers’ optimism. Indeed, the share of consumers who believed that mortgage rates will go down over the next 12 months increased five percentage points from June’s 24% to July’s 29%. Meanwhile, those who said that it is a good time to sell inched down from 66% in June to 65% in July. The dip in home selling confidence was attributed partly to seasonal factors but the volatility of the rates movement may also have been a contributing factor as well.

Consumers’ short-term inflation expectation unchanged: Consumers’ expectations on inflation a year from now were unchanged in July but were down sharply at the medium-term horizon, according to the latest New York Fed’s Survey of Consumer Expectations. At the one-year horizon, the median inflation expectation remained stable from the prior month and registered at 3.0%, while the median three-year ahead inflation expectation dropped 0.6 percentage points from June to 2.3% in July. Expectations on the labor market, on the other hand, were less positive, as earnings growth one-year ahead declined 0.3 percentage point to 2.7%, and the likelihood of finding a new job within three months decreased 0.9 percentage points to 52.5%. While the jobs market is showing signs of a slowdown, consumers’ perception on employment remained positive, as the expected likelihood of a higher unemployment rate a year from now decreased one percentage point in July. Debates on whether the economy will go into a recession will continue, but at least for now, consumers are not feeling more concerned about their short-term employment situation.

Jobless claims provide a sigh of relief: Initial claims of unemployment insurance came in lower than expected for the week ended August 3, easing some concerns that the U.S. labor market is suddenly pulling back much faster than anticipated. First-time filing for jobless benefit recorded a seasonally adjusted 233,000 for the week, a decline of 17,000 from the prior week. Jobless claims had been trending upward throughout the first seven months of the year and the latest increase was due at least partly to the disruptions from Hurricane Beryl and the summer shutdowns of auto plants. The drop in claims in the latest report provided evidence that the jump in claims in the previous week could be due to weather and seasonality, rather than a more fundamental issue. Nevertheless, continuing claims, which run a week behind, remained elevated and reached the highest level since November 7, 2021. So, while the financial market might have overreacted to the pullback in jobs growth reported a couple of weeks ago, the labor market slowdown is real, and we should expect more cooling in hirings in coming months.

Multifamily developers lose confidence in second quarter: Builder confidence has been declining in the past few months and the latest results from the Multifamily Market Survey released by the National Association of Home Builders (NAHB) added more evidence to the sliding trend. The Multifamily Production Index (MPI), which measures developers’ sentiment about current production conditions in the apartment/condo market, dropped 12 points year-over-year to 44 in the second quarter of 2024. With a number below 50 indicating that more respondents feel “poor” about the conditions than those who feel “good”, builders in the multifamily sector are less optimistic than they were a year ago. The Multifamily Occupancy Index (MOI), which measure the industry’s perception of occupancies in existing apartments, recorded a more positive reading of 81 but still registered a decline of eight points from a year ago. High interest costs and a surge in supply in the past couple of years have softened the market fundamentals and dimmed builder sentiment. With interest rates likely to decline in the next few months, builder confidence should bounce back before the end of the year.

Mortgage rates inch back up: After dropping to the lowest level in 15 months in the first full week of August, the average 30-Yr. fixed rate mortgage climbed back up by more than 20 basis points (bps) in the last few days, as recent data suggest that the economy remains in decent shape. The return to expansion in the service sector activity, a bounce-back of the stock market, the calming of the financial market volatility, and a stronger-than-expected jobless claims report all contributed to the rebound of mortgage rates in the past week. With more reports on inflation, retail sales, and jobless claims scheduled to be released this week, mortgage rates could see more fluctuations in the coming days.

The summer remains hot, and the Olympics has taken over. The Federal Reserve, meanwhile, is ready to cut rates for the first time in more than four years in the upcoming September FOMC meeting (or sooner), especially since the last jobs report suggested that the labor market is cooling faster than expected, and the stock market has been reacting negatively to the news. The economy will likely slow down further in coming months, and there have been some talks of a recession, but is it warranted? Mortgage rates, nevertheless, took a deep dive late last week and early this week as traders moved money to safe havens like bonds, sending Treasury yields tumbling down to the lowest levels since February. Should the downward momentum in rates continue, lower costs of borrowing could help push home sales back up in the third and the fourth quarters.

Job growth slows sharply as unemployment reaches highest level since 2021: The labor market slowed more than expected in July and triggered fears that the U.S. economy could go into a recession. Nonfarm payrolls increased just 114k jobs last month, a sharp decline from the downwardly revised gain of 179k recorded in June and well below the consensus expectations of 185k gain. Most of the job growth was in health care (+55k), leisure and hospitality (23k), and the government (+17k). Other industries continued to exhibit signs of cooling, with white-collar jobs like information, financial services and professional and business services all fell in July. The unemployment rate rose to 4.3% and reached its highest level since October 2021. Wage growth came lower than expected, with average hourly earnings rising 0.2% month-over-month and 3.6% year-over-year. The slowdown in jobs growth renewed recession fears and triggered the worst sell-off of the year on Wall Street.

Federal Reserve left rates unchanged, but market rout may force early rate cuts: The Federal Reserve left the fed funds rate unchanged in its July FOMC meeting but hinted that a rate cut is getting close. Fed Chair Jerome Powell told reporters that a rate cut could be on the table in the next meeting, as some further progress on inflation has been observed. The central bank noted that the risks to both price stability and full employment – the dual mandate of the Fed – continued to move into better balance and Powell confirmed that there was a growing sense of confidence on the committee that a cut could be made in September. With recession fears sparking market sell-off around the world in the past two days, it is possible though that the Fed could make an emergency rate cut before the next scheduled meeting.

Mortgage rates plunge to 15-month low: Mortgage rates plummeted following last week’s jobs report and speculations that the Fed could cut rates before the next FOMC meeting as recession fears surge. Weaker-than-expected job growth in July sparks concerns that the slowdown could extend to the broader economy and lead to a hard landing. Stock markets around the world dived after the release of the latest jobs report, and the global bond rally accelerated in the last two trading days as investors moved their money to safe-haven bonds. The 10-year Treasury yield fell nearly 40 basis points from a week ago and reached its lowest level since June 2023. The average 30-year fixed rate mortgage declined to 6.34% as of August 5, the lowest level in almost 16 months, according to Mortgage News Daily. Rates could stabilize and may even inch back up slightly in the near term, however, as fresh new data suggests that the U.S. service sector was growing at a faster-than-expected pace in July.

Consumers feel down with current conditions but more upbeat with economic outlook: The Conference Board Consumer Confidence Index ticked up in July to 100.4 from a revised 97.8 in June, as consumers downgraded their current conditions but felt slightly more positive about their short-term outlook. The Present Situation Index declined from 135.3 in June to 133.6 in July, while the Expectation Index improved from 72.8 to 78.2. Americans’ assessment of the current labor market situation, in fact, dropped to the lowest level since March 2021, as fewer monthly job additions might have affected their perspective on current job availability. The share of consumers who expected more jobs to be available in the next six months increased though to 14.5% from 13.1% in June. With interest rates dipping but remaining elevated in July, those who planned to purchase a home fell to a 12-year low. The share, however, could bounce back in late summer if rates continue their downward trend in the next few weeks.

Construction spending drops for the second straight month: U.S. construction spending continued to lose momentum, with the total outlays dropping 0.3% in June, its first back-to-back monthly decline in 20 months. The decline was unexpected as economists had predicted a monthly increase of 0.2% after a previously reported 0.1% dip in May. Residential construction declined on a month-to-month basis for the third time in four months, with the latest drop attributed entirely to the weakness in single-family construction. In June, spending on new single-family dipped 1.2% from May, while new multifamily inched up 0.1% from the prior month. On a year-over-year basis though, new single-family remained sharply higher than a year ago by 9.9%, but new multifamily dipped from 12 months ago by 7.4%. The pullback in overall construction spending was due again by elevated interest rates, as rates started trending back up in mid-June after dropping solidly from late May. Since the last week of July, however, mortgage rates have fallen sharply and could decline further in the coming weeks. The outlook for construction, as such, might have brightened slightly for the next couple of quarters.

Latest inflation data continued to provide hopes that the Fed could begin cutting rates in the near term. The financial market has been reacting positively to the good news and consequently led to mortgage rates dropping more than 30 basis points since early July. With rates trending down in recent weeks, the housing market is seeing more buyers and sellers reentering the market. The momentum could continue if rates begin declining more consistently, and July could become the turning point of a strong second half for the housing market.

Inflation reaches the lowest level in more than three years: A drop in energy prices and a modest increase in food prices led to the first monthly decline in the consumer price index (CPI) since May 2020. The June headline CPI declined 0.1% from the prior month and was up 3% from the same month last year. Excluding energy and food prices, the core CPI rose 0.1% from May and 3.3% from a year ago. Both measures exceeded expectations and recorded the smallest gains since more than three years ago. The slowdown in inflation was broad-based, with core goods prices down once again while core services prices up only 0.1%. The latest inflation data could be one of the most encouraging reports since the Fed first started fighting inflation and might have put the central bank one step closer to reducing the fed funds rate in its September FOMC meeting.

Consumers lower expectation for inflation and home price growth: Consumers expectations on inflation a year from now dipped at the short- and the long-term horizons in June, but up slightly at the medium-term horizon, according to the latest New York Fed’s Survey of Consumer Expectations. At both the one-year horizon and the five-year horizon, the median inflation expectation recorded a 0.2 percentage point drop from the prior month to 3.0% and 2.8%, respectively. On the other hand, the median three-year ahead inflation expectation gained 0.1 percentage points to 2.9% last month. Consumers also expected home price growth to soften in the next 12 months, with the year-over-year change in price projected to decline to 3.0% in June from 3.3% recorded in May. As interest rates are expected to decline gradually in the next 18 months and housing supply is likely to continue loosening up this year and next year, home prices will continue to grow but at a more moderate pace in 2025.

Mortgage rates reach the lowest level since February: Weaker jobs reports and cooler-than expected inflation data in the past couple of weeks continued to fuel speculations that the first Fed’s rate cut is getting closer and closer as the economy moved into the second half of the year. Interest rates have been declining since the beginning of July and its winning streak had been extended to eighth straight day as of July 15, according to Mortgage News Daily. At 6.81%, the average 30 year Fixed-Rate Mortgage (FRM) reached the lowest level in five months in the mid of July. While the underlying bond market is beginning to exhibit signs of pulling back and rates could inch back up in the coming days, rates could begin declining in a sustainable fashionable if more signals of economic weakness are being observed in the third quarter.

Small business optimism inches up but Main Street remains pessimistic: The sentiment of small business owners improved slightly last month, but their outlook remained dim as the economic momentum slowed down. The NFIB Small Business Optimism Index climbed again for the third consecutive month from 90.5 in May to 91.5 in June. While the index has reached the highest level of the year, uncertainty about the economic outlook and the presidential election continued to weigh heavily on smaller firms and kept the index below its 50-year average of 98. Inflation remained the top concern for small business owners, as 21% of them reported inflation as the single most important problem in operating their business. Weakening demand in sales activity was also evident in the latest figures, as the net percent of business owners who reported greater sales in the past three months declined compared to last year’s level and the measure had been down year-over-year every month this year. Higher interest rates and retreating labor demand were also contributing factors to the pessimism despite the latest improvement.

U.S. foreclosures down in the first half of 2024: Foreclosure filings on U.S. properties decreased in the first half of 2024 to 177,431, a decline of 4.4% from the same time period a year ago and a drop of 40.1% from the first six month in 2019, according to ATTOM. Foreclosure activity in the first half of this year was also well below the Great Recession level, with filings in 2024 down 89.2% from the peak of 1.65 million in 2010. The 177k plus properties with foreclosure filings represented 0.13% of all U.S. housing units, unchanged from the level recorded in in 2023, but a dip from 0.22% in 2019. For the month of June, 18,574 properties in the U.S. started the foreclosure process, a drop of 17% from the prior month, and a decline of 22.7% from the same month in 2023. Nationwide, one in every 5,071 properties had a foreclosure filing last month. At the state level, California had 19,013 foreclosure filings in the first six months in 2024, an increase of 6.13% from 17,914 reported in 2023. With home prices reaching record-high levels in the first half of 2024 and the labor market remaining solid this year, foreclosure activity is not expected to increase sharply in the next 12 months.

Latest inflation data continued to provide hopes that the Fed could begin cutting rates in the near term. The financial market has been reacting positively to the good news and consequently led to mortgage rates dropping more than 30 basis points since early July. With rates trending down in recent weeks, the housing market is seeing more buyers and sellers reentering the market. The momentum could continue if rates begin declining more consistently, and July could become the turning point of a strong second half for the housing market.

Inflation reaches the lowest level in more than three years: A drop in energy prices and a modest increase in food prices led to the first monthly decline in the consumer price index (CPI) since May 2020. The June headline CPI declined 0.1% from the prior month and was up 3% from the same month last year. Excluding energy and food prices, the core CPI rose 0.1% from May and 3.3% from a year ago. Both measures exceeded expectations and recorded the smallest gains since more than three years ago. The slowdown in inflation was broad-based, with core goods prices down once again while core services prices up only 0.1%. The latest inflation data could be one of the most encouraging reports since the Fed first started fighting inflation and might have put the central bank one step closer to reducing the fed funds rate in its September FOMC meeting.

Consumers lower expectation for inflation and home price growth: Consumers expectations on inflation a year from now dipped at the short- and the long-term horizons in June, but up slightly at the medium-term horizon, according to the latest New York Fed’s Survey of Consumer Expectations. At both the one-year horizon and the five-year horizon, the median inflation expectation recorded a 0.2 percentage point drop from the prior month to 3.0% and 2.8%, respectively. On the other hand, the median three-year ahead inflation expectation gained 0.1 percentage points to 2.9% last month. Consumers also expected home price growth to soften in the next 12 months, with the year-over-year change in price projected to decline to 3.0% in June from 3.3% recorded in May. As interest rates are expected to decline gradually in the next 18 months and housing supply is likely to continue loosening up this year and next year, home prices will continue to grow but at a more moderate pace in 2025.

Mortgage rates reach the lowest level since February: Weaker jobs reports and cooler-than expected inflation data in the past couple of weeks continued to fuel speculations that the first Fed’s rate cut is getting closer and closer as the economy moved into the second half of the year. Interest rates have been declining since the beginning of July and its winning streak had been extended to eighth straight day as of July 15, according to Mortgage News Daily. At 6.81%, the average 30 year Fixed-Rate Mortgage (FRM) reached the lowest level in five months in the mid of July. While the underlying bond market is beginning to exhibit signs of pulling back and rates could inch back up in the coming days, rates could begin declining in a sustainable fashionable if more signals of economic weakness are being observed in the third quarter.

Small business optimism inches up but Main Street remains pessimistic: The sentiment of small business owners improved slightly last month, but their outlook remained dim as the economic momentum slowed down. The NFIB Small Business Optimism Index climbed again for the third consecutive month from 90.5 in May to 91.5 in June. While the index has reached the highest level of the year, uncertainty about the economic outlook and the presidential election continued to weigh heavily on smaller firms and kept the index below its 50-year average of 98. Inflation remained the top concern for small business owners, as 21% of them reported inflation as the single most important problem in operating their business. Weakening demand in sales activity was also evident in the latest figures, as the net percent of business owners who reported greater sales in the past three months declined compared to last year’s level and the measure had been down year-over-year every month this year. Higher interest rates and retreating labor demand were also contributing factors to the pessimism despite the latest improvement.

U.S. foreclosures down in the first half of 2024: Foreclosure filings on U.S. properties decreased in the first half of 2024 to 177,431, a decline of 4.4% from the same time period a year ago and a drop of 40.1% from the first six month in 2019, according to ATTOM. Foreclosure activity in the first half of this year was also well below the Great Recession level, with filings in 2024 down 89.2% from the peak of 1.65 million in 2010. The 177k plus properties with foreclosure filings represented 0.13% of all U.S. housing units, unchanged from the level recorded in in 2023, but a dip from 0.22% in 2019. For the month of June, 18,574 properties in the U.S. started the foreclosure process, a drop of 17% from the prior month, and a decline of 22.7% from the same month in 2023. Nationwide, one in every 5,071 properties had a foreclosure filing last month. At the state level, California had 19,013 foreclosure filings in the first six months in 2024, an increase of 6.13% from 17,914 reported in 2023. With home prices reaching record-high levels in the first half of 2024 and the labor market remaining solid this year, foreclosure activity is not expected to increase sharply in the next 12 months.