Market In A Snap! March 28th-April 1st, 2022

By: Jeff Anderson, CFA

CloseWeekly returnYTD return
S&P 5004,545.86.06%-4.62%
Nasdaq Composite14,261.50.65%  -8.84 % 
Russell 2,000 2,091.11.63%-6.87%
Crude Oil$99.42-11.72%31.77%
US Treasury 10yr Yield2.385 %-9.37%

Source: Wall St. Journal

Market Wrap:

Thursday marked the end of the first quarter.  By mid-March, the S&P 500 was down 12.2% for the year but clawed back all but 4% of its losses.  The Nasdaq 100 was down 20% by mid-March. By Thursday, it was down ~ 8%.  It has been a wild quarter.  Fed rate hikes, geopolitical tensions, and a new wave of lockdowns in China all contributed to a rough start to 2022.  It’s enough to test anyone’s nerves.   

Mortgage Rates Spike:

The 30-year fixed-rate loan jumped to 4.67%, according to Freddie Mac.  That is quite an increase from 3.22% at the start of this year. In January 2021, rates were below 2.7%.  This likely isn’t a shock to many. The yield on the US 10-YR Treasury Note is well above 2%, up from 1.2% in August of last year. The Federal Reserve raised rates at the March meeting and, at present, intends to continue the path of rate hikes through this year and into next year to bring down inflation.  With higher mortgage rates, refinancing are expected to drop dramatically.  They are expected to make up 33% of mortgage originations this year, down from nearly 60% in 2021.  That has put pressure on home prices.  Median home prices had increased nearly 24%, year-over-year in March of 2021.  That pace has slowed to 15%.  It will be interesting to see what the data looks like after a few months of mortgage rates near, or above, 5%.

Real Estate Loans:

Despite the increases in home prices, Residential Real Estate loans are well below the peak during the recession of 2008.

Debt levels are much better.  Values are much higher.  Household balance sheets are also, obviously, in better shape.  Regardless, mortgage rate increase shocks are definitely a headwind for housing.  Historically speaking, mortgage rates are still below their long-term average.  The rate of change is, in the short term, what really matters.  Home Equity Lines of Credit are nowhere near the levels of 2008.  Savings rates are higher as well. But housing is cyclical.  The rapid growth in home values is declining and may continue to do so for the foreseeable future as the Fed tries to wrestle down inflation.

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