NAF Insights 2.9.2023

by New American Funding Sr. Insight Analyst Ryan Schoen

Market Wild Rides - The job market is strong and consumers are leveraging financial products.

Quick Hit Summary for Loan Officers

Markets continue to fluctuate, hanging on every word and data point that is released. 30-year mortgage rates have seen volatile swings in the past few days, with the typical rate falling below the 6% threshold for the first time in 5 months before completely reversing course and currently holding at 6.45% as of this update.?

Consumers are seeing inflation outpace wage gains and reduce their purchasing power. This is leading to a surge in credit card debt levels and borrowers turning to products that leverage their home equity.

Key Points and Stats

• The Fed raised the federal funds rate by 25 basis points to a new target range of 4.5% to 4.75%
• The market focused on the historic low 3.4% unemployment rate and 517K added jobs in January since forecasters had penciled in a rise of around 200K
• Credit card balances achieved a new record of $930.6 billion in 4Q 2022 on increased spending and account growth with the average debt per borrower rising to $5,805 according to the TransUnion Quarterly Credit Industry Insights Report (CIIR)

Market Developments

Last Wednesday (Feb. 1st) the Fed raised the federal funds rate by 25 basis points to a new target range of 4.5% to 4.75%.

Fed Chair Powell’s press conference led to rapid movement in the markets. The 10-year treasury plummeted to 3.34% by the end of the trading day with MBS following suit lower. The typical 30-year mortgage rate even briefly broke the 6% barrier for the first time in 5 months!

The Jobs report dropped on Friday showing an unexpected hiring pace surge. The market brushed off the rapidly declining wage growth figure and instead focused on the historic low 3.4% unemployment rate and 517K added jobs in January since forecasters had penciled in a rise of around 200K. This left traders to wonder whether they had been pricing things wrong and quickly led to an about-face.?

Eventually, the Fed raising rates is expected to negatively impact unemployment totals in the coming months. Historically speaking, the rise in unemployment has lagged the rise in Fed funds rate by 12-24 months. Consumers are starting to tap into personal savings to combat inflation that is outpacing wage gains.

Credit cards are the first financial product option of choice for consumers. Credit card balances achieved a new record of $930.6 billion in 4Q of 2022 on increased spending and account growth with the average debt per borrower rising to $5,805.?

On the mortgage front homeowners have begun to increasingly take advantage of the record levels of tappable home equity they have built in their homes to facilitate the consolidation of debt, leverage for home improvement projects and purchase big-ticket items. This included Cash-out refinances, HELOCs and HELOANs.

Resources:

1. Household Survey (CPS)
2. Establishment Survey (CES)
3. TransUnion Quarterly Credit Industry Insights Report (CIIR)
4. US Bureau of Labor Statistics