Portland Mortgage Market Update — May 10, 2024

Rates have tentatively improved this week, buoyed on weaker than expected jobs numbers from last week and other rate-friendly reports this week. None of them were major market movers, but Consumer Spending and Initial Jobless Claims reports this week each did their part to paint a picture of an economy that is not as strong as previously thought. This is good for mortgage rates and we are in the low to mid 7's as of today.

Starting with the Consumer Spending report which showed economic confidence dropped to 90.7, which is its third month of decline and 7 points lower than it was in April. This may be due to the fact that the government stimulus from the pandemic provided to consumers reportedly dried up in March (according to a report by the San Francisco Fed) and credit card debts being reported at record highs. On top of that we have seen the advent of Buy Now Pay Later programs, which are harder to track since the payments are not reported to credit bureaus. The head of Bank Of America mentioned that 8.5% of their 69M customers have used their BNPL programs, which comes out to 5.865M people! According to a recent survey by Bloomberg News, 43% of those who owe money to a BNPL program are behind on those payments (nationwide-not specific to BofA), so this certainly appears to be a potential problem in the near future. Since consumer spending accounts for about 70% of the GDP, having a nation that is maxed out and tapped out could result in a slowdown in the US economy that would lead to weaker inflation and lower rates.

On to Initial Jobless Claims report, which tracks individuals filing for unemployment benefits for the first time, rose to 231,000. This is an increase of 22,000 people and is kind of a big deal because this number has been pretty stable the past couple of months. Continuing Claims (repeat filers for unemployment) also rose 17,000. This may portend a change in the labor market, as the BLS has come under fire recently in their reporting relatively (and suspiciously) static unemployment figures for the past couple of months. The increased unemployment activity may yield a weaker jobs number, forcing the Fed to loosen their clamps on rates and drop sooner than expected.

All of this is to say that while inflation readings are anticipated to stay near where they currently are for the next couple of months, the other economic sectors are starting to show the weaknesses I have outlined that would be a requirement for the Fed to cut rates. It always feels kind of dirty tying higher unemployment (boo) to lower interest rates (yay!) but that is where we are at in the market today.