The Federal Reserve’s decision to avoid a rate hike Wednesday reflected a cooldown in inflation, while higher-than-expected jobless claims reported late last week indicated business sluggishness.
On Tuesday, The US Department of Labor reported that the Consumer Price Index for All Urban Consumers (CPI-U) rose 0.1 percent in May on a seasonally adjusted basis, after increasing 0.4 percent in April.
Over the last 12 months, the All Items Index increased 4.0 percent before seasonal adjustment. And, according to the Bureau of Labor Statistics, core inflation stayed stubborn last month as rent prices continue to surge.
The index for both rent and owners’ equivalent rent rose 0.5% each. Owners’ equivalent rent is the hypothetical rent a homeowner would pay.
The index for shelter was the largest contributor to the monthly all items increase, followed by an increase in the index for used cars and trucks. The food index increased 0.2 percent in May after being unchanged in the previous 2 months. The index for food at home rose 0.1 percent over the month while the index for food away from home rose 0.5 percent.
The energy index, in contrast, declined 3.6 percent in May as the major energy component indexes fell.
Whether the Fed sees the drop in the CPI as a sign that things are working, it remains to be seen whether that means one more rise in rates to keep the thumb on inflation, or a respite to stimulate mortgages and home buying.
U.S. jobless claims surged unexpectedly to a 21-month high, as 261,000 filed for unemployment benefits for the first time in early June, according to the Bureau of Labor Statistics. The increase of 28,000 in initial filings from the prior week exceeded economists’ expectations, where seasonally a 6% decline, would be expected.
California had the largest surge in the nation by nearly 5,200 from the prior month.
“While a one-week jump can hardly make a trend, the spike in unemployment claims during the current economic slowdown could be a signal that a recession is approaching. From the bond market standpoint, it provides another reason for the Federal Reserve to skip a rate hike when they meet later this week,” said a report this week from the California Association of Realtors (CAR).
The CAR report added that foreclosure filings in May 2023 increased 7% from a month ago, and were up 14% from the same month of last year, according to ATTOM Data.
One in every 3,967 housing units in the U.S. had a foreclosure filing, as states that suspended foreclosures during the COVID moratorium continued to hand out notices to homeowners who have been late in their mortgage payments.
The foreclosure rate of 0.025% is still way below the peak of 3.6% reached in January 2011 during the Great Recession.
In California, the nearly 2,500 foreclosure starts registered last month were significantly below the peak of 135,000 recorded in Q1 2009. While the bump up in foreclosures will add a few listings to the market, it will hardly change the tight supply condition or have an impact on home prices in the near term.
The CAR report also showed that the decline in home prices led to a year-over-year loss of 0.7% in home equity in Q1 2023. The drop in home equity at the national level was the first decline since early 2012. Roughly 2.1% of all mortgaged properties, or 1.2 million homes, were “underwater” in the first quarter of 2023. This was unchanged from the fourth quarter of 2022, but it was an increase of 4% from the same quarter of last year.
Despite the increase from a year ago, the share of homes with negative equity remained relatively small when compared to the peak of 26% recorded in Q4 2009.
With home prices having likely reached their bottom in the first quarter of 2023, said the CAR report, the aggregated home equity level should improve over the next year as prices continue to bounce back.
