• Recession Risk Grows, Mortgage Applications Increase Despite Rate Hikes, Office Use Ticks Up

    Recession Risk Grows

    A prominent Federal Reserve economist has joined the ranks of analysts warning of rising potential for a recession within the next year, spurred largely by persistent inflation, rising interest rates and fallout from the pandemic.

    Senior economist Michael Kiley puts the risk of recession at 50% within the coming year and more than 60% within the next two years, according to a research note published Tuesday by the Federal Reserve. Kiley cites data from the past five decades and notes that recessions have previously been preceded by low unemployment rates, like the current one at 3.6%, which have moved higher in the past after interest rates rose.

    “A risk of a recession is akin to the risk of a sizable increase in the unemployment rate,” Kiley said in the research report. Past recessions have been triggered most frequently when the unemployment rate rose as little as three-quarters of a percent over the course of four financial quarters, something to watch going forward.

    Higher unemployment could trigger further pullbacks in nonessential spending, resulting in less hiring and other cascading effects that could cause a recession. Property demand could follow suit.

    Much could hinge on Fed efforts to tame inflation, now at a 40-year high of 8.6%. The Fed has indicated that it will continue hiking its key borrowing rate until inflation has been brought closer to 2%.

    Mortgage Applications Rise Despite Rate Hikes

    Mortgage applications increased 4.2% from the prior week for the week ending June 17, after several weeks of declines amid rising interest rates, a top trade group reported.

    “Mortgage rates continued to surge last week, with the 30-year fixed mortgage rate jumping 33 basis points to 5.98%, the highest since November 2008 and the largest single-week increase since 2009,” Joel Kan, associate vice president of forecasting for the Mortgage Bankers Association, said in a statement. He said nearly all other loan types increased at least 20 basis points in the wake of recent Federal Reserve hikes in its own key lending rate.

    Still, new purchase applications rose 8% from the prior week, though refinance applications were down 3% from the prior week. The trade group tracks changes in loan volume but does not report dollar volumes or numbers of applications.

    Year over year, new purchase applications were down 10% and refinance applications were down 77%.

    Office Use Ticks Up

    Office use in major cities was essentially flat from the prior week, rising 0.1% to reach 44.1% for the week ended June 15, according to security firm Kastle Systems. The company's monthly "Back to Work Barometer" tracks office usage in 10 large cities as a percentage of pre-pandemic attendance using anonymous keycard data from clients’ properties.

    The latest numbers still show most major cities far below 50% attendance, though Austin, Texas, still sits at No. 1 hovering around the 60% mark with a reading of 59.3% for the latest tracking period.

    As in past weeks, Austin is followed by Houston at 55.8% and Dallas at 51.5%. New York is next at 42.2%, followed closely by Chicago, Washington and Los Angeles, all slightly under 42%.

    Source: www.CoStar.com