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Average long-term mortgage rate climbs back to nearly 7%
LOS ANGELES | The average long-term U.S. mortgage rate climbed back to nearly 7% this week, pushing up borrowing costs for home shoppers with the spring homebuying season underway.
The average rate on a 30-year mortgage rose to 6.87% from 6.74% last week, mortgage buyer Freddie Mac said Thursday. A year ago, the rate averaged 6.42%. The average rate is now just below where it was two weeks ago.
Borrowing costs on 15-year fixed-rate mortgages, popular with homeowners refinancing their home loans, also rose this week, pushing the average rate to 6.21% from 6.16% last week. A year ago it averaged 5.68%, Freddie Mac said.
When mortgage rates rise, they can add hundreds of dollars a month in costs for borrowers, limiting how much they can afford in a market already out of reach for many Americans.
“After decreasing for a couple of weeks, mortgage rates are once again on the upswing,” said Sam Khater, Freddie Mac’s chief economist.
Investors’ expectations for future inflation, global demand for U.S. Treasurys and what the Federal Reserve does with its short-term interest rate can influence rates on home loans.
After climbing to a 23-year high of 7.79% in October, the average rate on a 30-year mortgage has remained below 7% since early December. Rates eased amid expectations that inflation was cooling enough for the Fed to begin lowering its short-term interest rate by this spring. But a spate of stronger-than-expected reports on inflation, the job market and the economy in recent weeks dimmed that outlook, sending mortgage rates higher through most of February.
Many economists expect that mortgage rates will ultimately ease moderately this year, but that’s not likely to happen before the Federal Reserve begins cutting its benchmark interest rate. On Wednesday, the central bank kept its rate unchanged and signaled again that it expects to make three rate cuts this year, but not before it sees more evidence that inflation is slowing.
“The Fed’s announcement that it is holding interest rates steady for now was not unexpected, but it does mean that mortgage rates are going to remain higher for longer,” said Lisa Sturtevant, chief economist at Bright MLS.
The U.S. housing market is coming off a deep, 2-year sales slump triggered by a sharp rise in mortgage rates and a dearth of homes on the market. The overall decline in rates since their peak last fall has helped lower monthly mortgage payments, providing more financial breathing room for homebuyers facing rising prices and a shortage of homes for sale this year.
Sales of previously occupied U.S. homes rose in February from the previous month to the strongest pace in a year. That followed a month-to-month home sales increase in January.
Still, the average rate on a 30-year mortgage remains well above where it was just two years ago at 4.42%. That large gap between rates now and then has helped limit the number of previously occupied homes on the market by discouraging homeowners who locked in rock-bottom rates from selling.
Reddit soars in
Wall Street debut
NEW YORK | Reddit’s stock soared in its Wall Street debut as investors pushed the value of the company close to $9 billion seconds after it began trading on the New York Stock Exchange.
Reddit, which priced its IPO at $34 a share, debuted Thursday afternoon at $47 a share. At the close of trading, it was up 48% at $50.44, backing off a peak of $57.80.
“This volatility is not surprising because there has been a lot of buzz around Reddit,” Reena Aggarwal, director of Georgetown University’s Psaros Center for Financial Markets and Policy, noted.
When Reddit’s price initially jumped, she explained, some investors who got an allocation may have sold their shares to cash in on the gains, bringing it back down. She noted that this could to continue in the stock’s early days.
Reddit’s IPO will test the quirky company’s ability to overcome a nearly 20-year history colored by uninterrupted losses, management turmoil and user backlashes to build a sustainable business.
The interest surrounding Reddit stems largely from a large audience that religiously visits the service to discuss a potpourri of subjects that range from silly memes to existential worries, as well as get recommendations from like-minded people.
About 76 million users checked into one of Reddit’s roughly 100,000 communities in December, according to the regulatory disclosures required before the San Francisco company goes public. Reddit set aside up to 1.76 million of 15.3 million shares being offered in the IPO for users of its service.
Per the usual IPO custom, the remaining shares are expected to be bought primarily by mutual funds and other institutional investors betting Reddit is ready for prime time in finance.
Reddit’s moneymaking potential also has attracted some prominent supporters, including OpenAI CEO Sam Altman, who accumulated a stake as an early investor that has made him one of the company’s biggest shareholders. Altman owns 12.2 million shares of Reddit stock, according to the company’s IPO disclosures.
By the tech industry’s standards, Reddit remains extraordinarily small for a company that has been around as long as it has. Thursday’s opening debut valuation of $9 billion, for example, is still far below the $1.2 trillion market value boasted by Meta Platforms — whose biggest social media service Facebook was started just 18 months earlier than Reddit.
Reddit has never profited from its broad reach while piling up cumulative losses of $717 million. That number has swollen from cumulative losses of $467 million in December 2021 when the company first filed papers to go public before aborting that attempt.
In the recent documents filed for its revived IPO, Reddit attributed the losses to a fairly recent focus on finding new ways to boost revenue.
Not long after it was born, Reddit was sold to magazine publisher Conde Nast for $10 million in deal that meant the company didn’t need to run as a standalone business. Even after Conde Nast parent Advance Magazine Publishers spun off Reddit in 2011, the company said in its IPO filing that it didn’t begin to focus on generating revenue until 2018.
Those efforts, mostly centered around selling ads, have helped the social platform increase its annual revenue from $229 million in 2020 to $804 million last year. But the San Francisco-based company also posted combined losses of $436 million from 2020 through 2023.
Reddit outlined a strategy in its filing calling for even more ad sales on a service that it believes companies will be a powerful marketing magnet because so many people search for product recommendations there.
The company also is hoping to bring in more money by licensing access to its content in deals similar to the $60 million that Google recently struck to help train its artificial intelligence models. That ambition, though, faced an almost immediate challenge when the U.S. Federal Trade Commission opened an inquiry into the arrangement.
Since Thursday just marks Reddit’s first day on the public market, Aggarwal stressed that the first key measure of success will boil down to the company’s next earnings call.
“As a public company now they have to report a lot more … in the next earnings release,” she said. “I’m sure the market will watch that carefully.”
Reddit also experienced tumultuous bouts of instability in leadership that may scare off prospective investors. Company co-founders Steve Huffman and Alexis Ohanian — also the husband of tennis superstar Serena Williams — both left Reddit in 2009 while Conde Nast was still in control, only to return years later.
Huffman, 40, is now CEO. Although his founder’s letter leading up to this IPO didn’t mention it, Huffman touched upon the company’s past turmoil in another missive included in a December 2021 filing attempt that was subsequently canceled.
“We lived these challenges publicly and have the scars, learnings, and policy updates to prove it,” Huffman then wrote. “Our history influences our future. There will undoubtedly be more challenges to come.”
Major airlines
want to hear how Boeing plans
to fix problems
The heads of leading U.S. airlines want to meet with Boeing and hear the aircraft manufacturer’s strategy for fixing quality-control problems that have gained attention since a panel blew out of an Alaska Airlines jetliner in January, people familiar with the situation said Thursday.
The meeting is likely to take place next week, according to a person who spoke on condition of anonymity to describe private discussions between Boeing and the airlines.
The request by airline leaders was reported first by The Wall Street Journal.
The newspaper said that Boeing CEO David Calhoun is not expected to meet with the airline officials, and that Boeing has offered to send its chairman, former Continental Airlines CEO Lawrence Kellner, and other board members.
Boeing declined to comment.
The company’s chief financial officer, Brian West, said at an investor conference Wednesday that the slowdown in aircraft production would cause Boeing to burn through $4 billion to $4.5 billion in cash flow during the first quarter, which ends March 31.
“We put the customers in a tight spot … the slowdown has impacted us, and it has impacted them,” West said. He said airline customers “have been supportive of everything we are trying to do to enhance safety and quality for the industry.”
United Airlines and American Airlines declined to comment on the airlines’ request, and Alaska Airlines did not immediately respond to an inquiry. A Southwest spokesman declined to comment on specific meetings but said, “We have ongoing, frequent communication with Boeing, which is not new and will continue.”
Airline CEOs have been outspoken in their frustration with Boeing’s manufacturing problems, which have slowed deliveries of planes that the carriers were counting on.
Southwest, which has an all-Boeing fleet, said last week that the company told it to expect 46 new planes this year instead of 79, which will force Southwest to reduce its planned schedule.
United is considering buying Airbus jets because increased scrutiny of Boeing is likely to further delay the launch of a planned new, larger Max model.
Boeing shares have dropped 28% this year from fallout over the Alaska accident and production problems.
Applications for U.S. unemployment benefits dip to 210,000
WASHINGTON | The number of Americans signing up for unemployment benefits fell slightly last week, another sign that the labor market remains strong and most workers enjoy extraordinary job security.
The Labor Department reported Thursday that jobless claims dipped by 2,000 to 210,000. The four-week average of claims, which smooths out week-to-week ups and downs, rose by 2,500 to 211,250.
Overall, 1.8 million Americans were collecting unemployment benefits the week that ended March 9, up a modest 4,000 from the week before.
Applications for unemployment benefits are viewed as a proxy for layoffs and a sign of where the job market is headed. Despite high-profile job cuts at tech companies such as Google parent Alphabet, eBay and Cisco Systems, overall layoffs remain below pre-pandemic levels. The unemployment rate, 3.9% in February, has come in under 4% for 25 straight months, longest such streak since the 1960s.
The economy and the job market, supported by consumer spending, have proven resilient even though the Federal Reserve raised interest rates 11 times in 2022 and 2023 in an effort to combat inflation that flared up in 2021. Inflation has come down from a four-decade high 9.1% in June 2022 to 3.2% in February — but remains above the central bank’s 2% target.
Hiring has slowed from the breakneck pace of three years ago but remains strong: Employers added a record 604,000 jobs a month in 2021, 377,000 in 2022 and 251,000 last year. In February, job creation rose unexpectedly to 275,000.
“Overall, layoffs remain at low levels,’’ said Rubeela Farooqi, chief U.S. economist at High Frequency Economics. “We expect job growth to slow somewhat but the unemployment rate to remain low this year.’’
The combination of easing inflation and a sturdy economy has raised hopes that the Fed can manage a so-called soft landing and tame price increases without tipping the economy into a recession. On Wednesday, the Fed signaled that it still expects to reverse policy and cut rates three times this year — a sign of confidence in the progress being made against inflation.
—From AP reports
