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Personal Income Rises 0.3% in September

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Personal income increased by 0.3% in September, following a 0.2% up in August and a 0.3% increase in July, according to the most recent data release from the Bureau of Economic Analysis. The gains in personal income were largely driven by increases in wages, salaries, and personal current transfer receipts. However, the pace of personal income growth slowed from a peak monthly gain of 1.4% seen in January 2024.

Real disposable income, income remaining after adjusted for taxes and inflation, inched up 0.1% in September. On a year-over-year basis, real (inflation adjusted) disposable income rose 3.1%. The pace of real personal income growth softened from a 6.5% year-over-year peak in June 2023.

Personal consumption expenditures  rose 0.5% in September after a 0.3% increase in August. Real spending, adjusted to remove inflation, increased 0.4% in September, with spending on goods and services each climbing 0.5%.

While spending increased more than personal income, the personal savings rate dipped to 4.6% in September, down from 4.8% in August and 4.9% in July. As inflation has almost eliminated compensation gains, people are dipping into savings to support spending. This will ultimately lead to a slowing of consumer spending.

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Refinancing Activity Continues to Climb in September

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The Market Composite Index, a measure of mortgage loan application volume by the Mortgage Bankers Association’s (MBA) weekly survey, rose 18.4% month-over-month on a seasonally adjusted (SA) basis, driven primarily by a surge in refinancing activity. Compared to September 2023, the index increased by 47%. The Market Composite Index which includes the Purchase and Refinance Indices saw monthly gains, rising by 8.6% and 29%, respectively. Year-over-year, the Purchase Index showed a modest increase of 1.9%, while the Refinance Index jumped 149.9%.

The average 30-year fixed mortgage rate continued its downward trajectory for the fifth consecutive month, with September seeing a decline of 31 basis points (bps), bringing the rate to 6.18%. This is 117 bps lower than the same time last year.

Loan sizes also saw growth across the board. The average loan size for the total market (including purchases and refinances) was $400,450 on a non-seasonally adjusted (NSA) basis, an increase of 5.1% from August. Purchase loans grew by 3% to an average of $439,600, while refinance loans jumped by 11.6% to $363,825. Adjustable-rate mortgages (ARMs) saw an 8.2% increase in average loan size, rising from $1.1 million to $1.2 million.

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Mortgage Rates Continue Downward Trend in September

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In September, mortgage rates maintained their downward trajectory, returning to levels last seen two years ago. According to Freddie Mac, the average rate for a 30-year fixed-rate mortgage fell to 6.18%, a decline of 32 basis points (bps) from August. The 15-year fixed-rate mortgage saw an even steeper decline, decreasing by 42 bps from August to 5.26%. Additionally, the 10-year Treasury rate declined by 23 bps, falling from 3.98% in August to 3.75%.

According to the NAHB forecast, the 30-year mortgage rate is expected to near 6% on a sustained basis by the end of 2024, with a further decline to just below 6% during 2025. NAHB also predicts furthering easing by the Federal Reserve before the end of 2024.

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State and Local Tax Revenue – 2024 Second Quarter Analysis

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State & local tax revenue from property taxes paid reached $780.9 billion in the four quarters ending in the second quarter of 2024 (seasonally adjusted), according to the Census Bureau’s estimates. This is a 1.7% increase from the revised $767.7 billion in the four quarters ending in the first quarter of 2024. Year-to-date, total state and local tax revenue was $1.05 trillion. This was 5% higher than the $995.7 billion through the first two quarters of 2023.

The 1.7% increase in the four-quarter property tax revenue was down from the previous quarter of 1.8%. Property tax revenues have continued to grow above the average rate of 0.96% since 2011, with this quarter marking the seventh consecutive quarter of above average growth.

Year-over-year, property tax revenue was 9.1% higher. Year-over-year growth in property tax revenue has consistently been above 9% for four consecutive quarters. Dating back to 2012, the average year-over-year growth is 4.0%.

The property tax share of total state & local tax collections in the second quarter stood at 37.8%, down from 37.9%. This was the first decline in the share since its recent trough in the third quarter of 2022 (33.7%).

Of total collections, property tax made up the largest share, followed by sales tax at 28.0%. Individual income tax represented 25.5% of tax revenue, while corporate tax made up the remaining 8.7% of revenues for state & local revenues in the second quarter of 2024.

Over the past decade, state & local governments have been most reliant on property taxes for revenue. Sales tax has had an increased importance since 2023, when the share of sales tax of total revenues grew above individual income tax shares. See the chart below for the trends of total tax revenues shares.

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Mortgage Rates Continued to Decline in August

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Mortgage rates continued to decrease in August, landing at an average rate of 6.50%. According to Freddie Mac, the average monthly rate fell by 35 basis points (bps) from July’s rate of 6.85%. The August rate is down 57 bps from one year ago, which stood at 7.07%.

The 15-year fixed-rate mortgage also saw a decrease, dropping by 45 bps from July to 5.68%, and is now lower compared to last August by 75 bps. Additionally, the 10-year Treasury rate declined 30 bps from 4.28% in July to 3.98%.

Per the NAHB forecast, we expect 30-year mortgage rates to decline slightly to around 6.66% at the end of 2024 and eventually to decline to just under 6% by the end of 2025. The NAHB outlook anticipates the federal funds rate to be cut by 25 bps no later than the December Federal Reserve meeting, although it is possible for the Fed to cut rates in the upcoming FOMC meeting in September.

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Refinancing Activity Jumped in August as Mortgage Rates Declined

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The Market Composite Index, a measure of mortgage loan application volume by the Mortgage Bankers Association’s (MBA) weekly survey, saw a month-over-month increase of 10.7% on a seasonally adjusted (SA) basis. Compared to last August, the index increased by 20.8%. While the Purchase Index declined by 2.9%, month-over-month, the Refinance Index jumped 30.8% as borrowers took advantage of the declining mortgage rates to refinance higher-rate loans. On a yearly basis, the Purchase Index is down by 8.6%, while the Refinance Index increased by 87.2%.

The average monthly 30-year fixed mortgage rate has fallen for four straight months with August seeing the largest decrease of 40 basis points (bps), bringing the rate to 6.49%. The current rate is 73 bps lower than last August.

The average loan size for the total market (including purchases and refinances) is up 3.6% from July to $380,800 on a non-seasonally adjusted (NSA) basis. Similarly, the month-over-month change for purchase loans increased 0.6% to an average size of $426,600, while refinance loans rose by 18.5% to an average of $325,800. The average loan size for an adjustable-rate mortgage (ARM) also saw a steep increase of 9.5% for the same period, from $1.01 million to $1.1 million.

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Credit Card and Auto Loan Rates Drop for the First Time in Years

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Total outstanding US consumer debt stood at $5.08 trillion for the first quarter of 2024, increasing at an annualized rate of 2.46% (seasonally adjusted), according to the Federal Reserve’s G.19 Consumer Credit Report. From the second quarter of 2023 to the second quarter of 2024, the total increased by 1.84%. This year-over-year (YoY) growth rate is the lowest observed since the first quarter of 2021.

Nonrevolving and Revolving Debt

Of the total outstanding US debt in the first quarter of 2024, the nonrevolving share is 74%, with revolving at 26%. Nonrevolving debt (primarily student and auto loans) stands at $3.73 trillion (SA) for the second quarter of 2024. Revolving debt (mainly credit card debt) stands at $1.34 trillion.

The pace of growth has slowed for both nonrevolving and revolving debt as households’ pandemic-era savings have dwindled. In terms of YoY growth, both nonrevolving and revolving debt peaked in the fourth quarter of 2022 at 15.10% and 5.34% respectively. In the second quarter of 2024, the YoY growth rate for nonrevolving debt decreased to 6.12%, from 7.99% in the first quarter, while the growth rate for revolving debt increased from 0.14% to 0.39%. This was the sixth consecutive quarterly decline in YoY growth for nonrevolving debt while revolving debt saw its first uptick in the YoY rate in five quarters.

Student and Auto Loans

Breaking down the components of nonrevolving debt, student loans account for 47%, and auto loans make up 42% (the G.19 report excludes real estate loans). Collectively, the other loans make up the remaining 11% of nonrevolving debt.

Student loans in the second quarter of 2024 totaled $1.74 trillion (non-seasonally adjusted), marking the fourth consecutive decrease in the YoY rate at -0.96%, following an annual decrease of -1.22% in the previous quarter. The third quarter of 2023 marked the first YoY decrease for student loan debt since the data was first reported.

Auto loan debt for the second quarter of 2024 was $1.57 trillion (NSA). Auto loan YoY growth has steadily decelerated over the past six quarters. The fourth quarter of 2021 saw a high of 13.74% YoY growth compared to the second quarter of 2024 YoY growth rate of 1.95%. This slowdown partially reflects the relatively high interest rate on auto loans, which have increased from 4.52% in Q1 2022 to 8.20% in Q2 2024 (60-month new car loans). However, this car loan rate experienced its first (albeit slight) decline in over two years, falling from 8.22% in the previous quarter.

Credit Cards

The interest rate on credit cards saw its first decrease since the fourth quarter of 2021.  The interest rate for the second quarter of 2024 was 21.51%, falling from 21.59% in the previous quarter. Before this quarter, the rate experienced nine consecutive quarterly increases, with a dramatic increase of 2.8 percentage points from Q3 2022 to Q4 2022. This aligns closely with the Federal Funds Effective Rate increasing 1.47 percentage points during the same period, the highest increase since the 1980s.

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Small Decrease in Mortgage Activity for July

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The Market Composite Index, a measure of mortgage loan application volume by the Mortgage Bankers Association’s (MBA) weekly survey, saw a slight month-over-month decline of 0.8% on a seasonally adjusted (SA) basis; compared to July 2023, the index increased by 0.5%. The Purchase Index declined by 4.8%, while the Refinance Index increased by 5.8%, month-over-month. On a yearly basis, the Purchase Index decreased by 13.9%, while the Refinance Index increased by 33.9%.

Meanwhile, the average monthly 30-year fixed mortgage rate continued to decline for three straight months with July seeing the largest decrease of 10 basis points (bps) to land an at 6.88% in July. The current rate is also lower than last July by 6 bps.

The average loan size for the total market (including purchases and refinances) is down by 1.5% from June to $367,900 on a non-seasonally adjusted (NSA) basis in July. Similarly, the month-over-month change for purchase loans decreased 1.6% to an average size of $424,200, while refinance loans increased by 2.5% to an average of $275,325. The average loan size for an adjustable-rate mortgage (ARM) decreased by 2.5% for the same period, from $1.03 million to $1.01 million.

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Mortgage Rates Continued to Decline in July

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Mortgage rates continued to decrease in July, landing at an average rate of 6.85%. According to Freddie Mac, the average monthly rate fell by 7 basis points (bps) from June’s rate of 6.92%. This current rate is nearly identical to the rate from one year ago, which stood at 6.84%.

The 15-year fixed-rate mortgage also saw a decrease, dropping by 5 bps from June to 6.14%, and is now lower compared to last July by 4 bps. Additionally, the 10-year Treasury rate declined 9 bps from 4.37% in June to 4.28%.

Per the NAHB forecast, we expect 30-year mortgage rates to decline slightly to around 6.66% at the end of 2024 and eventually to decline to just under 6% by the end of 2025. The NAHB outlook anticipates the federal funds rate to be cut by 25 bps no later than the December Federal Reserve meeting and six more rate cuts in 2025 as inflation approaches the Fed’s policy target.

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