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The Dow exceeds 27,000 for the first time ever

This week, Federal Reserve Chairman Powell testified before Congress. He signaled that an argument could be made for an interest rate cut. This led investors to speculate that a cut was likely in the coming months.

The Fed controls overnight rates. They directly affect prime lending rates. Cuts in these short-term rates reduce interest expense to companies and push up corporate earnings. Speculation of a rate cut pushed all indexes up to record highs.

Unfortunately, speculation of lower short-term rates actually caused mortgage rates to rise this week. Mortgage rates are long-term rates. Lower short-term rates increase the risk of long-term inflation and drive long-term rates higher. 

The Dow Jones Industrial Average closed the week at 27,332.03, up 1.5% from 26,922.12 last week. It’s up 17.2% year-to-date. 

The S&P 500 closed the week at 3,013.77, up 0.8% from 2,990.41 last week. It is up 20.2% year-to-date. 

The NASDAQ closed the week at 8,244.17, up 1.0% from 8,161.79 last week. The NASDAQ is up 24.2% year-to-date. 

The 10-year treasury bond closed the month yielding 2.12%, up from 2.04% last week. The 30-year treasury bond yield ended the week at 2.64%, up from 2.54%  last week. 

Mortgage rates remain at two-year lows

The July 3, 2019, Freddie Mac Primary Mortgage Survey showed mortgage rates for the most popular loan products as follows: The 30-year fixed mortgage rate average was 3.75%, unchanged from 3.75% last week; the 15-year fixed was 3.22%, up from 3.18% last week; the 5-year ARM was 3.46%, almost unchanged from 3.45% last week. Rates ended the week higher. They will be about 1/8% higher next week. 

Homes purchased by investors were the highest on record in 2018  

The share of investor purchases of U.S. homes has climbed to an all-time high, a sign that rising home prices have done little to dampen demand for flipping homes or turning them into single-family rentals.

Data released by CoreLogic reported that more than 11% of residential properties were purchased by real estate speculators, private equity firms, and other investors in 2018.

Investor purchases are the highest on record and nearly twice the levels before the 2008 housing crash. The investor interest poses a challenge for millennials and other first-time buyers who are increasingly looking to buy starter homes and are forced to compete with deep-pocketed cash buyers.

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