The recent surge, in mortgage rates can be attributed to the Federal Reserves announcement during their FOMC meeting that they plan to keep rates “higher for longer.” This announcement dashed the hopes of market participants who were anticipating rate cuts in 2024. However there have been some developments regarding rates in the week as several speakers from the Federal Reserve adopted a more lenient stance and suggested that the Central Bank might not pursue further rate hikes. Despite this housing sentiment has continued to decline with consumers identifying mortgage rates as an obstacle to housing affordability. Given the borrowing costs and expected rate fluctuations in the coming weeks it is anticipated that home sales will remain sluggish in the near future.
Regarding inflation there has been a moderation albeit at a slow pace;
Consumer prices experienced higher than anticipated growth with headline inflation rising by 0.4% month over month and 3.7% year over year in September. Energy prices played a role in driving inflation up despite showing some moderation month. However there is some relief on the horizon, for consumers as retail gas prices have decreased since Septembers end. This reduction should provide short term respite. Help alleviate pressures throughout October.
The Core Consumer Price Index (core CPI) which excludes food and energy continued to decrease in September. The index rose by 0.3% compared to the month. Increased by 4.1% compared to the same time last year. This suggests that inflation is still, on a trend although progress has been slow and is likely to remain sluggish in the coming months. While the latest CPI report provides some insights into inflations developments the Federal Reserve will need evidence in the next few weeks to confirm that the economy is indeed slowing down before considering putting a hold on rate hikes during their November meeting.
After showing improvement week mortgage rates have returned to high levels;
Mortgage rates experienced a significant drop early last week due to the Israel Hamas conflict outbreak. Moreover comments from Federal Reserve representatives also indicated that most of the work regarding inflation has already been completed, possibly suggesting an end, to rate hikes. According to Mortgage News Daily average 30 year fixed rate mortgages (FRMs) decreased by 15 basis points by Friday compared to the weeks Friday. However this improvement was entirely negated at the beginning of this week as yields surged on Monday.
On Monday the yield, on the 10 year Treasury increased by 8 basis points while the 2 year Treasury yield rose 5 basis points. As a result the average rate for a 30 year fixed rate mortgage went up by 14 basis points on the day of the week. Given the evaluation of prospects and uncertainties arising from geopolitical tensions in the Middle East it is anticipated that short term interest rates will continue to experience volatility.
The housing market sentiment remains subdued due to mortgage rates;
In September housing sentiment further declined as rates reached a level not seen in 23 years according to Fannie Maes national housing survey. The percentage of people who believed it was a time to buy dipped to an all time low of 16% matching years record. With rates increasing over 50 basis points in one month and consistently rising for six months consumers are pessimistic, about home buying conditions. 17% expect mortgage rates to decrease in the year. Interestingly high mortgage rates have now surpassed home prices as the reason why consumers perceive it as an unfavorable time to buy a home.
On the selling side even though consumers expressed a positive sentiment, with 63% stating that it is currently a favorable time to sell this figure declined by three percentage points compared to the previous month.
The confidence of CEOs has taken a hit as their expectations for the future have become more pessimistic;
At the start of the quarter business executives maintained an outlook on the economic landscape with nearly half (47%) anticipating that general economic conditions would worsen over the next six months. This represents a decrease in optimism compared to the quarter when 39% held views. Factors such as uncertainty, geopolitical instability, inflationary pressures and increased borrowing costs are some of the concerns that likely contributed to this decline in confidence among business leaders. Despite this dip in CEO confidence levels 38% still plan to expand their workforce over the 12 months—an inch down from 40% in Q3. Additionally over a quarter (27%) of CEOs anticipate an increase in capital budgets—an uptick from 22% in the quarter. While most CEOs still anticipate a downturn within the 12 18 months there has been a noticeable decline in consensus on this matter, throughout 2023.
In the quarter than three quarters of individuals (72%) believed that there would be a recession, within the next 12 18 months, which is a decrease from 93% at the beginning of the year.
The percentage of homes being sold to first time buyers saw a rebound after two years of decline;
According to the 2023 Housing Market Survey by C.A.R., the share of homes being purchased by first time buyers increased from 33.7% in 2022 to 36.2% in 2023. However this increase in first time buyer share was not due to housing becoming more affordable. Instead it was mainly because fewer repeat buyers entered the market. Many of these repeat buyers were homeowners who were not willing to list their houses for sale due, to the lock in effect.
Please note that the weekly market minute report is updated every Monday by 6;00 PM PST.