I have to warn you; this is a nerdy one.
For my skimmers:
- Rates have fallen almost .7% since their peak mid October to 7.36% per Mortgage News Daily
- Buyer demand remains seasonally strong for the LTW Group, with current volume outpacing the same time in 2022
- Sellers are more willing to accept offers with seller concessions and home sale contingencies
- Watch and listen to the recording of our most recent webinar featuring Dave Stevens, who is the former federal housing commissioner for president Obama and former CEO of the MBA, and an expert witness is the NAR case around commissions. For the full 56 min version click HERE. For the 9 min summary click HERE.
- Thanksgiving has come and gone… how?
It’s been a while
We have been hustling over here at the LTW group lately and it has resulted in a long hiatus from one of my favorite activities- writing this market update. Nevertheless, here we are and I have much to share.
When this all began, I said that the Fed was not the main driver of interest rates. And that was true until it wasn’t.
Interest rates historically have followed inflation; when inflation rises, so do virtually all interest rates. And, at it’s core, inflation is the driver of Fed policy. They have two mandates, employment and price stability, and rising inflation does not bode well for price stability.
We have seen inflation move lower throughout the back half of 2023, but we saw mortgage rates rise… why?
Two real reasons, in my opinion, and that is that the market shifted its sights to the direction of the Fed- how much higher will they go, and how long will they hold rates here? And the second is just a supply and demand issue.
The supply and demand issue is interesting. In regards to supply, you had a huge amount of US treasury debt being issued in a stop and go fashion with the debt ceiling debacle and rising interest costs for the government.
I cannot overstate this: the single most impacted entity of higher interest rates is the United States Government. They have over $30 TRILLION (unfathomable amount of money… you can’t comprehend it) in outstanding debt, and they have to issue MORE DEBT just to keep up with interest payments.
This is like you paying your mortgage and car payment with your credit card, oh and your credit card rate just went up about 9X from .5% to 5%. For perspective, if this were a real credit card at 19%, the rate would have gone to 171%! To borrow money, they sell treasury bonds, which flooded the market with supply. Usually the Fed would buy some of that debt to absorb the slack in the market, but they’re not buying or renewing debt right now (they call this quantitative tightening, or QT).
Now for the demand side. On top of supply issues, because you could lend the US government money “risk free” at 5% and get your money back in months or a year in some cases, why would you lend a normal person your money for their mortgage at 6.5% and not know when (or if… default risk) they will pay you back? It could be a year, it could be 30 years.
So, competition with treasuries further punished mortgage bond demand, and inflation took a back seat to these market dynamics for a while.
It was an ugly year for mortgage bonds, for sure, with so many headwinds to lower rates. But now we see some reprieve and I hope it holds.
Starting at the end of October we saw inflation data from across the globe show more meaningful, consistent improvement. We got CPI, consumer level inflation, on Tuesday, November 14th which sparked a huge rally that led to lower rates, followed by producer level inflation and jobless claims rising that has pushed the rally to carry on into today.
At the same time, we have seen many buyers who have been waiting since 2020 to purchase a home resurface. At first it was fierce competition in the housing market that had would-be buyers on the sideline, then it shifted to interest rates and affordability. Now, many of those people just can’t wait any longer due to lifestyle or geographic needs changing. All that has led to a very strong projected December for our group, and I am so grateful to all of our partners and clients for trusting us to get them to the finish line.
So that’s what we have been up to and that’s what we are seeing. I hope this helps and I am going to get back into the rhythm of writing this on a consistent basis.
We always love hearing from you, so don’t hesitate to reach out to talk about this stuff. Yes, I know, such a tempting offer. But I’m feeling generous going into the holiday season.
Thanks for all you do, and talk soon!
Corey