My head and my heart are on different plains today. My head knows the facts,…
Rates Back Up to 20 Year High
If you received our update text on Friday you know what the headline for this week was… unemployment numbers! Jobs are great for people who like to eat food and buy things, but too many jobs are bad for people who like low rates. With all eyes on the Fed’s next move in November, Friday’s strong labor market indicated an ongoing economic resilience creating a selloff of both stocks and bonds. The Dow Jones Industrial Average was down 630 points and the 30-year mortgage rate climbed above 7% again, landing at 7.125%. Interestingly, Jobs numbers came out only 13k over the estimated 250k, at 263k. Almost all of the job gains came from those 45 and older, while many other categories saw losses.
What’s pushing rates up?
- Incredibly high inflation
- Remarkably resilient economic data
- The unwinding of the recent incredibly rate-friendly Fed policies
The Fed is determined to now stay the course, to not repeat a mistake made by predecessor, Fed Char Volker. Volker cut rates from 16% to 11% at the first sign of lower inflation only to hike them to 19% 2 months later when inflation proved resilient. Sound familiar to recent “transitory” rhetoric?
Soooo we have moved from transitory to resilient; from raising rates then dropping them to raising rates and holding them.. holding them high as long as we can, even if that means the economy suffers. In fact, the Fed actually wants to see a measured amount of suffering in order to confirm that it has hiked rates enough. Remember, the fed rate does not equal long term mortgage rates, but the fed rate has far reaching effects, which ultimately affects inflation, economic strength, and long term bonds.
The Fed is also less worried about housing then the other economic indicators that continue to show strength. Housing produced a 40% gain over the last two years; so a dramatic cooling has been determined to be a good and necessary thing. Meanwhile, earlier this week both manufacturing and services indices from the Institute from Supply Management (ISM) showed continued expansion. Labor is strong with the most recent jobs report and an unemployment rate the lowest it’s been since the 1960’s.
The fact that we’re even able to make any case for ongoing economic resilience is evidence that things aren’t nearly bad enough to sway the Fed from its intention to hike and then hold the Fed Funds rate at higher levels for as long as it possibly can. That’s why the market is immediately willing to sell off on a jobs report that was only 13k higher than expected.
What does this mean for us? Rates will continue to be volatile as the market reacts to the Fed’s intentions. This volatility will keep demand lower as evidenced by Thursday’s 12.6% week-over-week drop in mortgage purchase applications; giving able buyers less competition and more negotiating power. Sellers who understand this need come out aggressively priced and beautifully staged, knowing they lost unrealized gains from March, but still benefitted from years and years of healthy appreciation.
Fear Never Wins
I was reading several articles this morning on the restructuring of Credit Suisse. You know.. the bank that was supposed to fail, triggering a global contagion similar to that of the Lehmann Brothers’ crash that sparked the Great Recession a decade and a half ago. As of Monday, Oct 3rd, the global lender recovered most of its losses.
Boaz Weinstein founder of the hedge fund Saba Capital Management tweeted “Oh my, this feels like a concerted effort at scaremongering.”
I don’t want to say Credit Suisse wasn’t having issues, it was, but it’s an easy target and feeds into the nay sayers who are getting louder by the day. If you are on YouTube, Instagram, or TikTok, you are seeing it. So are your clients. Stories of banks failing, real inflation driving losses, a housing market crash.
As news of mortgage purchase applications declining, sales slowing, and prices drop, how do you combat the fear and negativity? Consistent facts! Housing is going to bear the brunt of an aggressive Fed and higher rates. But housing is also a fundamental need. It might not lead to the extravagant purchases we saw in 2020 and 2021, but return to a more thoughtful, strategic, necessary purchase. As your sphere changes jobs, has babies, graduates, become empty nesters, etc; stay relevant with data supporting the long-term strength of buying over renting. The tax advantages, the cost of waiting, the opportunities for cash flow, the idea of making it your own. Home owners are cushioned against the upcoming recession; their strength will continue to put pressure on inventory.. especially detached inventory. That story won’t change. What will change is the return to moderation of home values and a requirement for each of us to be more skilled and intentional in our communication and support of our clients. Giving them the knowledge that will combat and overcome the fear.
Fear never wins, it only stalls the ability to take action.
NEW Real-Time Updates and Text Messages
Real estate agents who want to stay in the know are texting UPDATE to 855-930-0377. Know what rates are and what’s moving the market going into the weekend. Don’t miss out!