Mortgage Rates Remain Above Seven Percent, Stifling Affordability

Primary Mortgage Market Survey® U.S. weekly averages as of  September 7, 2023

We all know that predicting market trends in real estate is challenging. If we could see things coming, we’d be having far different conversations with our buyers and sellers, wouldn’t we? Sometimes, unexpected events lead to significant fluctuations. This past week, we saw an abrupt rise in rates after a holiday closure. It caught many of us us off guard. A “warning” might have been a scheduled economic report known for market volatility–we didn’t get that after the long holiday weekend. However, the surge in new corporate bonds created heightened competition for investor attention. The result? Lower demand for other bonds, including those affecting mortgage rates.

For the fourth consecutive week, the 30-year fixed-rate mortgage hovered above seven percent. The economy remains buoyant, which is encouraging for consumers. Though while inflation has decelerated, market activity and economic data mentioned above have put upward pressure on mortgage rates. This has led to continued affordability challenges, which are straining potential homebuyers and likely sidelining some.

Additionally, economic data released on Wednesday showed stronger-than-expected growth in the services sector, accompanied by higher prices. Such data typically has an adverse impact on rates, making Wednesday the week’s least favorable day for mortgage lenders (and our buyers, too!).

Looking ahead, we anticipate high-stakes economic data with August’s Consumer Price Index (CPI). While CPI has been decreasing overall, this decline could be misleading due to the recent fuel price reversal, potentially leading to a more volatile market response. Keep an eye on both “headline” and “core” inflation for insights into the economy’s resilience.

Stay informed, as market conditions can change rapidly in the real estate landscape. No matter what, it’s still a great time to buy a house!

Opinions, estimates, forecasts, and other views contained in this document are those of Freddie Mac’s economists and other researchers, do not necessarily represent the views of Freddie Mac or its management, and should not be construed as indicating Freddie Mac’s business prospects or expected results. Although the authors attempt to provide reliable, useful information, they do not guarantee that the information or other content in this document is accurate, current or suitable for any particular purpose. All content is subject to change without notice. All content is provided on an “as is” basis, with no warranties of any kind whatsoever. Information from this document may be used with proper attribution. Alteration of this document or its content is strictly prohibited. ©2023 by Freddie Mac.

Week of September 4, 2023 in Review

Fed speakers made headlines with hints about their next move on rate hikes. Plus, another report shows the strength in home values. Read on for these stories and more.

  • Is the Fed Planning to Pause Rate Hikes?
  • New High in Home Price Appreciation
  • Holiday Impact on Unemployment Filings

Is the Fed Planning to Pause Rate Hikes

There was a parade of Fed speakers last week and there were signs that the Fed may be ready to pause rate hikes at their upcoming meeting on September 20. Comments from voting members were particularly noteworthy, including New York President John Williams, who said he believes monetary policy is in “a good place” and “having the desired effect.” While he thinks the Fed needs to keep their options open based on incoming data, his tone suggested he favors pausing hikes this month.

Dallas Fed President Lorie Logan also said skipping a hike this month “could be appropriate,” though she noted more tightening may still be needed for inflation to reach their 2% target. Philadelphia Fed President Patrick Harker has also said that the Fed may be at a point to “hold rates steady.”

Remember, the Fed has been hiking its benchmark Fed Funds Rate (which is the overnight borrowing rate for banks) to try to slow the economy and curb inflation. Their latest hike in July was the eleventh since March of last year, pushing the Fed Funds Rate to the highest level in 22 years.

What’s the bottom line? The Fed has been looking for clear signs that the labor market is softening as they consider further rate hikes. While job growth has appeared strong in recent reports, a closer look at the Bureau of Labor Statistics data shows a clear downtrend in job growth.

Not only has monthly job growth slowed, but negative revisions are growing as well. Most recently, for example, job creations in June were revised from the originally reported 209,000 all the way down to 105,000 after two months of revisions. In addition, the unemployment rate has moved higher from the low of 3.4% in April to 3.8% last month.

Are these signs of weakness enough to convince the Fed to pause rate hikes? This week’s inflation data will also play a role in their decision, which will be announced after the Fed’s meeting concludes next Wednesday, September 20.

New High in Home Price Appreciation

Home prices rose 1.5% from June to July per Black Knight’s Home Price Index, which was a big acceleration from the 0.7% monthly increase reported for June and the third month in a row this index set a new all-time high. On an annual basis, prices were up 2.3%, with the pace of appreciation at 4.4% from the beginning of this year. This equates to a 7.5% annualized pace if gains continue at this rate. Ninety-nine out of 100 cities showed gains in Black Knight’s index.

What’s the bottom line? The latest rise in home prices reported by Black Knight mirrors the strong growth seen by Case-Shiller, CoreLogic, Zillow and the Federal Housing Finance Agency. These gains are a far cry from the housing crash that many media pundits had forecasted and show that opportunities exist right now to build wealth through homeownership and appreciation.

Holiday Impact on Unemployment Filings

Initial Jobless Claims fell by 13,000 in the latest week, with 216,000 people filing for unemployment benefits for the first time. Continuing Claims also declined by 40,000, with 1.679 million people still receiving benefits after filing their initial claim. This latter number has been trending lower since topping 1.861 million in early April, reflecting a mix of people finding new jobs and benefits expiring.

What’s the bottom line? While the decline in Initial Claims appears to show a strong labor market, the measured week was the lead up to Labor Day weekend, which could have skewed this number as people often put off filing around holidays. Note that Continuing Claims lag a week, so they were unaffected by the holiday.

Also of note, there have been reports that large companies like Adidas, Adobe, IBM, and Salesforce are “quiet cutting” their employees. In other words, they are reassigning workers with lower pay and a lower title so they can trim costs. These reassignments have more than tripled over the past year and could partly explain why unemployment claims have remained low.

What to Look for This Week

Crucial inflation reports are ahead, starting with August’s Consumer Price Index on Wednesday. Look for the Producer Price Index on Thursday, which will give us news on wholesale inflation.

Also of note, Tuesday brings the NFIB’s report on confidence among small business owners for last month. August’s Retail Sales and the latest Jobless Claims will be reported on Thursday. Investors will also be closely watching Tuesday’s 10-year Note and Wednesday’s 30-year Bond auctions for the level of demand.

Technical Picture

Mortgage Bonds ended last week battling their 25-day Moving Average. If Bonds can break above this level, the next ceiling is up at 98.60. The 10-year is trading in a range between a ceiling at 4.28% and a floor at the 25-day Moving Average.

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