Rising Mortgage Rates: Inflation, Global Factors, and the Time to Buy is Now!

Mortgage rates maintained their upward trajectory as the 10-year Treasury yield, a key benchmark, climbed. Several factors, including shifts in inflation, the job market and uncertainty around the Federal Reserve’s next move, are contributing to the highest mortgage rates in a generation.

Additionally, the so-called “higher for longer” monetary policy stance has recently been adopted by nearly every major central bank across the globe. The genesis of the policy is that these banker do not want the financial markets to go about unwinding their positions too soon and undo the work of the central banks in fighting inflation. The concern is that the expectation of rate cuts will cause a snap back in inflation. That is further complicated by rising oil prices (which is inflationary by it’s very nature). At issue is the very possibility of a “soft landing” for the economy with many analyst under the impression that we get away without a recession. This is primarily due to the jobs reports and overall outlook for labor.

However, with the instability of some large players in the global economy, such as China’s largest home builder, Country Garden, who is threatening default for the second time since August and the weekend developments in Israel, the potential for continued high rates is quite real.

In fact, there is discussion within the Fed that we could remain in an inflationary position into 2026. I hope this will not come to pass but hikes are still on the menu in most of the western European banks, some middle east countries and even Taiwan, as well as here at home. China and Japan being the only other large players that will continue to keep their rates low.

Unsurprisingly, high rates are pulling back homebuyer demand but if you’ve gotten this far and your thinking the sky is falling, I have some reassuring news for you. There are still not enough houses to meet the demand here in the United States. If your client can afford the payment and the home is workable for them for a few years, getting in could prove lucrative. There is less competition, making this an ideal time to buy. That won’t be the case when rates drop. Buyers will flood back in and home prices will spike. Simple supply and demand economics support that conclusion. Getting them preapproved is the first step. I’d love to help with that, so let me know how I can support your cause! Call me today at: 650-207-4364.

Primary Mortgage Market Survey® U.S. weekly averages as of October 5, 2023

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 October 2, 2023 in Review

September brought a blowout job creation number from the Bureau of Labor Statistics,

but is the labor sector as strong as that data suggests? Meanwhile, appreciation reports

show that home prices are reaching new record highs. Here are last week’s headlines:

  • Soaring September Job Growth Defies Expectations
  • Private Payrolls at Weakest Pace in Almost Three Years
  • Job Openings a Surprise “JOLT” Higher
  • Tame Unemployment Claims a Contrast to Job Cuts
  • More Record Highs for Home Prices

Soaring September Job Growth Defies Expectations

 BLS Report

The Bureau of Labor Statistics (BLS) reported that there were 336,000 jobs created in

September, nearly double the forecasted amount and the highest since January.

Revisions to July and August also added 119,000 jobs (all government) in those months

combined. The unemployment rate held steady at 3.8%, just above the expected

decline to 3.7%.

What’s the bottom line? There are two reports within the Jobs Report and there is a

fundamental difference between them. The Business Survey is where the headline job

number comes from, and it’s based predominantly on modeling and estimations. The

Household Survey, where the Unemployment Rate comes from, is considered more

real-time because it’s derived by calling households to see if they are employed.

The Household Survey has its own job creation component, and it told a completely

different story, only showing 86,000 job creations. September’s report also showed

sizeable increases in multiple job holders (+123,000) and part-time workers (+151,000),

while full-time workers fell by 22,0000, suggesting some softening in the job market and

economy overall.

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. They

have been looking for clear signs that the labor market is softening as they consider

further rate hikes. Despite some underlying weakness in the data, the strong headline

job number raises the risk of another rate hike at the Fed’s next meeting on November 1.

Private Payrolls at Weakest Pace in Almost Three Years

 ADP Report

ADP’s Employment Report showed that private payrolls were weaker than forecasted in

September with just 89,000 jobs created, marking the slowest pace of growth since

January 2021. While job gains were reported among small and mid-sized businesses,

large businesses with 500+ employees shed 83,000 jobs. Among the various sectors,

leisure and hospitality was by far the strongest, adding 92,000 jobs, though these gains

were offset by losses seen in manufacturing, trade/transportation/utilities, and

professional/business services.

What’s the bottom line? “We are seeing a steepening decline in jobs this month,” said

Nela Richardson, chief economist for ADP. “Additionally, we are seeing a steady decline

in wages in the past 12 months.” On that note, annual pay for job stayers increased

5.9% and job changers saw an average increase of 9.0%. These figures have cooled

considerably from last year’s highs of 8% for job stayers and 16% for job changers,

which is significant because it suggests lower wage-pressured inflation.

Job Openings a Surprise “JOLT” Higher

The latest Job Openings and Labor Turnover Survey (JOLTS) showed that job openings

rose from 8.92 million in July to 9.61 million in August. This was an unexpected move

higher, as job openings had been declining every month since April. Professional and

business service positions accounted for a large share of openings.

What’s the bottom line? Despite the monthly increase, job openings are down almost

6% when compared to the same time last year. Plus, the reported total for this August is

likely overstated. The increase in working from home means job listings are being

posted in multiple states more frequently. As a result, they’re being overcounted in the

JOLTS total.

The Fed also follows this report closely for signs of labor sector weakness. Will they

look deeper than the headline figure as they consider further rate hikes?

Tame Unemployment Claims a Contrast to Job Cuts

Initial Jobless Claims rose by 2,000 to 207,000 in the latest week, with the number of

people filing for unemployment benefits for the first time continuing to hover near eight-

month lows. The low level of first-time filings suggests that employers are holding on to


Continuing Claims fell by 1,000, reaching the lowest level since January, with 1.664

million people still receiving benefits after filing their initial claim. This data 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? The low level of unemployment claims paints a much different

picture than the latest Job Cuts report from Challenger, Gray & Christmas, which

showed that job cuts year-to-date are the highest January to September total since

2009 (except for COVID in 2020). Again, we’ll find out how the Fed responds to the

mixed labor sector data at their meeting on November 1.

More Record Highs for Home Prices

CoreLogic’s Home Price Index showed that home prices nationwide rose 0.3% from

July to August, hitting a new all-time high for the fourth straight month.

CoreLogic forecasts that home prices will rise 0.2% in September and 3.4% in the year going

forward, though their forecasts tend to be on the conservative side historically. In fact,

CoreLogic’s index is on pace for just over 8% appreciation in 2023, based on the

monthly readings we’ve seen so far this year.

Black Knight also reported that national home values rose 0.7% in August, with their

index also showing new all-time highs in home values for the fourth month in a row.

Home prices are now 2.5% above the 2022 peak in Black Knight’s index, which is also

on pace for 8% appreciation this year based on the monthly gains we’ve seen to date.

What’s the bottom line? The latest rise in home prices reported by CoreLogic and

Black Knight echo the strong growth seen by Case-Shiller, Zillow and the Federal

Housing Finance Agency. These reports continue to demonstrate why homeownership

remains a good opportunity for building wealth through real estate.

What to Look for This Week

Crucial inflation reports are ahead, starting with September’s Producer Price Index on

Wednesday, which will give us news on wholesale inflation. Look for the Consumer

Price Index on Thursday.

Also of note, Tuesday brings the NFIB’s report on confidence among small business

owners for last month while the latest Jobless Claims will be reported on Thursday.

Investors will also be closely watching Wednesday’s 10-year Note and Thursday’s 30-

year Bond auctions for the level of demand.

Plus, the minutes from the Fed’s latest meeting will be released on Wednesday and

these always have the potential to move the markets.

Technical Picture

Mortgage Bonds ended last week sitting on support at 97.67. If this level holds, there is

room for improvement before reaching the next ceiling at 98.072. The 10-year ended

last week around 4.80% after rising as high as 4.875%.

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