This Week in Real Estate
Good Morning!
The U.S. Labor Department
released the September Consumer Price Index (CPI) report This Week in
Real Estate with results exceeding expectations causing mortgage rates
to surge to new 20-year highs. When it comes to the bond market, traders have long
priced in everything that was already known and assumed about inflation, but
this week’s CPI data came in higher than forecasted, garnering a significant
response from the market. It is highly unlikely that rates would go
substantially lower as long as inflation remains at current levels and
conversely, if inflation continues surprising to the upside, rates are more
likely to continue higher and volatility remains a risk. Below are a few
newsworthy events from the second week of October that influence our
business:
* Here’s Just How
Difficult It’s Getting for Home Buyers. The next
several months will be a critical test for the economy, experts say. Consumers are facing economic pressure from every
angle - rising mortgage rates, stubbornly high inflation, a battered stock
market. Also at issue for consumers is the Federal Reserve’s tactics to tame
inflation, says NAR Chief Economist Lawrence Yun. “Even with an economic
recession looming, the Federal Reserve is unlikely to let up on its aggressive
monetary policy of raising interest rates,” Yun says. “The 10-year Treasury
yield broke past 4%, and mortgage rates will be fighting to hold at a 7%
average in the upcoming weeks. The Fed’s goal is to cut consumer demand to
reduce inflationary pressure, but Yun says increasing supply also will help
inflation come down. “America has to produce more of everything, from building
more homes and industrial spaces to drilling for more energy and manufacturing
more electric cars,” he says. “The 3 million Americans who left the workforce
since the pandemic need to be incentivized to get back to work.” “We continue
to see a tale of two economies in the data: Strong job and wage growth are
keeping consumers’ balance sheets positive while lingering inflation, recession
fears and housing affordability are driving housing demand down precipitously,”
says Sam Khater, Freddie Mac’s chief economist. “The next several months will
undoubtedly be important for the economy and the housing market.”
Full Story… https://www.nar.realtor/magazine/real-estate-news/mortgage-rates-october-13-2022
* Stunning Round
Trip for Mortgage Rates After Inflation Data. There was no way to be sure what the effect of today's
economic data would be on mortgage
rates. All we knew is that the
Consumer Price Index (CPI) would be released at 8:30am ET and that CPI releases
have been the biggest sources of volatility for interest
rates in 2022 and especially
since June. If you’re wondering what CPI has to do with mortgage rates, here’s
a quick run-down: mortgage rates are based on trading levels in bonds, bonds
care a lot about inflation and about Fed policy, Fed policy is more likely to
be less friendly to rates if inflation is higher than expected, CPI is the
biggest inflation revelation on any given month. After this morning's CPI came
in hotter than expected, mortgage rates surged to new 20-year highs. Today's
CPI data brought NEW information to light. If CPI had been right in line with
the average economists forecast, it may not have garnered much of a response
from the market. But it came in higher than forecasts, and that was a rude
awakening for bonds.
Full Story…
https://www.mortgagenewsdaily.com/markets/mortgage-rates-10132022
* Economy Expected
to Contract Further in 2023, as the Fed Appears Resolved to Tame Inflation. The combination of high inflation, monetary policy
tightening, and a slowing housing market is still projected to tip the economy
into a modest recession in the first quarter of 2023, according to the October
2022 commentary from the Fannie
Mae Economic and Strategic Research (ESR) Group. Core
inflation remains considerably higher than the Federal Reserve’s stated target;
and despite the historic decline in August job openings, the continued strength
in labor has futures markets expecting the Federal Open Market
Committee (FOMC) to raise the federal funds rate by an additional 75 basis
points at its November meeting. Due largely to the higher mortgage rate
environment, the ESR Group lowered its forecast for total single-family home
sales in 2022 and 2023 to 5.64 million and 4.47 million, respectively, which
would represent annual declines of 18.1 percent and 20.8 percent.
Have a
productive week.
Jason
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