Mortgage Rates, Housing Inventory, and Fed's Stance: Weekly Review

Welcome to the latest edition of our newsletter, where we recap the most important developments from the week of October 16, 2023. In this week's review, we'll delve into the pressing issues affecting the housing market, the Federal Reserve's stance on interest rates, and what these mean for homebuyers and homeowners.

Mortgage Rate Outlook: Stability in Sight

Before we dive into the week's headlines, let's take a quick look at the outlook for mortgage rates. Despite the complex factors at play, stability appears to be on the horizon. Here are the key points:

• Market Dynamics: While various factors, such as labor market reports and the Federal Reserve's policies, influence overall market sentiment, their immediate impact on mortgage rates seems limited.

• Economic Factors: Broader economic indicators like inflation and GDP growth will continue to shape the mortgage rate environment. However, the current data suggests a relatively stable outlook.

• Fed Policy: The Federal Reserve's intentions to raise the benchmark Fed Funds Rate don't necessarily translate to an immediate increase in mortgage rates. Other factors like long-term Treasury yields and investor demand also play a role.

• Supply and Demand: The balance between housing supply and demand, along with the overall health of the housing market, can impact mortgage rates. Current market conditions indicate relative stability and steady demand.

• Monitor Market Updates: As mortgage rates can change rapidly, staying informed through reputable sources and consulting with financial professionals is essential for the most accurate and up-to-date information.

For additional insights on mortgage rates and market trends, consider the following resources:

1. Mortgage News Daily: For the latest news, analysis, and trends in the mortgage market.

2. Freddie Mac's Primary Mortgage Market Survey: Weekly mortgage rate data and historical trends.

3. Bankrate: Access mortgage rate data, calculators, and educational resources.

4. The Federal Reserve: Stay informed about monetary policy and its potential impact on mortgage rates.

Now, let's turn our attention to the headlines of the week.

"Pressing Need" for More Housing Inventory

The housing market is facing a critical challenge—insufficient inventory. Existing Home Sales fell by 2% from August to September, hitting a 13-year low with a 3.96-million-unit annualized pace, according to the National Association of REALTORS® (NAR). This alarming drop in sales, 15.4% lower than the previous year, reflects the dire need for more homes on the market.

Key Takeaways:

• Tight inventory and elevated mortgage rates are limiting home sales.

• At the end of September, only 1.13 million homes were available for sale, nearly half of 2019 levels.

• Rapid sales continue, with homes spending an average of just 21 days on the market.

• Demand remains strong, with 69% of homes selling in under a month.

NAR's Chief Economist, Lawrence Yun, emphasizes the "pressing need for more housing supply" as a solution to this crisis.

Housing Starts Rise, but Is a Pullback Ahead?

In September, Housing Starts rebounded by 7%, following a drop to two-year lows in August. While multi-family units saw the bulk of the increase, single-family home starts rose by 3.2%. However, Building Permits, indicative of future supply, declined by 4.4% from August, raising questions about potential supply shortages.

Key Takeaways:

• Single-family construction increased unexpectedly, despite concerns over elevated mortgage rates.

• Demand still exceeds supply, with household formations outpacing the number of homes being built.

• A pullback in starts is expected in the coming months due to ongoing challenges.

In essence, the housing market remains in a precarious balance between supply and demand.

Home Builder Confidence "Hammered" by Elevated Rates

The National Association of Home Builders (NAHB) Housing Market Index dropped by four points to 40 in October. This marks the third consecutive monthly decline, with builder sentiment at its lowest level since January. Elevated mortgage rates played a significant role in eroding builder confidence.

Key Takeaways:

• Rising mortgage rates led to declining confidence among builders.

• Higher rates have also increased builder costs, further impacting sentiment.

• Some relief for buyers as 32% of builders reported price cuts, the largest percentage since last December.

The housing market is facing headwinds due to rate-induced affordability challenges.

More Signs of a Fed Rate Hike Pause?

There is increasing speculation that the Federal Reserve may hold off on raising interest rates in their upcoming meeting on November 1. This sentiment is based on progress in controlling inflation and the overall economic situation.

Key Takeaways:

• Several Fed members are inclined to maintain current rates, citing improved inflation control.

• The Fed has hiked rates numerous times to curb inflation, reaching the highest levels in 22 years.

• Future rate hikes will depend on incoming economic data and inflation trends.

Fed Chair Jerome Powell emphasizes the need for cautious decision-making, balancing inflation control with economic growth.

"WARNing" Ahead for Jobless Claims?

While Initial Jobless Claims decreased by 13,000 in the latest week, with 198,000 people filing for unemployment benefits, Continuing Claims increased by 29,000. This data suggests that while employers are holding on to workers, layoffs could increase in the future.

Key Takeaways:

• Initial Jobless Claims show a downward trend since August, indicating job retention.

• Continuing Claims have been rising recently, making it more challenging for job seekers.

• "WARN" notices may signal a potential rise in unemployment filings, warranting caution.

The Worker Adjustment and Retraining Notification Act (WARN) may serve as an indicator for future labor market conditions.

The housing market faces significant challenges with low inventory and elevated rates, while the Federal Reserve continues to weigh its options in a dynamic economic environment. Stay tuned for more updates on these critical issues.