Navigating the Mortgage Market: Insights and Outlook for November 13, 2023

Inflation continued to cool in October, while we saw an uptick in construction despite dampening homebuilder confidence. Plus, the latest Retail Sales and Jobless Claims suggest a slowing economy. Here are last week's headlines:

Easing Consumer Inflation - A Welcome Sign

  • October's CPI showed that inflation was flat compared to September, coming in below the consensus estimate of a 0.1% gain.

  • Annual CPI fell from 3.7% to 3.2%, near the lowest level in more than two years.

  • Core CPI (excluding food and energy prices) increased 0.2%, with the annual reading declining from 4.1% to 4%, reaching a two-year low.

What's the bottom line? Inflation has been steadily declining after peaking last year. The Fed's attempts to curb inflation through interest rate hikes have contributed to this trend. The next Fed meeting on December 13 will provide insights into whether they believe enough progress has been made to pause the rate hikes.

Huge Progress in Wholesale Inflation

  • PPI, which measures wholesale inflation, fell by 0.5% in October, the largest monthly drop since April 2020.

  • Annual PPI declined from 2.2% to 1.3%.

  • Core PPI (excluding food and energy prices) remained flat for the month, with the year-over-year reading dropping from 2.7% to 2.4%.

What's the bottom line? The significant drop in wholesale inflation is an encouraging sign that inflation is easing. PPI tends to lead the way for CPI, indicating further progress in curbing inflation.

Are "Better Building Conditions" Ahead?

  • The NAHB Housing Market Index fell six points to 34 in November, marking the fourth straight monthly decline and reaching its lowest level since last December.

  • All three components of the index, including current sales conditions, future sales expectations, and buyer traffic, moved lower.

What's the bottom line? High mortgage rates have impacted builder confidence, but improving macroeconomic data may lead to better building conditions. The increase in builders cutting prices could benefit buyers.

Housing Starts Rise but More Supply Is Needed

  • Housing Starts unexpectedly rose in October, up 1.9% from September.

  • Single-family home starts increased by 0.2%, and building permits for single-family homes reached their highest level in a year.

What's the bottom line? Despite higher interest rates, demand for new construction remains strong. However, more supply is needed to meet the demand, as the current pace of construction falls short of household formations.

Retail Sales Suggest a Slowdown

  • Retail Sales fell 0.1% in October, marking the first monthly decline since March.

  • Sales were up 2.5% compared to October 2022 but have been slowing down, especially when compared to September.

What's the bottom line? Retail Sales are trending lower, indicating a slowdown in consumer spending. The report shows a bias toward spending on non-discretionary items versus discretionary ones, suggesting an economic slowdown.

Continuing Jobless Claims Hit a Two-Year High

  • Initial Jobless Claims reached a three-month high, with 231,000 people filing for unemployment benefits for the first time.

  • Continuing Claims increased by 32,000, with 1.865 million people still receiving benefits after filing their initial claim, the highest level since November 2021.

What's the bottom line? While Initial Jobless Claims remain relatively low, the number of first-time filers has been trending higher in recent weeks. Continuing Claims have risen for eight straight weeks, suggesting that it's becoming harder for people to find employment once they are let go.

Mortgage Rate Outlook: Expected Stability

Despite the economic fluctuations, the outlook for this week's mortgage rates suggests stability. Here are some key points:

  • Market Dynamics: Mortgage rates are influenced by various factors, and their immediate reaction to economic reports can be limited.

  • Economic Factors: Broader economic indicators like inflation, GDP growth, and employment will continue to shape mortgage rates, but the current data suggests stability.

  • Fed Policy: The Federal Reserve's interest rate decisions impact various markets, but the Fed Funds Rate does not directly dictate mortgage rates.

  • Supply and Demand: Housing market dynamics play a role in mortgage rates, and while construction is up, more supply is needed to meet demand.

  • Retail Sales and Jobless Claims: Economic reports like these can influence the Fed's decision-making and, subsequently, mortgage rates.

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

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

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

  3. Bankrate: Access a wide range of mortgage rate data, calculators, and educational resources.

  4. The Federal Reserve: Visit the official website of the Federal Reserve to stay informed about monetary policy and its potential impact on mortgage rates.

Disclaimer: The information provided in this analysis is for informational purposes only and should not be considered as financial or investment advice. Mortgage rates are subject to various factors and can change rapidly. Consult with mortgage lenders or financial professionals for personalized mortgage rate information.