Weekend Talking Points - 'Hotter'

The Fed cut rates by 50 basis points on September 18, initiating a new loosening cycle. Since then, average 30-year mortgage rates have RISEN by 50 basis points to around 6.60%. Why? Because September jobs growth was a lot stronger, and September inflation (CPI) was a bit hotter than expected.

CPI came in a bit hot. September “headline” CPI (Consumer Price Index = inflation for you and me) eased to +2.4% YoY (from +2.5% YoY in August), but “core” CPI ROSE to +3.3% YoY (from +3.2% YoY in August). Both figures were 0.1% above expectations. [BLS]

TP: While this data release wasn’t a disaster by any stretch, it didn’t help things either — especially following the much stronger than expected BLS jobs figure out the prior week.

Builders are (almost) bullish. The National Association of Homebuilders confidence index rose 2 points to 43. (A figure >50 signifies a bullish/expansionary new home sales environment.) That’s the second-straight month of index improvement, and it’s been driven by — you guessed it — lower mortgage rates over the past 4 months. [NAHB]

TP: The overall index figure is driven by three components: Current Sales Expectations, Future Sales Expectations, and Buyer Traffic. In September, all three components rose month-over-month, and the Future Sales Expectations component is now at 57 (anything >50 = bullish). In fact, the 10-point gap between Future and Current Sales Expectations is the highest it’s been in 5 years, pointing to rising optimism about the effect of lower rates on new home sales.

Waiting to see the winner? According to a recent Redfin survey, 23% of prospective 1st-time buyers said that they would wait until after the US presidential election to see who wins and what’s on offer before buying. Additionally, nearly one-third of respondents said that they considered housing affordability a Top 3 issue when deciding who to vote for. [Redfin]

TP: Personal opinion: rent controls and/or big first-time buyer grants are not the answer. Building more homes is. Keeping giant investors out of the single family housing market is another one.

Rents keep flatlining/declining. In September, nationwide asking rents were down 0.5% year-over-year, the 14th-straight month that rents were (slightly) lower on an annual basis. The biggest rent decreases were seen in Nashville (-4.8% YoY), DFW (-4.0%), Denver (-4.0%), and Austin (-3.7%). The largest rent increases were seen in Cincinnati (+3.4% YoY), DC Metro (+2.9%), NYC Metro (+2.8%), and St. Louis (+2.6%). [Realtor.com]

Zillow forecasts modest price growth ahead. The property portal’s new forecasts call for national home prices to rise 2% in 2024, and just 0.9% over the next 12 months (now through September 2025). Rising inventory levels are expected to keep price growth subdued. [Zillow]

TP: If the national forecast is for 0.9% price growth, that means that Zillow must expect some cities to see price declines. Yup. See map below.

Mortgage Market

After a big move upward last week, average 30-year mortgage rates were roughly steady at around 6.60% this week. It’s worth remembering that one year ago (10/19/2023), mortgage rates peaked at 8.03%!

Note that the current Fed Funds Rate policy range (AFTER the 50 bps cut) is 4.75–5.00%.

• Nov 5: US presidential election.
• Nov 7 FOMC Meeting: 90% probability of a 25 bps cut, 10% probability of no cut. Last week, the odds were 86%/14%.
• Dec 18 FOMC Meeting: 74% probability that rates will be 50 bps below current levels (a 25 bps cut in each of the Nov 7 and Dec 18 meetings). 25% probability that rates will be 25 bps below current levels (one 25 bps cut and one ‘do nothing’ meeting).

They Said It

“A market requires both sellers and buyers. Good thing one constraint to home sales — the lack of supply — is easing. After about a decade-long decline, inventories were up by 20% in early fall from the same time a year ago. However, the number is still down by one-third from pre–COVID-19 days. Inventories will continue to rise as life and job changes lead more owners to put their home up for sale. Simply put, the passage of time means more inventory.” — Lawrence Yun, NAR’s Chief Economist

“The return of sellers to the market appeared stronger than that of buyers, continuing to lift the pool of active inventory and ease competitive pressure slightly over September. While the housing market nationwide remains neutral, Atlanta joined a growing list of large Southern metro areas that have tipped in favor of buyers. Ten of the 50 biggest metros are now considered buyers markets, all of which are in Florida, Georgia, Texas, Tennessee or Louisiana.” — Skylar Olsen, Zillow Economist

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