Hi Friends! 

Mortgage rates have surged past 6.8% as we kick off the week, reflecting broader shifts in the economy. The bond market is struggling, with rates trending upward as the Fed signals that quick and aggressive rate cuts are unlikely. Here’s a look at the big picture:

1. Economic Resilience and Mortgage Rates

The Fed typically cuts rates to stimulate the economy, but the strong job market and steady inflation are complicating this decision. Despite recent rate increases, the economy continues to perform well, driven by robust consumer spending, stable employment, and moderate inflation. So while high rates aren’t ideal, the current environment doesn’t spell doom—there’s hope for gradual improvements without drastic cuts.

2. Builder Sentiment and New Construction Activity

Despite rising rates, home builder sentiment rose in October for the second month in a row. The National Association of Home Builders' Housing Market Index went up to 43, reflecting optimism for the months ahead. Builders anticipate easing inflation and eventual rate relief, which could make housing more affordable. However, construction on new homes has slowed, with fewer multi-family projects starting in September. While single-family builds are seeing a slight uptick, building permits have decreased, indicating that the supply may remain tight for a while.

Bottom Line: Builders are feeling cautiously optimistic as they plan for future demand, but the current pace of new construction still falls short of what the market needs. Lower supply may keep home prices up, especially in popular areas.

3. Strong Retail Sales

Consumer spending has been surprisingly strong, with retail sales beating expectations in September and core sales up by 0.7%, which is significant for GDP growth. The National Retail Federation projects that holiday sales will grow by 2.5% to 3.5% over last year. Strong consumer activity supports the broader economy, suggesting that immediate rate cuts may not be necessary, and the Fed might keep its current stance.

Bottom Line: With consumers driving demand, GDP estimates could rise, and it’s less likely that rates will drop quickly.

4. Shifts in the Labor Market

Recent data shows some mixed signals in the labor market. Initial jobless claims fell last week, but the number of people staying on unemployment benefits rose, reaching the highest level since July. While hurricane-related disruptions affected recent numbers, there are signs that the labor market may be softening in areas beyond those impacted.

Bottom Line: The labor market remains stable overall, but it’s worth watching for signs of further slowing, as any broad-based weakness could nudge the Fed towards a more dovish stance on rates.

5. Inflation Trends

Inflation remains a focal point, and while it’s moderated, supercore inflation—which looks at services excluding housing—rose 4.3% in September and has stayed above 3% for three years. Meanwhile, core CPI inflation, which excludes food and energy, went up to 3.3% for the first time since March. This signals that while prices aren’t rising as sharply as before, inflation is not cooling fast enough to allow for substantial rate cuts.

Bottom Line: Rising inflation expectations are driving up yields on Treasury bonds, which in turn are keeping mortgage rates elevated.

6. Market Predictions on Fed Policy

The Fed’s recent moves and strong economic data are shifting market expectations. Just a month ago, markets were predicting a lower Fed Funds Rate of around 2.8% by the end of 2025; now, it’s expected to be closer to 3.4%. With employment and inflation numbers indicating stability, the Fed may be less inclined to cut rates aggressively in the short term.

Key Indicators to Watch

Several major economic events are on the horizon and could heavily influence Fed policy:

• October 29: Job Openings and Labor Turnover Survey (JOLTS) provides insight into job market tightness.
• October 30: ADP Employment Report and Q3 GDP, both key indicators of labor market health and economic growth.
• October 31: The Personal Consumption Expenditures (PCE) report, the Fed’s preferred inflation measure.
• November 1: Bureau of Labor Statistics (BLS) Jobs Report, which will shape Fed views on labor market stability.

The combination of these reports could create volatility in bond yields and mortgage rates, especially if they indicate a slowing economy or inflation coming closer to the Fed’s target.

For Home Buyers: Timing and Market Signals

Mortgage rates are now more impacted by the long-term Treasury yields, which rise with inflation expectations. While it can be frustrating to see rates climb, understanding what drives bond prices can help in making informed decisions about rate locks and long-term planning. Factors like inflation expectations, quantitative easing/tightening, and shifts in market sentiment are all at play.

Here's a summary of the data on first-time homebuyers waiting to purchase homes:

• Election Influence:

  • 23% of likely first-time homebuyers are waiting until after the upcoming election before purchasing a home.

  • 26.1% are waiting to see if Kamala Harris’ housing affordability plan, which includes $25,000 in downpayment assistance, goes into effect.

  • 15.9% are waiting to see if Donald Trump’s housing affordability initiatives are enacted.

Personal Finances and Timing:

• Timing and personal financial goals are the most common reasons for delaying a home purchase, with 30.3% saying they are on track to buy a home in the next year but not immediately.

• 28.9% cited that waiting longer aligns better with their personal or family plans.

  
  

• Interest Rates and Housing Policies:

  • 18.3% of respondents are waiting for the Federal Reserve to cut interest rates, anticipating lower mortgage rates.

  • An equal percentage is waiting to see if the federal or local governments will enact affordable housing initiatives.

• Immigration Concerns:

  • 12.2% of respondents, primarily immigrants or visa holders, are concerned about potential changes to immigration policies after the election, impacting their long-term ability to stay in the country.

    
    

• Government Assistance:

  • 12% of respondents are waiting to hear back on applications for government assistance, while 8.8% are waiting for responses from non-profit organizations.

The survey indicates that political and economic uncertainties are significant factors influencing the timing of home purchases among first-time buyers, along with considerations of personal financial readiness and market conditions.

As always, if you’re considering a purchase or sale, the best approach is to stay informed and strategize based on your long-term goals. Given the resilience in consumer spending, stable job growth, and moderate inflation, the real estate market remains active—though the path to lower rates may take longer than hoped.

Let’s stay connected, and if you have questions or want to discuss your specific situation, I’m always here to help!