As you know, the Fed has a dual mandate and pretty narrow focus. Their eye is on only two prizes – inflation and jobs. (You didn’t know? Check out this blog.) Now that we have our first official “weak” jobs report, some folks are saying we can put a fork it – the fed is done with rate hikes. A cooling or cooler or maybe just less-hot jobs market allows the Fed to stop jacking interest rates. Their goal is a soft landing, after all. This means they combatted and defeated inflation without breaking the workforce. We are the workforce. You and me. Without breaking us.
If you didn’t catch it, the jobs report showed hiring slowed in October and the unemployment rate rose to 3.9%. That is when we started to hear whispers that interest rates may have peaked, that the pause in rate hikes is permanent. But, if the war we’ve been through this year has taught us anything – it’s to expect the worst.
Impossible Mess
Bloomberg published an article staying the housing market is basically an impossible mess. I know your first thought is, “What does Shivani have to say about this?” This is one of the most interesting articles I’ve read all year – so if you missed it, I highly recommend reading it in its entirety. We talked about (here) how this all played out in a very unique way because there wasn’t a history here, for history to repeat itself. Interest rates went up, but home prices didn’t come down because of the demographics, the lack of supply and the curveball I don’t think the Fed anticipated – homeowners trapped in a house they hate because of a rate they love. Then the economy refused, straight up and flat out, to weaken so it was like all the economics were calling the Fed’s bluff and they had to keep raising. (Rates, not their bet…. or maybe it’s the same.)
Test the waters.
Will 2024 finally give us smoother waters to sail? As much as I want interest rates back in the 5’s, because we can help a lot of buyers afford and achieve homeownership when interest rates allow for that kind of affordability…I want rates to take the stairs down. On this side, we are fully aware that the market will be tricky when rates are lower. For every half a point rates have gone up this year, 3 million homebuyers were priced out of the market. So as rates come down, those buyers are likely to come back pretty aggressively – having known what it’s like to be unwillingly dejected from the game. Honest to god, I would prefer the market phase them back in slowly. We (your real estate professionals) will likely be more successful at converting buyers into owners, if there isn’t a huge influx of buyers all at once. There is not enough inventory for that.
The risk is that the markets will get overeager.
There is a theory that the Fed is done with rate hikes and it’s plausible. The market may interpret that and price in rate cuts in advance of them actually happening. That will lead to more volatility for bonds and in turn mortgage interest rates because no one has a crystal ball and the market’s assumptions could be wrong. They were several times in the past 12 months.
Interest Rate Update
After three months of pain, we have had pretty much two straight weeks of good news or at least stability for interest rates. The 30-year rate has come down to 7.5% and that is only half a point higher than where we were a year ago. So we made up quite a bit. Preapproval applications jumped up 3% nationwide. Let’s see if these smooth(er) waters hold through the end of the year.