Source: Associated Press
Climbing mortgage rates, depleting housing inventory, and a resilient U.S. economy. What gives?
U.S. weekly average mortgage rate for 30-yr fixed rate mortgage as of 8/17/23 was 7.09%
Housing Inventory - Active Listing Count in the United States is at its highest point all year (496,000), nearly 34% of the average number of active listings in the United States in 2016 which was 1,462,335
U.S. Economy
Unemployment Rate dipped to 3.5% in July from 3.7% in May (bad for rates)
Consumer Price Index rose 0.2 percent in July (bad for rates)
Industrial Production increased 1.0 percent in July (bad for rates)
Perspective *While rates seem excessively high now, they’re almost 10% lower than they were in the mid 90’s.
*Economic indicators appear to be stabilizing
*What goes up, must come down (note the 3 rate peaks on the chart below) now take a gander at the timeframe of each climb. It appears that historical behavior of the 10-Year Treasury Yield will correct (go down) in less time when the 10-Year Treasury Yield climbs aggressively. In the most recent case, between 2020 and Q3 2023, it climbed nearly 3.5 points.
The positive assumption here is that it may be extremely challenging, if not impossible for any economy to handle so much shift in such a short amount of time. If this is the case, then we can expect the 10-Year Treasury Yield to begin dropping sooner than later. While it may not be as an aggressive drop as it was while it climbed, it will be noticeable and mortgage rates will follow suit quickly thereafter.
If economic indicators (unemployment, production, inflation) continue stabilizing and potentially degrading, then the 10-Year Treasury Yield should follow in the same behavior and mortgage rates will hopefully do the same shortly afterwards.
So what gives? Well, nothing yet, but something is bound to at just about any point and hopefully sooner than later. Ask anyone and they’ll provide their opinion, so I’ll share mine. Since unemployment and production have a significant influence on inflation, my guess is that we will begin seeing reports in late Q4 of this year that will indicate the industrial production rate going down. Unemployment reports will show higher unemployment, then inflation will continue cooling off.
While this may help mortgage rates, we may still face the housing inventory dilemma for years to come because lower rates will increase housing demand. If inventory is already low and demand continues to increase, then homebuyers may be at the mercy of new construction timelines.
New construction boom? Maybe not, but Warren Buffet seems to think it’s a safe investment because he just invested $700 million in D.R. Horton stock as new home sales soar according to Associated Press.
In summary, economic challenges appear to likely grow before they will ease up. In the meantime, reputable builders across the nation have an opportunity to help with inventory.
Luckily, I can offer ONE-TIME CLOSINGS for your clients who are building! This means that we can have the loan 100% approved and disbursed funds before the builder ever breaks ground with as little as 5% down. Contact me to learn more.
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Terry Roberts, USMC Veteran Sr. Mortgage Broker NMLS 397987 E Mortgage Capital, NMLS 1416824
Terry Roberts is a U.S. Marine Corps Veteran and specializes in residential mortgages, including new construction, conventional, FHA, and VA home loans. He has helped more than 10,000 clients start the home buying process across America.
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