Good Afternoon,
Hope you all had a wonderful weekend! My weekend started Thursday night at the Broncos game. I went with my long-time close friend, Johnny. We’ve been friends since kindergarten and it was fun to enjoy the Broncos win together. My father in law was also in town for the weekend so I took Friday off to spend some time with him as we only get to see him 4-5x a year. Hope you all enjoyed the great weather all weekend!
Last week had a ton of economic data and most of it was bad for rates (i.e. higher inflation reports). However, some worries surrounding AI helped create a small flight to safety. We touched 5.33% on the 10-Year on Wednesday, but ended the day, and the week for that matter, at 5.09%. Today, we are up a touch to 5.14%. Mortgage rates, on average, are still above 7%, but glad to see some relief last week. That makes it two weeks in a row for a decrease in the 10-year yield. Let’s hope the trend continues.
What We’re Watching This Week
This week brings a relatively light economic calendar, with the housing market taking center stage as elevated mortgage rates continue to weigh on affordability and demand. While housing data will provide important insight into the economy, corporate earnings from Tesla, Meta, Netflix, and several major industrial companies will give us a good idea on how the AI momentum is doing.
Housing Market in Focus
The week begins Monday with October’s NAHB Housing Market Index, which slipped to a reading of 29 from September’s 32. This is the lowest reading/poorest sentiment since June 2012. This underscores the significant pressure higher mortgage rates are placing on builder confidence.
Tuesday brings September housing starts and building permits. Housing starts are projected to rebound 2.3% to an annualized pace of 1.305 million units. However, even with that improvement, construction activity would remain 14.3% below March levels. Building permits, a leading indicator of future construction, are expected to decline 1.7% to 1.385 million units. Pending home sales are also expected to show little movement from August, reinforcing the challenges facing the housing market.
The Federal Reserve: A Pause Remains Likely
Despite a string of hotter-than-expected inflation reports, markets are pricing in just a 15% probability of a rate hike at the Fed’s October 28 meeting.
Recent commentary from Kevin Warsh and other Fed officials has been less aggressive than anticipated, while concerns surrounding AI-related risks and economic growth have shifted some attention away from inflation. With the Fed entering its pre-meeting blackout period, there will be no additional speeches ahead of the upcoming decision.
Additional Economic Indicators to Watch
Regional Federal Reserve surveys will provide further insight into manufacturing and service-sector activity.
The Philadelphia Fed’s October Non-Manufacturing Index, due Tuesday, could weaken further from September’s already depressed reading of -22.0. Additional reports from the Kansas City Fed on manufacturing (Thursday) and services (Friday) will help paint a broader picture of economic activity.
Thursday’s Conference Board Leading Economic Index is also expected to decline 0.2%, following August’s 0.1% decrease, suggesting continued softness in the economic outlook.
What’s the Bottom Line?
The housing market continues to feel the strain of elevated mortgage rates, while broader economic growth concerns are giving the Federal Reserve more reason to remain patient.
Even with inflation running hotter than expected, weakness in housing, slowing economic indicators, and uncertainty surrounding future growth could keep the Fed on hold at its October meeting.
For the mortgage and real estate markets, the key will be whether additional signs of economic weakness provide some relief to bond yields and, ultimately, mortgage rates.
Have a wonderful week ahead!
1 Year Look at the 10 YR Yield (1 Week Chart Going Back to July 2023):
Some Fun Charts from My Friends Over at RenMac (https://www.renmac.com/):
- The good news is that existing home sales are already near historically low levels, leaving limited room for further declines. The bad news is that recent data suggests resale activity could weaken even more in the fourth quarter. Mortgage purchase applications have fallen for six consecutive weeks, declining a combined 11.7% over that period, signaling continued challenges for buyer demand.
- Small businesses are increasingly feeling the pressure of slowing consumer demand. According to September’s NFIB survey, 11% of small business owners cited “poor sales” as their most important challenge, the highest reading since February. Elevated gas prices and diminishing fiscal relief may be putting additional strain on household budgets, leaving consumers with less money to spend.
The Relationship Between the 10 Year Yield and Mortgage Spreads & 30 YR Fixed Mortgage Rates
Current Spread of 10 YR Treasury to 30 YR Fixed Rates increased to 2.19% We are still looking to get back to the long-term average of 1.50% – 1.80%.
Housingwire.com
Mortgage News Daily.com
This Week’s Economic Data & Reports:
- MON – NAHB Housing Market Index (reading of 29 out of 100)
- TUES – ADP Weekly Employment Change, Building Permits (September), Housing Starts (September), Pending Home Sales (September)
- WED – MBA Mortgage Applications, 20-Year Bond Auction
- THURS – Jobless Claims, US Leading Index (September), Kansas City Fed Manufacturing Index
- FRI – Manufacturing PMI, Services PMI, 2nd/Final Reading of Michigan Consumer Sentiment
People have asked where to track this stuff daily so here is the Bloomberg Website where you can see the reports/data:
https://www.bloomberg.com/markets/economic-calendar
Thanks for reading and have a great day!
