Why Are Mortgage Rates Rising?!
Join me in our ‘Weekly Market Update’ to decipher what to expect in the coming weeks & months.
Happy Friday! Brian Manning here with the weekly update. Let’s get right to it.
Monday this week was a pretty ugly day in the bond market. We had mortgage rates going up. There really were not a lot of signals as to why. Something to think about though, and this is not me getting political, this is just a word on the street, is that investors on Monday and in general are just worried about a Trump election because a Trump election could potentially mean higher interest rates for a variety of reasons.
So, it seems like just general skittish investors in the marketplace at the beginning of the week moving rates higher, unfortunately. Tuesday was a relatively quiet news day, but what I want to talk about from Tuesday and just a lot of feedback that we’re hearing is on how come the Federal Reserve cuts interest rates, but mortgage rates move higher. So, the Federal Reserve controls what’s called the Fed Funds Rate.
The Fed Funds Rate is an overnight bank rate that banks charge each other when lending money back and forth. When the Federal Reserve cuts rates, immediate short-term borrowing costs are impacted, or short-term money costs. So, money market rates go down, credit card rates move lower, car loan rates move lower, short-term treasuries move over, and personal loans are impacted.
The Federal Reserve controls the Fed Funds Rate, and that’s really everything that impacts short-term borrowing costs, but mortgage rates are long-term borrowing costs. So, when the Federal Reserve cuts rates, it does not have an immediate impact on mortgage interest rates. In fact, we’re unfortunately seeing mortgage rates have moved higher.
Wednesday this week, we had a continuation of mortgage rates moving higher. I just want to look at something here real quick as far as mortgage rates are concerned and just look at what’s happening here. Bear with me for just a moment while I get into here.
Okay, so this is a look at U.S. debt. So, unfortunately, if you look right now, you’ve seen U.S. debt just skyrocket recently, and the challenge with U.S. debt skyrocketing is the way the U.S. pays for this debt increasing is that they issue bonds and they push bonds into the marketplace. So, when bonds are going into the marketplace to pay for basically our debt in the country, you now have more competition in the marketplace because mortgage rates are impacted because mortgage rates really are mortgage-backed securities being sold in the marketplace.
So, now you kind of have a flooding of bonds going into the marketplace. You have the U.S. government flooding the market with bonds. It has to pay for our debt rising.
You have mortgage bonds going into the marketplace, and when you have an imbalance of supply and demand, so you have more supply than you do demand, the rates have to move higher because you’re trying to entice investors to purchase your bonds. So, that’s one of the big reasons why we’ve seen unfortunately a big run-up in mortgage rates recently because our U.S. debt has skyrocketed here and they have to pay for that by issuing bonds into the marketplace. We also got some feedback on home inventory.
So, home inventory is up 23% on a year-over-year basis. I want to look at this chart though because this goes back to 2015, and if we look at this, it’s funny, I feel like we talk about this every single year. Right around this time, you always have home inventory cresting and then moving lower, but if we look at pre-pandemic home inventory levels, we’re still well below pre-pandemic inventory levels.
In fact, we’re right only above the inventory levels that we had during the pandemic. Typically, what happens in October, you have this remaining inventory that’s sitting on the marketplace, and you have buyer demand that’s a little bit declined right now, especially this year. Anytime you’re moving into an election, you’re going to see less buyer demand because people are just skittish in general.
So, you have an election coming up, you have holidays we’re moving into, you kind of get to this area of the year where you have a surplus of inventory, and then it rolls over like it does every single year that we look at this, and then you start to see the inventory decline. So, I understand the inventory is 23% higher on a year-over-year basis, but we’re still definitely below pre-pandemic levels, and we’re definitely in an area where we’re going to roll over right now. We also got some feedback on unemployment claims.
I truly feel like there’s a little bit of a disconnect right now in the data that we’re getting on the economy versus how the consumer is feeling. If we look at the data in the economy, it sounds like it’s a just or it’s presented as a very rosy picture, but if we look at some of the details of it, like unemployment claims, we start to see increases here. So, continuing claims, this is people that are on unemployment and they’re continuing to file on a week-over-week basis, is up 80,000, and this is the highest number.
It’s an increase in the last two months, and if we look back, we’re at a six-year high right now of where unemployment continuing claims are. So, unfortunately, I do think that there’s an undercurrent of underlying weakness in the U.S. economy, but the data that’s getting presented to us, like last month’s job report, is stronger than we’re actually seeing for the data and what the consumer is experiencing.
A couple of items to note real quick.
If you’re a realtor, we have Winning the Buyer Presentation III coming up. We’re super excited. This is our last version of this class.
One and two have been a great success. Three is going to be different, so all these have been very different. The first version we’re going to do is going to take place on November 6th at Capital Grille in Denver, a phenomenal venue.
If you want to come out for lunch, please make sure you RSVP. That class always sells out fast, and we’re incredibly excited to have our 10th annual Fall Fiesta taking place the second Thursday in November. That’s November 14th at T/aco.
It’s going to sell out. I can tell you that our ticket sales are flying.
It’s a smaller venue. It’s limited space. If you’re going to attend this, please make sure to RSVP. I would hate for it to sell out, and if you want to be there, you can’t make it.
Happy Friday. Hope you have a great day.
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