Wondering what's happening with home affordability? See "The income needed to buy a home in the top 50 metro areas" covering the third quarter of 2023.

Wondering what's happening with home affordability? See "The income needed to buy a home in the top 50 metro areas" covering the third quarter of 2023.

Thankfully, Lower Rates

Update: "Income You Need to Buy a Home in the Top 50 Metros"

November 22, 2023 -- Mortgage rates managed to fall again this week, a fourth consecutive decline. While the cumulative reduction of a half-percentage point has erased a fair portion of the August-October increase, mortgage rates are only at about two-month lows, and still well above the 7% mark. Still, any declines are encouraging for prospective homebuyers.

Minutes of the last Federal Reserve meeting (October 31 - November 1) were released this week, but didn't provide any sort of suggestion that lower monetary policy rates were on their way anytime soon. In fact, the tenor of the minutes suggested that short-term rates may or may not yet be at an appropriate level to return inflation to target, and even if no more rate hikes are warranted that the present level for policy rates might persist for some time.

The economic data since the last Fed meeting has been generally on the softer side, as has the most recent information covering inflation trends. This has allowed market-based interest rates to backpedal a bit, erasing some of their considerable run-up that began back in August. Those prior increases were sparked by robust economic data, firmer inflation and a glut of fresh long-term Treasury debt coming into the market, among other issues and concerns.

As the last Fed meeting approached, the increase in longer-dated yields was likened by some to the equivalent of an increase in monetary policy rates. That being the case (and as it so far has proved to be at least partially fleeting), it does make one wonder if the current meaningful decline in longer yields actually makes an increase in policy rates somewhat more likely. The minutes noted that "Participants highlighted that longer-term yields could be volatile and that the factors behind the recent increase, as well as their persistence, were uncertain," and that "persistent changes in financial conditions could have implications for the path of monetary policy." We presume this means both increases and decreases in market-generated yields.

What's happening with home price trends? See what's happening to home values in more than 400 metropolitan areas with HSH's new Home Value Tracker. Review price changes over five different time periods, or run custom time series to see what's happened during your ownership period with our MyHVT tool.

Those higher yields of the end of summer and early fall pressured mortgage rates higher, and mortgage rates eventually reached a 22-year high about a month ago. Predictably, this increase pushed even more potential homebuyers to the sidelines, not that there were all that many in the market to begin with. With higher home prices and limited inventory available to buy joined by those higher mortgage rates, sales of existing homes posted a 4.1% decline in October, falling to an annualized 3.79 million pace. This was the weakest showing for existing home sales since October 2010, when home buying and selling conditions were very difficult for other reasons.

HSH.com - mortgage rates and existing home sales trends.

Despite fewer sales, home prices remained well supported, and the National Association of Realtors reported that they were 3.4% higher this October than last. That said, prices are in a seasonal decline at the moment, albeit a modest one; after peaking as usual in June at $410,000 (second highest ever) the median price of a home sold has declined by 4.6% since this year's peak. You might be led to think that this is due to a somewhat greater number of homes coming onto the market, and you would be partially right, since the 3.6 months of supply at the present rate of sale was an increase in this ratio. However, the increase here may be more reflective of softer sales than any improvement in the number of homes for sale. The NAR said there were 1.8% more homes available in October than in September, but even an increase still left the number of homes available to purchase some 5.7% below year-ago levels.

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Even with slightly lower mortgage rates in the market, seasonally-lower home prices and even somewhat more homes to buy, it's not likely we'll see much by way of any measurable increase in existing home sales until early next year. The late fall / early winter months typically sees the leanest inventories of homes for sale of the year, and with holidays and weather being what they are, only the most opportunistic homebuyers typically step up during this time of year even when conditions are more favorable than they are now.

Of late, the economy has shown a number of signs of cooling from the hot rate it ran in the third quarter. To this end, the Federal Reserve Bank of Chicago's National Activity Index decelerated in October, posting a -0.49 reading, it's lowest figure since March and a third consecutive sub-par value. This amalgam of 85 economic indicators uses a par value of zero, and seeks to show whether the economy is growing above or below its "potential", or ability to grow without becoming imbalanced. This "potential" rate is reckoned to be anywhere from a GDP of perhaps 1.8% to 2.4%, but exactly where the figure lies isn't clear. That said, and at least by this gauge, the economy started the fourth quarter in a below-par stance, whatever it may be. As a reference point, the Atlanta Fed's GDPNow model pegs growth for the quarter (so far) at a rate of 2.1%.

By at least one reckoning, the economy should likely be in or near a recession by now. The Conference Board's index of Leading Economic Indicators has now posted negative readings in each of the last 19 months; this is the longest such string since the run-up to the Great Recession, but still no actual recession seems in sight. If nothing else, the long string of negatives seen here continues to signal sluggish growth ahead; this would suit the Fed just fine, as at least some members believe it will take a period of below trend growth to press inflation closer to the their 2% core PCE target.

Orders for durable goods retreated by 5.4% in October, wiping out a previous 4% gain in September. Civilian aircraft and other transportation orders were the big drag here, and the uncertainty injected by the auto worker's strike may have had an influence as well. Even factoring for those impacts, core capital goods spending by businesses was soft, declining by 0.1%, and making it four declines in the past five months for this measure. We'll get a broad reading on how manufacturers are faring when the Institute for Supply Management releases it's November report next Friday, but factory conditions have been lackluster at best for more than a year now.

If HSH's weekly MarketTrends newsletter is the only way you know HSH, you need to come back and check out HSH.com from time to time. You'll find new and changing content on a regular basis, unique calculators, useful insight, articles and mortgage resources unlike anywhere else on the web.

After a mild upward flare, initial claims for unemployment benefits settled back down again in the week ending November 18. The decline of 24,000 for the week left requests for assistance at 209,000, a figure closer to the bottom of its recent range than not. Some labor-market metrics show marginally looser job conditions, but while companies may have become more selective in their hiring practices, they continue to seem wary to shed existing employees. When they do, it would appear that relatively few of them require unemployment assistance before finding new digs, and both these factors help to keep initial claims at a low level.

Also at a low ebb are consumer moods. The University of Michigan's index of Consumer Sentiment found fairly sour attitudes in its final November poll. The headline index value here was 61.3, down 2.5 points from last month. Current conditions were assessed to be less favorable, and the 2.3-point decline in this component left it at 68.3, a six-month low. Also at a six-month low was the expectations component, a view which darkened by 2.5 points to 56.8 to close the monthly poll. Consumer views regarding near-term inflation moved up again, and consumers polled now expect prices to be 4.5% higher in the next year and 3.2% higher over the next five. While the former is only a rebound to about an April 2023 level, the latter is the highest inflation expectation seen here since back in 2011.

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Does mortgage history repeat? Usually. Find out what happened last week/month/year with MarketTrends archives!

Lower mortgage rates of late have helped pull at least a few folks off the sidelines, something mortgage lenders are no doubt happy to see. The Mortgage Bankers Association reported a 3% overall increase in requests for mortgage credit in the week ending November 17; this third consecutive gain is the longest such string of improvement since June. For the latest period, there was a 3.9% increase in requests for mortgages to purchase homes as well as a 1.6% lift in those to refinance existing mortgages. While mortgage rates have backed off by about a half-percentage point from recent 22-year peaks there are still relatively few situations where a refinance might make sense for most homeowners. For homebuyers, well, it's a little more like a mortgage sale, with those that can take advantage jumping in.

Could mortgage rates retreat even further? Perhaps. With Thanksgiving upon us, the slow holiday season for home sales and mortgage originations is underway, and even more slack demand for loans could help rates ease a little. To have a more meaningful decline, the upcoming reports on inflation have to continue to lend support to the belief that the Fed will remain on the sidelines, and that before long we'll start to hear intimations from Fed members that lower policy rates are becoming more likely. At the moment, that far more a hope than a reality, but the upcoming update to Fed members' Summary of Economic Projections comes with the next FOMC meeting (now just a few weeks away) and we'll get a little greater clarity on the central bank's near- and long-term thinking at that time.

Current Adjustable Rate Mortgage (ARM) Indexes

IndexFor The Week EndingYear Ago
Nov 17Oct 20Nov 18
6-Mo. TCM 5.41% 5.57% 4.56%
1-Yr. TCM 5.27% 5.44% 4.65%
3-Yr. TCM 4.65% 4.97% 4.21%
10-Yr. TCM 4.50% 4.87% 3.79%
Federal Cost
of Funds
3.743% 3.698% 2.022%
30-day SOFR (daily value) 5.32474% 5.32131% 3.04360%
Moving Treasury Average
5.012% 4.929% 2.049%
Freddie Mac
30-yr FRM
7.44% 7.79% 6.58%
Historical ARM Index Data

In the meantime, there's the very near term to consider. With a holiday-shortened bond-trading week and a light economic calendar, it's had to get a great read on where mortgage rates are likely to go next week. Since the most market-moving data comes no earlier than Wednesday, it's a fair bet that we'll see flat to slightly lower mortgage rates in the coming week, probably something on the order of 3-4 basis points lower for the average offered rate on a conforming 30-year FRM as reported by Freddie Mac.

We wish you and yours a very Happy Thanksgiving. While you are gathered with family and friends, please take a moment to thank and remember those in the Armed Forces who are far from their homes and families this holiday.

What will become of mortgage rates are we wander deeper into the fall? That's a good question. You can see what we think may occur in our latest Two-Month Forecast for mortgage rates. The current one ends with the start of the holiday season, and we're currently working on the next one to close out 2023 and start 2024.

As we typically do each year, we conducted a mid-year review of our Annual Market Outlook for 2023. Our half-year progress report looks at how well (or poorly) our expectations are being met across a range topics that include mortgage rates, housing trends, the economy, Fed policy and more. Wondering how we're doing? Have a read and find out.

For a really long-run outlook, you'll want to check out "Federal Reserve Policy and Mortgage Rate Cycles".

In most areas, home prices have been rising for years. If you're curious about how much home equity you have -- or will have at a future date -- you should check out HSH's KnowEquity Tracker and Projector, our unique home equity calculation and forecasting tool.

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