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It is official - the average 30-year mortgage rate is over 7%. The bellwether mortgage rate jumped 22 basis points to an average of 7.08%. This is the highest rate in over 20 years and the 10th weekly increase. Applications to purchase or refinance homes dropped 1.7% to the lowest level since 1997. Purchase applications fell to the lowest level since 2015. Higher rates have pushed affordability to a 30-year low, despite the pace of home price increases slowing. Existing home sales fell for the eighth consecutive month, the longest stretch of declines since 2007. The chief economist at the National Association of Realtors projects we have yet to see the bottom, since September’s data doesn’t reflect the recent rise in mortgage rates. Sales of new homes are just as dismal, falling 10.9% last month. This was the second largest monthly decline this year. PulteGroup Inc. reported a 24% cancellation rate in purchase contracts in the third quarter. The number of new homes for sale is the highest since 2008 and most remain under construction or have yet to be started.
The housing bust is showing up in related businesses. Zillow Group Inc. is the latest real estate company to reduce staff, due to a slowing housing market. The company laid off 300 employees, or 5% of its workforce, in an effort to manage costs. Redfin Corp. and Compass Inc. both laid off staff earlier this year.
Key Indicators this Week
GDP – At first glance, the third quarter GDP report was positive. The economy grew 2.6%, a nice rebound from a dismal -0.6% performance in the second quarter. Consumption rose 1.4% and both of the key inflation gauges were lower than previous readings. However, when given time to digest the details, economists and the financial markets decided this may be as good as it gets and that is not good. The better-than-expected increase basically made up for the previous two quarters of negative growth. Consumption, which is 75% of growth, was weaker than in the second quarter and capped the weakest three quarters since 2020. Strength in spending came primarily from a spike in auto purchases, which is likely to taper off in coming quarters. Trade contributed strongly to growth, with exports unexpectedly outweighing imports as the U.S. began to export oil and natural gas to Europe at the same time U.S. retailers cut back on importing goods in an effort to reduce inventories. Housing plummeted 26% with mortgage rates topping 7%, and the decline is expected to worsen. The Federal Reserve is likely to continue raising interest rates this year, cutting demand even more. This may indeed be as good as it gets.
Confidence – Consumer confidence plunged to its lowest level since April 2021. Concerns about inflation increased as gas and food prices continue to remain high. Consumers are shifting buying habits to accommodate higher prices. Amazon.com Inc. reported shoppers shied away from pricier items during its recent Prime sale. Despite concerns about rising prices, consumers remain focused on buying autos, homes, and major appliances.
Market Turnaround – The financial markets did a quick turnaround this week on the notion of an economic slowdown. After surging to the highest levels since 2008, Treasury yields retreated over 30 basis points, only to recover a third of the loss in one day. The Federal Reserve’s recession indicator, the difference between the three-month T-bill and 10-year Treasury note, turned negative for the first time in over two years.
Sarina Freedland – Senior Investment Officer
Although this information has been obtained from sources we believe to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. This is for informational purposed only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. All herein listed securities are subject to availability and change in price. Past performance is not indicative of future results. Changes in any assumption may have a material effect on projected results.
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