Good Thursday AM,

Tough day, week, month, year to be in any type of financing. Markets under continued pressure as the data and rhetoric continues to stoke the Fed’s fire of rate hikes. Headline retail sales were a bit stronger, but the core rate when autos are removed, dropped below expectations. Industrial production, Philly Fed and Capacity Utilization, all weaker. Unemployment claims were lower than expected which is likely the catalyst for today’s markets move (equities down again, the 10yr at 3.46% and mortgage bonds are -30 bps). No one is talking about a 50bps rate hike next week anymore as markets are now predicting a 70% chance of .75% hike and a 30% chance of a 1.00% hike. My thoughts are meaningless to the Fed, but after successive rates hikes which either 1) have not yet been fully felt or 2) are not having the intended result as inflation has not moderated sufficiently from the backward looking metrics used to calculate it (and for the record, I believe the first observation to be more true), I do not know that another big rate hike is needed or even warranted.

The Fed does need to regain credibility with the markets so they will raise by .75 next week, but I don’t know it is needed or helpful.

The more they raise now, the harder the landing will be and, the quicker they will be forced to pivot. I still expect rates to moderate late this year and the Fed pivoting to rate cuts next year. The one question I continue to ask myself is, with the expectation that rates will moderate, will home prices be higher next year than they are now? I think they will and for that reason, I continue to think this is a good time to buy the dip. The only part of the homebuying process that is static is the price you pay for the property. You cannot change that once it is done. The price is the price. The financing though is always dynamic. You can change financing terms anytime you like and there will be opportunity to do just that.

On that note, here is an excerpt from Bloomberg today…

Those who have decided to wait for mortgage rates to fall so they can afford to leap back into the market should realize that waiting isn’t going to help — they would just be swapping their too-expensive financing problem for a bidding-war pricing problem as the number of houses for sale shrinks. The best hope for homebuyers now might be to just go ahead and accept the higher mortgage rates and hope to refinance later.

The inventory of houses for sale is the biggest reason to think that buying now might be the best option. The surge in homes for sale that we saw in the first half of 2022 has not just ended, but reversed. New weekly listings have declined significantly since July and are down 17.5% year-over-year according to Redfin. The pace of new listings is now sharply below levels seen in the pandemic years of 2020 and 2021. 

Even with more buyers staying on the sidelines, the lower listing volume is pulling down the overall level of inventory at a faster rate than we expected even a few weeks ago. According to Altos Research, it’s possible that we’ll start 2023 with fewer homes for sale than we did at the start of 2021. Homeowners by and large have strong financial positions and low mortgage rates, and simply don’t have to sell.

So falling mortgage rates likely wouldn’t bring relief to buyers when more bidders are competing for a limited number of homes, pushing prices higher. It’s understandable that a buyer would think that a home priced at $400,000 would be within their budget if mortgage rates were 4.75% instead of 5.90%, but it’s possible that if mortgage rates dropped, the home would be listed at $440,000 with more competition to buy it.

And…

Realtor.com recently analyzed its numbers in the fourth annual Best Time to Buy Report, and found the best time to buy a home across the nation is the week of September 25 to October 1. This early-fall period will offer buyers a host of favorable factors, including more housing listings, less competition, and lower prices.

Just sharing: Wells back at the games. Wells Fargo & Co. reached a $94 million settlement to resolve class-action claims it sent more than 200,000 struggling mortgage borrowers into forbearance during the COVID-19 pandemic without their consent.

Please remain safe and healthy, make today great!