The Word On The Street
Hopes for early 2024 interest rate cuts fade with January data releases
Reports vs Expectations
“The housing market matters, if for no other reason than it’s the primary source of U.S. household wealth, regardless of income or status.
Mortgage rates remain the principal driver of housing market activity, either in terms of outright purchases or the levels of investment homebuilders are willing to commit to breaking ground for new construction.” –The Street
The US economy kicked off 2024 with various indicators of business activity, labor markets, sentiment, and inflation moving in a favorable direction, according to The Conference Board Forecast For the U.S. Economy released February 7th.
What this rosy summary didn’t include was data showing that inflation pressures were stronger than expected. The mortgage market noticed, however, and responded with an increase in rates.
And as The Street reports, nearly 50% of recently polled Americans say the economy “remains in a downturn.” Why? Perhaps they care more about housing than other market sectors.
By The Numbers
- Most wealthy Americans actively invest in the stock market
- Few Amercians earning less than $40k invest
- Homeownership rates in the U.S. are nearly 66% across the board.
- Almost 40% of owner-occupied homes are now mortgage-free, thanks in part to steadily declining interest rates since 2008. Average 30-year fixed rates dropped to a historic low of 2.65% in January 2021.
- Only 24% of mortgages on homes located in low-income areas were refinanced at those record low rates according to a Federal Reserve Bank of New York report on credit access and housing for low income Americans.
- In high-income areas, 42% of mortgages refinanced.
- 57% of those in low income areas who don’t own a home at all bear a significantly higher rent burden, spending more than 30% of their income on rent and utilities, in contrast to 44% of those in high-income areas.
Treasure Bond Yields
Treasury bond yields also exert significant impact on home affordability and refinancing demand. Bond prices have falled sharply over the past two weeks in response to unexpectedly January inflation-related reports.
The 10-year Treasury note yield, linked to benchmark 30-year mortgage rates, has risen 44+ basis points so far in 2024, which could add as much as half a percent to home borrowing costs over the near term.
The 10 year treasury yield rose last Friday to 4.28% and the 30 year mortgage rate spiked to 7,.2%. The monthly payment on a new $400,000 mortgage may jump from $2,555/mo. to $2,715. (+6.2%).
An unexpectedly hot PPI report (+0.3%) was also released. Economists expected a 0.1% rise. Core CPI rose by 0.5%, significantly higher than the forecasted 0.1%. The January CPI report also delivered higher-than-anticipated results, showing increases of 0.3% on a monthly basis and 3.1% on an annual basis.
Treasure Bond Yields
Impact
With forecasts predicting mid-2024 cuts and the potential for a hike before then, immediate impact was to the stock market. The Dow Jones Industrial Average dropped 525 points.
The average rate on the 30-year fixed mortgage jumped to 7.14%, according to Mortgage News Daily.
Loan applications fell 2.3 percent, according to the Mortgage Bankers Association.
Rate Cut Or Hike?
The word on the street is that rates will remain elevated until mid-year, with another potential rate hike possible should inflation rates continue to rise. Hopes of a rate cut boosting the spring real estate market are being shelved.