It’s been 22 years since interest rates have been this high and the 10-year Treasury is currently over 4.21%. This is likely the peak as we are beginning to see softening in the job sector with the latest ADP report coming in lower than expected. Rates last hit these levels in 2001, and we will take a look as to how much interest rates will impact home buying as well as home building.
The Fed is certainly sticking with its “high for longer” directive on rates and there is growing anticipation on what they will do at the next meeting on September 20. With a strong job market and relative sticky inflation, this is where the Fed will be challenged to thread the needle in terms of bringing inflation down gently vs. damaging the economy.
The recent downgrades of U.S. Treasury debt, along with several of the largest banks, should be a caution to everyone that the level of rates could harm the U.S. economy. The futures market suggests that there is only an 11% chance the Federal Open Market Committee (FOMC) raises rates in September and there is still a fair amount of economic data coming out between now and then. Over the next few weeks, we will see Home Prices, Core PCE for Q2, GDP for Q2, jobs data for August, CPI and PPI for August as well as confidence and housing data.
So much can change in terms of market sentiment between now and then. And given the fact that the Fed is near the height on rates, you should expect a lot of market volatility between those who believe the Fed should keep raising rates, those who believe the Fed should level off and those who think the Fed should be lowering rates.
How are increased rates and inventory struggles impacting overall market conditions?
As interest rates continue to rise and the bond market struggles despite strong inflation data, there is an opportunity for well-qualified buyers. Home prices have risen slightly compared to the same time last year, with the median listing price maintaining an upward trajectory.
Elevated mortgage rates are impacting both buyers and sellers, as higher rates are causing homeowners to hold onto their properties, resulting in lower inventory levels and fewer new listings. Well-qualified buyers may be able to get into the market with less competition and less upward pressure on price.
Treasury yields and mortgage rates remained elevated following a strong July Consumer Price Index report, as a strong economy raises concerns about an upcoming Fed rate hike. The Fed will not meet in August, we will have to wait until September 20th to see if we will have any rate movement. Rates on a 30-year fixed-rate mortgage have surged into the mid 7s, the highest they have been since 2001.
Three buyer strategies to support success.
- Financial prep and pre-approval: Ensuring readiness is paramount. Check the five Cs of credit (character, capacity, collateral, capital and conditions), stabilize income and savings to cover down payments and closing costs.
- Flexibility in location: Being open to neighborhoods or adjusting preferences can widen options.
- Swift action and bidding strategy: Act quickly and research the market beforehand. This way you can make informed decisions without delay.
Thinking of making a move?