The Fed, and the market at large, has been anxiously waiting for inflation data to show that their quantitative tightening project has been having the intended effect. October’s Consumer Price Index (CPI), one of the two key inflation reports in the US, came in much better than expected yesterday. This sent waves of optimism through the market, and subsequently, mortgage rates saw the largest single-day drop since daily rate recording began in 2009, from 7.22% on Wednesday to 6.62% yesterday. Big news.
With the CPI for October at +7.7% YoY, we’re still a far cry from the Fed’s +2% ideal. But after +8.2% in September, it was much lower than anticipated, and represented the smallest rise since January 2022. In other words, inflation is still rising, but the slowed pace indicates a potential turning point. It will probably take at least one more month of similar deceleration to offer any real reassurance that the tides are turning, but it was still a much-needed shot in the arm.
This news came at a very opportune time for buyers; with banks closed for Veteran’s Day right before heading into a weekend, mortgage interest rates are unlikely to move much until Monday. This gives buyers three full days to lock in these rates.
Every agent keeping tabs on the market is blasting this news out to all of their buyers as I write this. With tentative buyers making decisions more slowly than they did a few months back, many have been circling a handful of homes for some time, waiting for sellers to fatigue or rates to drop. Yesterday’s rates could provide the impetus to unfreeze some of these buyer/seller standoffs.
Though I never could have imagined that a rate of 6.62% would be anything to get excited about, it is a vast improvement from 7.22%. To put this into perspective, consider the following hypothetical purchase scenario: The purchase of a $500k home with 10% down at 7.22% would result in a monthly principal and interest payment of $3,061. At 6.62%, that monthly payment would drop to $2,880. This represents a roughly $25k increase in spending power; enough to close the gap between how much a buyer can afford and how little a seller is willing to accept in many cases.
I can’t pretend to know where rates are going from here. People who are much smarter than I am can’t seem to agree on what’s next, and I’ll let them duke it out. All I can say is that even a single weekend of improved rates is going to have an impact on the housing market, even if rates go right back to where they were on Monday; I fully expect to see an increase in pending sales by next week. And I know that my fingers won’t be the only ones crossed on Monday morning.
Nice article, highly good points - namely when does something that seemed expensive start to look cheap...
YoY comparisons were bound to decline since inflation has been up for more than a year. I am a real estate agent in Oregon, and the irrational exuberance over the highly manipulated CPI data is shocking. So, will home prices accelerate again if mortgage rates drop and inflation declines? Or are we heading into a recession? Or is the Fed still planning to raise rates, but inflation isn't an issue? My rent has increased by 10% each of the last two years and will increase by 14.6% next year, thanks to an Oregon law that caps rent increases. A law that has only motivated landlords to increase the maximum amount possible. When I go to the grocery store, my bill is still growing, just like gas prices. Let's say inflation stops cold where it is now, which locks us into very high prices. What then? Does everyone deal with high prices? In my real estate market, more than 50% of active listings have had price decreases, but the pending and sold properties are still at higher prices than they were a year ago. Watching the myriad of mortgage brokers I know behave like now everything is fine is something else. For buyers and sellers with the means to shrug this off, everything is business as usual. But what about the middle class? Candidly, I am growing weary of all the attempts to paint heavily manipulated numbers as good news.