Rates Remain Elevated Thanks to Inflation & Uncertainty

Don’t look now, but rates continue to rise as geopolitical uncertainty continues to increase due to the conflict in Ukraine and the war in Israel. However, here at home, the economy and incomes continue to grow even as the housing market becomes less affordable. As a result, the housing market is seeing less purchase demand.

As we know, uncertainty - like the effect of the conflict happening between Israel and Hamas - usually draws investor funds into the “safety” of the bond market, which is what we've been seeing. If this continues, it could lead to a dip in bond yields, which can help mortgage rates improve. We have not seen any improvement in mortgage rates as of yet, but as you know, that can change at any moment. Analysts speculate that it will depend on how long the Middle East continues to escalate.

The other factor that heavily affects mortgage rates is inflation and inflation is sensitive to oil prices. Since Russia attacked Ukraine, oil went from $90 to $130 per barrel in a short time. Oil’s below recent highs, a little less than $90 a barrel now. Nevertheless, we know that inflation remains a problem. The Consumer Price Index that came out last week proved this fact.

As for this week, the economic calendar is quite light. However, we do have the numbers for Retail Sales coming out, as well as a few important housing reports to give a peek inside the health of the housing market.

September Retail Sales rose more than expected, by 0.7 over the 0.3 percent expected. This continued August's higher-than-expected 0.6 percent rise that followed July's gain of 0.5 percent, which was also higher than expected.

In the housing market, forecasters expect the housing market index, which measures the sentiment of the nation’s home builders, to hold unchanged at a very weak 45 in October. However, the index fell further to 40 after falling by a steep and unexpected 5 points in September.

New Housing Starts and Building Permits, considered a leading indicator of home sales, are expected to rebound to a 1.39 million annual rate. Permits, which by contrast jumped to 1.54 million in August from 1.44 million, are expected to swing lower to 1.450 million.

We’ll see the numbers for Existing Home Sales later in the week. After August's 4.04 million annual rate, existing home sales in September are expected to decrease to a 3.90 million rate. The National Association of Realtors described August sales as stable, balanced between the effects of high mortgage rates and strength in the labor market.

I’ll be keeping an eye on all the week’s developments and report back. In the meantime, if I can help you with your home financing needs, please feel free to reach out through email or call/text me at 818.307.6072.