WEEKLY MARKET October 23rd, 2023

Existing home sales for September dropped 2% MoM (and 15% YoY) to an annualized pace of 3.96 million units sold. That’s the lowest figure in 13 years, but I thought it would be much worse considering the movement in mortgage rates. Median home prices also dropped into the threes, in this case $394,300 (-3% MoM). [NAR]

As of writing this email, At the end of August, average 30-year mortgage rates plunged from 7.50% to 7.08%, and hope was building that a return to 6% rates was in sight. Since then, the 10-year US treasury has moved sharply closer to 5%, and mortgage rates have jumped above 8%. And while more Fed members suggest that the Fed has already done enough, Mr. Powell hasn’t even come close to declaring “mission accomplished.”

Interestingly, the last time the yield on the 10-year UST was this high (2007), mortgage rates were 100 basis points (1%) lower. What’s different this time? We’ll never know, but it reflects 1) more significant uncertainty regarding the Fed’s policy rate direction and 2) the steeply inverted yield curve.

The futures market is currently pricing a tiny 4% chance of a rate hike on November 1 but is putting a 37% probability on a +25 bps hike at the subsequent FOMC meeting on December 13.

Please get in touch with me if you have any questions.