The challenge ahead for the real estate industry is that there are more headwinds right now than there are tailwinds for mortgage rates.
Even though it felt like (another) gut-punch if you followed the bond market news last week, by end of day Friday mortgage rates landed almost exactly where we started.
Rates started the week moving in the right direction, but they were (once again) driven higher by hotter-than-expected inflation – this time found in the GDP data for the first quarter.
There is an in-depth technical explanation of the inflation data from last week that you can find HERE if you’re interested.
The challenge ahead for the real estate industry is that there are more headwinds right now than there are tailwinds for mortgage rates.
In other words…there is a greater risk for rates to keep going higher than lower.
One new data point pointing to higher inflation, more govt borrowing, or a stronger job market will send rates soaring.
We’ll need multiple weeks/months in a row of the opposite to see rates make any meaningful and sustainable moves lower.
We’ll see this play out very clearly this week as we have a slew of big economic events and updates on the docket. More on that below.
How’s Brian feeling about mortgage rates? (this is from last week’s copy)
Not great 😓 but still not a believer in the economy long-term
- 3-month outlook (June 2024) – My whole thesis on rates coming down relied on the job market showing cracks. It hasn’t. Now I think rates have to go higher before they can go lower.
- 6-month outlook (September 2024) – Wild-ass guess = The job market is actually improving, consumers keep spending, and inflation is resurging…a lot can happen in 6 months, but until the data starts trending in the other direction it’s hard to bet on lower rates. It looks like we might have a chance to challenge last year’s high of 8%.
- ***12-month outlook (March 2025) – Wilder-ass guess = My bet is on something breaking in the next 12 months, the stock market correcting as a result, and mortgage rates improving to the 6.0-6.5% range.
***The wildcard is the US government. If they don’t do some massive budget cuts to get spending under control soon I could see the demand for US Treasury debt falling off a cliff and that could drive all rates higher. Or maybe the 30-year fixed mortgage will be seen as a safer bet and the yield between the two will no longer correlate as it has in the past?
Other Relevant Macro News
- Affluent Americans are driving the US economy <— the best explanation of the wealth effect and how it’s driving our economy that I’ve read recently.
The Week Ahead
- We have a new consumer confidence report coming out later today. This hasn’t been a big needle mover but considering the Fed is meeting this week, every new piece of information can influence the narrative they push out so it’s on my radar. We’ll get fresh employment data on Wednesday morning followed by the Fed policy rate decision and press conference on Wednesday afternoon. Then we have the mac-daddy of all employment reports coming out on Friday which has brought fireworks (and tears) the previous two months. There is no reason to think this one will be any different (hopefully without the tears this time though).
