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If The Fed Didn't Hike, Why Did Mortgage Rates Hit Long Term Highs?

Mortgage Rates Jump Up to 23-Year Highs and 6 more handpicked RE insights.

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Estimated read time: 2 minutes 34 seconds.

Macro Trends

Global Risk Of Housing Bubbles Deflates Sharply link

  • The global risk of housing bubbles has seen a significant reduction in 2023, with only two cities, Zurich and Tokyo, at risk out of 25 surveyed, a sharp decline from nine in previous years.

  • This reduction is attributed to rising interest rates ending the era of cheap financing in real estate, causing inflation-adjusted international home prices to experience the sharpest decrease since the 2008 global financial crisis.

  • Cities like Hong Kong, Tel Aviv, Frankfurt, and Toronto, known for their high housing prices, have exited bubble territory and are now classified as overpriced. Miami remains the highest-ranked U.S. city, close to bubble risk territory, with its housing prices continuing to increase above the U.S. average.

Most Markets Saw Job Growth Normalize in August link

  • Annual job gains at the metro level have normalized to pre-pandemic averages, with most top markets adding roughly 4,000 more jobs on average compared to the two years before the COVID-19 pandemic.

  • New York leads the nation in annual gains with 174,400 new jobs for the year-ending August, more than one-third higher than the market’s recent pre-pandemic average. However, the trend is slowing toward normalcy, with top markets like Los Angeles and Dallas also experiencing a slip in annual job gain totals.

  • The weakest major markets for percentage growth are in the industrial Midwest, Mid-South, and Mountain West, with several major markets experiencing sub-1% growth, including Memphis, Denver, Detroit, Milwaukee, and Columbus, OH.

Real Estate Trends

Q2 2023 County Level Flipping Analysis link

  • In Q2 2023, 84,350 single-family homes and condos in the U.S. were flipped, making up 8% of all home sales, with the average flip time rising to 178 days, the longest since mid-2020.

  • Counties in Georgia, including Cobb County and Houston County, led in flipping rates, with flips constituting over 18% of all home transactions in these areas.

  • High gross profits from flipping were observed in counties like San Mateo, California, with $327,500 and Hunterdon County, New Jersey, with $322,895.

Apartment Renters are Absorbing the High Number of Units Coming to Market link

  • Renters absorbed 98,249 units in the first half of 2023, almost four times as many as in the first half of 2022, with demand predicted to accelerate through mid-2024.

  • In 1H 2023, 198,806 rental units were delivered, indicating a potential 51% increase over 2022 for the full year, with even higher numbers expected through 2025.

  • Newmark’s report warns that lack of capital could slow the number of new units delivered in 2026-2028.

Pending Home Sales Drop 13% Year Over Year As Mortgage Rates Stay Stubbornly High link

  • Monthly housing payments have reached an all-time high, causing potential buyers to wait for more affordable home prices. Mortgage rates are near a two-decade high, and U.S. home prices have increased by 3% year over year as of the four weeks ending September 17.

  • The Federal Reserve has decided against an interest-rate hike but signaled that interest rates are likely to remain higher than anticipated into 2024 and 2025, potentially keeping borrowing costs and mortgage rates high.

  • Despite the high costs, there is a slight increase in homeowners listing their homes, offering a glimmer of hope for buyers. New listings have stabilized and are down only 7% from a year earlier, the smallest decline since July 2022.

Mortgage Rates Jump Up to 23-Year Highs link

  • Mortgage rates have reached their highest point in 23 years, with the average mortgage lender almost perfectly back in line with the highest 30yr fixed rate of the past 23 years, currently at 7.47%.

  • This surge in rates is attributed to the weakening of bonds, influenced by data and the overnight momentum in overseas markets. Mortgage-backed securities didn't decrease as much as Treasuries, but it was sufficient to drive the rates up.

  • The article emphasizes the significant impact this could have on the real estate market and potential homeowners, highlighting the critical nature of monitoring these rates and market conditions.

Something I found Interesting

If The Fed Didn't Hike, Why Did Mortgage Rates Hit Long Term Highs? link

  • Mortgage rates experienced a slight recovery on Friday, despite the underlying bond market reaching its weakest levels in over a decade. However, mortgages remain near multi-decade highs, puzzling many as the Fed did not raise rates this week.

  • The market had already priced in the Fed's decision to hold rates steady, ruling out the rate decision as the catalyst for mortgage rate volatility. The market's reaction was more so due to the Fed's "summary of economic projections," which indicated a likelihood of maintaining higher rates for longer.

  • The ongoing high inflation and the Fed's role in combating it with the Fed Funds Rate is central to these developments. The economic data released in the first week of October will be crucial in determining the future trajectory of rates. If the data is worse than expected, rates might recover, but if it continues to surprise to the upside, rates will likely follow suit.


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