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This week: we had some big movements in the bond market last week that we need to break down.
So let’s get to it…
Inventory is shrinking fast, just as buyer demand is picking up.
|Sept. 17-23||Prev 4 Week Avg.||% Change||Sept. 10-16|
|New Pending Sales||817||793||3.03%||774|
|30 Year Fixed Mortgage||2.88%||2.87%||0.35%||2.86%|
Why is buyer demand picking up? 2 reasons…
- A direct result of inventor shrinking…a sense of urgency is setting in again.
- (My opnion) Interest rates are low but are poised to climb…again, FOMO on the rate party is creeping in in buyers’ minds.
It’s not just in San Diego. Redfin is reporting a spike in buyer demand nationwide:
Mortgage rates could come in and poop on this party pretty quickly, however.
The Fed met last week and confirmed their intent to start tapering their asset-buying soon (a major influencer in our low rate environment).
As soon as that was announced, the 10-year treasury rates quickly jumped. 30-year mortgage rates closely correlate to 10-year treasury rates.
The rates published above in our table of weekly data is a look back on the previous week, so it’s unfortunately not a good real-time gauge when the market makes big moves. The actual rates consumers are now seeing are already in the 3.0%+ range. And the trend line is now pointing in the wrong direction.
Here’s the thing – this has been expected for some time. It’s long overdue.
Most “experts” don’t expect mortgage rates to get to the 4% range any time soon. With the recent developments in China’s real estate market and less optimism about economic growth overall, I think that’s a safe prediction.
Still, a 1% increase in mortgage rates will definitely hurt homebuyers’ affordability.
At first, it means we’ll see a spike in buyer demand as more buyers will try to rush in to get locked into lower rates. With inventory dwindling, this likely means another short-term bout of appreciation.
Over the long run, it will limit what buyers can pay, and potentially eliminate some buyers from the market altogether.
The natural result of that would be downwards pressure on home prices, but only (if) when the supply of homes outpaces new demand from buyers. Considering the current drought of available homes for sale, this reality seems hard to fathom for some time to come.