The Fed Was Quiet, The Markets Were Not

This past week, home loan rates hovered near the highest levels in this century. Let's look at what moved the markets and look into the week ahead.

European Central Bank Pauses Rates Hikes

European Central Bank (ECB) President Christine Lagarde did not hike rates this past week, citing economic weakness. This action and statement from Lagarde helped bonds hold steady and improve from the worst levels. Markets sense our Fed will follow suit next week and beyond.

Blackout Period

One uncertainty was removed last week as Federal Reserve officials were in the blackout or "quiet" period heading into the Fed Meeting. This is where Fed members do not make any speeches or comments on monetary policy 10 days before the next Meeting. Unfortunately, the financial markets were not so quiet.

More Money, More Problems

One big problem for interest rates throughout the summer has been the increased government spending and the need for the Treasury Department to sell bonds to fund the government. This past week was more of the same, as the Treasury Department sold $140 billion worth of bonds and the appetite from investors was not so great. Meaning, that to entice investors to buy the enormous amount of bonds, they had to give higher interest rates. And as interest rates in the Treasury Market go higher, it puts upward pressure on mortgage rates as well.

New Home Sales Up In September

New home construction continues to be a bright spot in housing, despite high interest rates. Sales in September came in at an annual rate of 759,000; well above expectations and the best reading since February 2022. Price concessions and rate buy-downs were made by builders to help sell homes.

Shorts Are Back

After a week, where legendary hedge fund owner, Bill Ackman said this was not in the environment to bet against higher rates, his peers thought otherwise. The fast spike in interest rates that we witnessed in response to the poor Treasury auctions mentioned above, was amplified by traders placing large bets on higher rates in the future.

3rd Quarter GDP

The first reading of 3rd quarter GDP (economic growth) showed the economy grew at the fastest rate in 2 years which was fueled by consumer spending. This strong report may not influence the Fed's decision to hike rates again as the report is backward-looking and most economists expect the growth rate to slow sharply in the 4th Quarter. The good news? The economy is not close to a recession.

5.00%

The 10-yr Note is hovering near a ceiling of yield resistance at 5.00%. If the 10-year yield breaks above this ceiling, it will likely accompany another leg higher in interest rates and 5.00% could go from being about as bad rates could get to about as good as they could get. So, this is something to watch closely.

Bottom line: Home loan rates have hit the highest level of this century. However, as evidenced by New Home Sales, the demand to purchase new homes remains high. There are key levels to watch to avoid another spike higher in interest rates.