As a realtor or homeowner, your focus might be on homes rather than financial markets. But it’s hard to ignore the substantial corrections to core economic data lately—important data that drive rates and reshape market expectations. So, what’s really going on?
After dipping into the high 5% range just over a month ago, mortgage rates at the end of October are back up to around 7.0%—the highest they’ve been since July 10th. Looking back on the past few months raises some critical questions about what’s going on with the market that it is so volatile and how make good decisions is given the economic outlook.
Mortgage rates are heavily influenced by the bond market which has been particularly turbulence in recent weeks due to a steady stream of strong economic data on the heels of weak leaving many people feeling confused. Didn’t the employment numbers just get adjusted down? It seems like the numbers are all over the place, with the market reacting quickly to various economic indicators only to later find the numbers were quite far off. You wouldn’t be wrong to think this situation is somewhat unprecedented, as recent adjustments to economic data—like GDP and jobs reports—have been unusually large and frequent. While revisions are a normal part of the process, the extent of these recent adjustments has certainly raised some eyebrows.
Why Do Revisions Happen?
Economic data is often released as preliminary estimates, based on incomplete or early reported information. As more comprehensive data becomes available, agencies like the Bureau of Economic Analysis (BEA) and the Bureau of Labor Statistics (BLS) update their figures to present the most accurate picture possible. These revisions can occur for GDP, employment numbers, inflation, retail sales, and other key indicators. Adjustments are standard practice, as early data may include sampling errors or gaps.
What’s Different Recently?
What’s unusual these days is the sheer size and frequency of these revisions. Several factors contribute to this phenomenon:
1. Post-Pandemic Economic Volatility: The pandemic has caused significant shifts in employment patterns, supply chains, and consumer behavior, making it difficult to gauge economic health with traditional models. This has led to greater initial uncertainty and larger corrections as more data comes in.
2. Times have changed: There is an ongoing challenge in survey-based data collection—such as lower response rates and difficulties in reaching businesses and households—complicate initial estimates, resulting in bigger subsequent revisions.
3. Policy and Inflation Shifts: Rapid policy changes, substantial government spending, and sharp inflation spikes add to the volatility, making initial projections more prone to large revisions.
Is This Unprecedented?
While adjustments are always expected, historically, revisions of this magnitude are rare. Typically, changes are within a few tenths of a percentage point, but recently, we’ve seen shifts of a full point or more—an uncommon occurrence. Since we’re basing the price of borrowing money on these statistics which is sending the market to-and-fro, it’s raising some eyebrows.
For instance, this summer, nearly a million fewer jobs were reported than initially thought, only to be followed by another ‘strong jobs report.’ Added to the complexity, we have an election year, which are known to be framed by the incumbent party the best they can. This isn’t reason to suspect fraud, however, post-election corrections won’t be totally surprising in this light.
Regardless of who your candidate is for 2024, it seems the market anyway is betting on a correlation between rising rates and better odds for a Trump victory, which many view as a pro-business outcome. Today’s ruling to keep RFK Jr. on the ballot in swing states, despite his withdrawal, will likely bolster this market perspective.
The Bottom Line
As we await Friday’s employment report, mortgage rates remain sensitive to geo-political issues, inflation expectations, and global economic trends. Whether rates climb or fall in the near term, real estate remains most Americans best hedge against today’s uncertainty, and one that provides real tangible wealth.
What’s Driving Rates Up?
Throughout October, rates have risen steadily as bond yields climbed. This increase is fueled by concerns that inflation isn’t behind us with the strong job report in September, and that the Federal Reserve will revert to a cautious approach following their 50 basis-point cut last month as a result. Rate spikes reflect not just inflation but also complex market fears about U.S. currency devaluation and “financial repression,” where the Fed maintains inflation slightly above rates to manage real debt effectively.
This is why it is so important for ordinary Americans to buy homes as it remains one of the most effective hedges against uncertainty, inflation, and ironically, with the housing shortage, the possibility driving housing up further. In other words, regardless of whether rates go up or down, people who own property will make out better than those who don’t, especially over time.
Of course, there is always the possibility of paying too much for a house, and that’s not what we are suggesting. A good realtor won’t let that happen. But right now may be as close as we get to a buyers market for some time again if rates do go down next year as as well as Raoul as well as many large hedge fund managers are saying simply has to happen, though their reasons for this differ.
A Strategic Decision for Buyers
What’s essential is to communicate to potential buyers on the fence now is not to hesitate because they perceive rates as relatively high. Rates have been in this range and higher for decades at a time, and those who bought property still came out ahead. Historically, property values appreciate, and over the past 80 years, the U.S. real estate market has increased in value about 73 out of 80 years—roughly 91% of the time. Real estate offers some of the only protection against currency devaluation and rate volatility, both of which are unavoidable.
Looking Ahead: The Importance of Friday’s Job Report
In the short term, this Friday’s job report is pivotal axis for near-terms rates. If it shows strong employment numbers, it could reinforce a cautious stance by the Fed’s, suggesting inflation might resurface if they aren’t careful and potentially halting future rate cuts for a time. Focusing on jobs helps gauge consumer spending resilience, a key economic driver in today’s high-rate environment. Conversely, if employment is soft again, we might see bond yields drop again, which leads to lower mortgage rates. Let’s hope the numbers are accurate, as there’s so much riding on them!
The Take Away
As we await Friday’s report, mortgage rates remain sensitive to geo-political issues, inflation expectations, and global economic trends. Keep a close eye on the job market for implications of future Fed policy shifts. Lastly, whether rates climb or fall in the near term, remind clients purchasing a home remains their best hedge against today’s uncertain climate and one of the only investments plays that provides real wealth assets.
