Rates, Fed Cut, Consumer Sentiment, Retail Sales, Mortgage Apps, and Builder Sentiment

Good morning and happy Friday. Jordan Keck here, your lender buddy, with your weekly market update. Kicking off, interest rates moving up from the lows that we saw, up from 6.27% last week to 6.35% this week, and likely moving a little bit higher as well. And that goes into our tip for the week here about mortgage rates. We had the Federal Reserve cut interest rates a quarter of a percent, but why are mortgage rates rising? Wanted to talk through how to explain this to your clients, because undoubtedly whenever the Fed cuts rates, people see that, they think it means mortgage rate cuts, and they're going to be reaching out saying, hey, I heard that rates are lower. What does this mean for me? What's this mean for my mortgage? How much more can I purchase? And the short answer on it is that as you've been following, you know, interest rates have been dropping in anticipation of this event. But why they actually went up is because the Fed cut was already expected. But what wasn't expected was the commentary by the Federal Reserve about the division between do they think there should be more rate cuts, how many rate cuts should there be for the end of the year, and are they going to plan on cutting rates or take it case by case. The commentary came out showing they're going to take it case by case, and there is division on how many cuts will be done before the end of the year. Right now, market's factoring about 2 on average, but it's not a guarantee. So when somebody comes to you and says, "Hey, I heard rates are lower, you know, this is exciting, great news," I used to be in the camp of explaining, "Well, they're not actually lower, they kind of moved higher, they were lower before, you missed out on it," and just raining on their parade. But right now, our job, that would be if we were completely educating them, but our job is not to be educators, our job is to be a guide that uses education as a tool. And right now, if we're guiding somebody to get into a home, it's a good situation for them. And they're on the sidelines because they're worried about the market, the economy, or waiting on the, you know, the mystical rate drop that everyone's been thinking about. But they come to you and they're excited because the Federal Reserve dropped rates. Say, yep, rates are lower than they used to be. Let's get moving. Talk with your lender. Let's get you connected with somebody and find out what this means for how much more you can buy. So ride that momentum. Don't rain on the parade. Keep it moving because the last thing you want to do is squash somebody's optimism or momentum in a market like this. So just roll with it. Keep it moving. If you need any help with commentary or phrasing to say, let me know. Happy to do that with you. I have this conversation a lot. Next up, as far as, again, the Fed rate cut, you know, 25 basis points, lower rates was already anticipated, which is why we had loads over here. Why we had lower rates earlier. One of the things that did come out of that was the Fed's dot plot, which shows where each of the Fed members thinks that interest rates will be moving forward. Now, there were more people that believed rates would be lower, but as I mentioned, you've got— I think there was 9 Fed voting members who wanted 2 or less cuts by the end of the year, or 1 or less cut, and about 12 voting members that wanted 2 or more. So again, a lot of division, and they didn't really telegraph if there would be another cut in the future. The market's still pricing in another cut for October, but it's not a guarantee like they were hoping it would be. Next, the University of Michigan Consumer Sentiment Index showed more pessimism about the economy from consumers. One of the biggest concerns was the labor market, as we've been seeing more jobs numbers come out not showing a lot of strength, with the share of consumers who expect unemployment to rise in the coming year reported at 65%. Next, retail sales for August rose 0.6%, which was much stronger than the 0.2% expected, about 3 times above estimates. The previous month's reading was also revised higher by a tenth, adding strength to this report. Core retail sales, which gets factored into the GDP numbers, rose 0.7%, almost double the 0.4% that was expected, so very strong numbers across the board. The Mortgage Bankers Association reported that application volume for mortgages was up 30% last week due to the lower rates. Purchase volume only up about 3%, but refinances up 20%, uh, excuse me, purchases up 20% year over year. But purchase refinance applications up 58% for the week to be up 70% year over year. Refinances ended up making up about 60% of all of the transactions, all of the applications, up from 49% in the previous report. And since rates continue to drop after report, we'll see, likely see the trend of refinances higher in the coming weekly reports. And lastly, the National Association of Home Builders reported a drop in home starts and permits for August. Starts fell 8.5% and permits dropped 3.7%, both to their lowest levels in years. While the Consumer— the Builder Sentiment Index does show that conditions are weak, there is optimism about the future based on the rates coming down, hopefully helping demand in the future. As always, hopefully this is helpful for you. Pass it along to anyone you think might want to get in on this information. Can sign up in the link below to get this every single Friday. Hope you have a fantastic weekend. We'll see you next time. Take care.