Mortgage Rates Are the Highest In Over 20 Years, So What’s Next?

The Weekly Recap

The government avoided a shutdown and in the process lost the speaker of the house, Bill Ackman believes the economy is slowing and the Fed is ‘probably’ done hiking rates although the bond market keeps rattling the soft landing dream. The US Dollar is soaring, mortgage applications fall to lowest levels since 1995 while rates are the highest since 2000. Student loan bills have resumed which might finally slowdown the amount of spending by consumers and NYC Mayor Eric Adams is in Mexico telling people not to come to NY.

Mortgage Rates Are the Highest In Over 20 Years, So What’s Next?

News cycles are extraordinary in how quickly they turnover but also incredibly predictable about how they come about. The old adage, ‘If it bleeds, it leads’ is true for every sector of the news world, from global politics and conflict to local crime to stock and real estate markets. It is important to remember that negative news is sexy, it drives clicks and engagement (we all know dozens of people who doom scroll) and those points of engagement allow them to sell advertising to manage their hefty overhead costs.

So, let’s put into context what is actually happening in the market and realize that mortgage rate life is not doom and gloom. Mortgage applications are down and rates are higher. People buy into the fear storytelling and pull out of the pursuit of real estate. But as we all know, the real cost of an interest rate is nominal in comparison to the gains in price appreciation and the commitment of funds to your own equity versus renting.

Even with rates at around 7.5%, we are still below the historical average of 8% for mortgage rates and are absolutely nowhere near the peak of rates as illustrated in the chart below

When discussing rates, the number that is thrown around is based upon the 30 Year-Fixed Rate Mortgage. The average person in NYC lives in their home 5-7 years before trading their asset for a larger one. Almost no one who buys a home these days in NYC realizes the full term of their mortgage.

A solution to combating higher rates is getting creative with your loan terms and products. Adjustable Rate Mortgages (ARM’s) are great for getting lower rates in high rate environments. 7/1 or 10/1 ARM’s give you 7-10 years to decide if you want to sell or refinance when rates go lower. Short term asset owners may view Interest Only Mortgages as a solution to renting or taking out a longer term loan. If you’re curious about these options I am more than happy to connect you with some great Mortgage folks.

Even with high rates and mortgage applications down, deals are still happening. Rates are double what they were this time last year but deal flow is comparable to what it was this time last year. As a buyer, especially in a low rate environment, if you don’t let the news scare you, you are primed to take advantage of a low inventory market place.

Market Performance

Here are how some other indexes and asset classes have performed as of this mornings opening bell.

NYC Market Update

Here is a view of new inventory that has come onto the NYC market over the past week as well as newly signed contracts in Manhattan and the level of negotiability in the market the month of September YoY.

Mortgage Rate Update

Mortgage rates maintained their upward trajectory as the 10-year Treasury yield, a key benchmark, climbed. Several factors, including shifts in inflation, the job market and uncertainty around the Federal Reserve’s next move, are contributing to the highest mortgage rates in some time. This is pulling back homebuyer demand.

News You Can Use

• As Mortgage Rates Increase, Applications Fall to Lowest Level Since 1995 Axios

• Mortgage Rates Hit Highest Levels Since 2000 Wall Street Journal

• Chicago Fed’s Austan Goolsbee Sees “Puzzle” In Recent Rate Spike Bloomberg

• How the Fed’s Rate Hikes Sent Stock Buybacks Plummeting Axios

• Biden Signs 45-Day Funding Bill to Keep Government Open CNBC

• The Dollar Soars on Higher-For-Longer Rates Forecast Axios

• US Firms Added 89k Jobs, Fewest Since Early 2021 Bloomberg

• Bill Ackman Says the Economy is Starting to Slow and the Fed is Likely Done Hiking Rates CNBC

• Fed’s Preferred Inflation Measure Shows Slowest Monthly Increase Since 2020 Yahoo Finance

• Credit Markets Wobble as Fed Speak Bloomberg

• Private Payrolls Rose 89k in September, Far Below Expectations CNBC

• Student Loan Bills Resume for 40 Million Americans CNBC

• Americans Are Still Spending Like There is No Tomorrow Wall Street Journal

• Bill Gross Says the Surging 10-Year Treasury Yield Could Test 5% in the Short Term CNBC

• Homeowners Flock to Last-Resort Insurance Policies Wall Street Journal

• Kevin McCarthy Ousted As House Speaker in Historic Vote Reuters

The Deep Insight

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