Are Mortgage Rates at their Lowest for 2024?

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Why did mortgage rates go up after the Fed cuts?

The 10-year yield and 30-year mortgage rates have been in a slow dance since 1971 and trended together. The bond market isn’t old and slow like the Fed — it moves very quickly, and for months it has been sending the 10-year yield (and mortgage rates) lower in anticipation of a series of Fed rate cuts, not just one or two.

The bond market moves more with economic and market news. Before rate cuts last week, key housing start data came out and beat expectations moving the 10-year yield before the Fed made its announcement.

For rates to get lower, there will need to be a further softening of labor and economic markets, better mortgage spreads, and the Fed being more willing to act on the threat of a recession.

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The Real Issue: Housing Shortage🏠

It seems that many people’s focus has been on interest rates and the affordability of homes. Now that rate cuts have solved that issue, there is still the mystery of why housing and mortgage haven’t taken off. This is due to the fact that house prices have increased with new buyers entering the market but competing for a undersupplied market.

According to Zillow, the U.S. had 4.5 million fewer homes than it needed in 2022. The National Low Income Housing Coalition estimates that there is a shortage of 7.3 million affordable rental homes for people with extremely low incomes.

Homebuilders are Surging in the Shortage👷🏻‍♂️

With the constant shortage of housing across the country, major homebuilders have been able to cash in on this opportunity to grow. Even with the mortgage rate shock two years ago, they were able to adapt and offer affordability through rate buydowns, outright price cuts, and smaller homes in some housing markets. In fact, over the past decade, they have all beat the S&P 500.

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Commercial Property Shows Signs of Life🏢

Commercial properties are down 19% from 2022 highs, and it seems that with the drop in rates that investors are ready to cut losses and make new investments. Sellers have been dumping properties at discounted prices causing some market activity to spur up.

Transaction volumes through July were down 5% year-over-year but have shown steady improvements. Some properties, particularly older downtown offices, still face uncertainty due to shifts in tenant demand from remote work.

Investment titans are preparing to jump in to provide certain loans at higher interest rates than a few years ago. Fortress Investment Group and Goldman Sachs Group Inc. are seeking to raise money from investors for new real estate investment trusts for commercial property loans.

Why Ohio?

It seems pretty odd that Ohio of all states claimed 3 of the top 10 markets for investors. If you’re like me you may be wondering what’s in Ohio? Or thinking that it would seem to be an unexciting Real Estate economy. However, the secret is in the numbers. Ohio’s affordability of housing is one of the lowest in the country and it has low vacancy rates making it an attractive landlord market. Combined with its diversity of industries, steady population growth, climate resilience, there’s a reason why investors make up more than 13% of buyers in 2024.

Consumers Keep Spending through Inflation🤑

With all the price increases in almost every product and service around the country, one would assume that consumers would cut back on spending or have less discretionary income. Still, it seems inflation hasn’t phased the masses.

That’s all for this week! Looking to feature some different content in the coming weeks so stay on the lookout. As usual, help us grow this community by sharing with family and friends! Copy and paste this link to share → pool.beehiiv.com 

The information provided in this newsletter is for informational and educational purposes only and does not constitute financial, investment, or real estate advice. The content is based on the opinions and research of the authors and may not reflect the most current market conditions or developments. The analysis of properties is done without consideration of each platform’s fees. Always conduct your own research and consult with a qualified financial advisor or real estate professional before making any investment decisions. The authors and publishers of this newsletter disclaim any responsibility for decisions made based on the information contained herein.