October 19, 2023

Mortgage Rates Just Hit 8%

📰 News Organizations

  • 30-Year Mortgage Rates Hit 8.0%. The average rate on the popular 30-year fixed mortgage rate hit 8% Wednesday morning, according to Mortgage News Daily. That is the highest level since mid-2000. The milestone came as bond yields soar to levels not seen since 2007.

  • US Housing Affordability at Lowest Level Since 1980s. The NAR Housing Affordability Index clocked in at 91.7 in August. Anything below 100 indicates a household with a median income does not earn enough to be approved for a mortgage on a median-priced home.

  • Tesla Profit Disappoints After Deliveries Slow Down. Tesla said profit, excluding some items, fell to 66 cents a share, less than the 74 cents Wall Street estimated. Revenue reached $23.4 billion. Production fell during the period amid factory upgrades.

  • Morgan Stanley’s Profit Slides on Investment Bank Slowdown. Revenue from the fixed-income trading business slumped 11% and, along with muted fees from dealmaking, caused a drop in net income.

  • Procter & Gamble Earnings Rise After Raising Prices. The company posted net income of $4.521 billion for the quarter to Sept. 30, up from $3.963 billion in the year-earlier period. Sales were boosted after the company raised prices by an average of 7%.

  • ChatGPT Can Now Search the Web. OpenAI has officially launched real-time internet browsing for ChatGPT. For the majority of ChatGPT’s existence, it has been limited to data sets that end in September 2021.

🐦 Twitter

  • The average 30-year mortgage rate hit 7.7% in the U.S. last week, the highest since 2000. Mortgage applications are at their lowest level since 1995, according to the Mortgage Bankers Association, and purchase apps are down 21% YoY. Source.

  • At the pace of what it did during May/October 2023, the reverse repo facility would be drained by April 2024. If it keeps the recent acceleration from August to October 2023, then it will be drained within January 2024. Source.

  • The Cyclically Adjusted Price-to-Earnings Ratio (CAPE) has been predicting lower equity valuations. The secular bull market may have reached its twilight, and we might be headed for single-digit returns during the coming decade. Source.

  • Ex-NY Fed President Bill Dudley thinks quantitative tightening will continue for two more years, "and this should put upward pressure on long-term interest rates until at least late 2025." Source.

  • The 10-year government bond now yields a higher return than the Cap Rate or profit from operating a rental property. No wonder real estate investor demand is collapsing. More profitable to buy bonds. Source.

  • The rising federal interest expense is likely what is fueling part of that uptick in spending, ironically. When you raise rates w/ 120%+ debt/GDP, it pushes down interest rate-sensitive sectors but also spills a lot of public money out into the private sector. Source.

Letting capital returns compound is where the power of wealth creation comes. Taking out your profits leads your capital to decline with inflation eating its purchasing power.

Steve Burns

📓 Online Publications

  • Netflix to Raise Prices After Best Subscriber Gain in Years. The streaming giant added 8.8 million subscribers in the third quarter with customer growth in every region, after attracting 2.4 million net new subscribers during the same period a year earlier.

  • U.S. Housing Starts Rebound in September After Sharp Drop in Prior Month. Construction of new U.S. homes rebounded 7% in September to an annual pace of 1.36 million units after a sharp 1.5% drop in the prior month.

  • US Mortgage Applications Hit 28-Year Low as Rates Keep Rising. The Mortgage Bankers Association’s overall index of applications to purchase or refinance a home slumped 6.9% in the week ended Oct. 13 to 166.9. That was the weakest reading since May 1995.

  • Virtual Purchases Persist. Although sales were down slightly in August, NAR data indicates buyer motivation remains strong. Market pace and technology spurred 7% of buyers in August to purchase a home based only on a virtual tour.

  • Reports Show EV Demand Weakening. GM is delaying the opening of a large electric pickup truck factory in Michigan. It's the latest sign of flagging enthusiasm in the auto industry for EVs, as consumer demand seems to be slowing now that early adopters have already purchased EVs.

🎧 Podcasts

  • Scotland to Issue Bonds For the First Time. Scottish National Party leader Humza Yousaf said the money raised from the bonds will help finance infrastructure. The move is also meant to build up credibility with investors. Source(4:27)

  • BofA Profits Beat Forecasts. Bank of America beat Wall Street expectations along with JPMorgan and Citigroup. It said that it increased profits and that traders delivered their best performance in a decade. Source(5:36)

  • Economic Data Challenges Recession Fears. Economic indicators, such as strong retail sales and improved industrial production, challenge the recession narrative, despite a recent bond market sell-off. The equity market remains resilient, with the S&P holding around 4,400. Source(1:07)

  • Pandemic Savings Propel U.S. Economy. Recent reports show that despite initial assumptions of depleted pandemic savings, there are still hundreds of billions in savings accounts, potentially driving increased spending, suggesting a thriving U.S. economy. Source(7:31)

  • Legal Challenges Threaten U.S. Real Estate Commission Model. Legal challenges, including DOJ investigations, are challenging the 6% commission in U.S. real estate, alleging antitrust violations. Changes to the commission model will leave half of the realtors unemployed. Source(8:02)

  • US Treasury Faces Uncharted Territory. The Q4 US treasury issuance enters uncharted territory, affecting market rates amid challenges in finding bond buyers. Ongoing events trigger renewed turbulence in fixed income, casting doubt on Long Bond yields. Source(12:30)