Lower Mortgage Rates Aren’t Enticing Buyers Back

To view this email as a web page, click here.

What's Happening Today

Homebuyers are still sitting on the sidelines, though mortgage rates have eased off of recent highs. The average rate on a conventional 30-year fixed-rate loan currently sits at 6.49% according to data from Freddie Mac. About a month ago, the average rate was 7.08%—the highest it had been in more than 20 years.

But even as rates dropped, the number of people applying for mortgages still fell, as home loan applications declined 3% last week from the week prior, the Mortgage Bankers Association reported today. The number of applications is 40% lower compared to the same week last year, as higher rates have cooled appetites for purchasing a home.

The recent dip in rates has renewed interest in refinancing, however. Those applications jumped 5% last week from the week prior but still sit 86% lower than last year.

If people aren't interested in buying a home now, that's unlikely to change when the Federal Reserve meets next week and likely hikes rates again. Even if the central bank doesn't hand us another jumbo-sized rate hike of 75 basis points, a more moderate hike of 50 basis points will still send mortgage rates higher as lending becomes more expensive.

And then there's the future path of rate hikes: It's expected that the Fed will continue to hike rates next year, which means that interest rates on home loans will continue to go up in 2023.

But if you want to purchase a home, there is a tradeoff: With higher rates comes pressure on home prices, as people who are interested in selling drop their asking price in the hopes to entice you to buy. While home prices have remained red hot, price growth is slowing. A recession, (which many investors and economists believe is coming) could depress home prices even further.

Stocks are falling today ahead of the latest inflation data and the next moves from the Fed. Despite markets favoring a smaller rate hike of 50 basis points at the bank's next policy meeting, concerns about the future path of rate hikes and the likelihood of a recession continue to weigh on many investors.

- Kristin

Editors' Picks

It's a Terrible Time To Buy a House, and It Could Be for a While (The Balance)

Oil Plunge, Tech Collapse and Fed Cuts? Strategist Shares Possible 2023 Market 'Surprises' (CNBC)

US Oil Plunges Below $75 for First Time Since Just Before Christmas (CNN Business)

Rent Prices Fall for a Third Straight Month in November: RealPage Data (Yahoo Finance)

Crypto Collapse, Rising Rates Have Retail Investors in Retreat (Bloomberg)

It Could Take 23,326 Round-Up Purchases To Save $1 on Taxes (The Balance)

Which Taxpayers Pay the Most Taxes? (The Balance)

Term of the Day

Real Estate Operating Company (REOC)

Real Estate Operating Companies (REOCs) are businesses that purchase, develop, manage, and sell real estate. They may or may not be publicly traded, and unlike REITs, they are also not required to distribute a certain percentage of their profits as dividends.

REOCs can be a way to diversify your investments into real estate without paying a premium for the dividend. REOCs may also have fewer restrictions on business activities compared to REITs.

Off the Charts

Just as inflation hit a turning point in 2022, so did the housing market. At the outset of the year, prices were still skyrocketing. By June, they were 42% higher than before the pandemic. To some experts, the rampant home price increases of the pandemic era looked an awful lot like a bubble—and one that was beginning to burst.