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Independent Mortgage Broker in NJ & NY
US Housing Market

The U.S. is in a long-term housing shortage, with the construction of new homes failing to keep pace with the growing population. Rising materials costs, supply chain issues and labor shortages since the Covid pandemic have exacerbated the issue.

The U.S. currently faces a shortage of 5.5 million homes, according to the National Association of Realtors. The gap is so large it would take more than a decade to close, NAR says, even if new-home construction accelerates.

However, new home sales improved for the fifth straight month in April, the Commerce Department reported on May 23, the most recent data available. The rise was modest, from a seasonally adjusted annual rate of 656,000 to 686,000. But it was in stark contrast to falling sales rates for existing homes, as homeowners sit tight.

The key determinant of interest rates for mortgages is the federal funds target rate set by the Federal Reserve. This rate determines the overnight lending rate among U.S. banks.

The Fed, attempting to cool rapidly rising inflation, has raised its target rate in each of its past 10 meetings. Higher interest and mortgage rates tend to reduce housing demand, keeping the supply of existing homes low, according to experts.

The Fed decided Wednesday to pause rate hikes, but signaled another two quarter percentage point increases could arrive before the end of 2023. 

The decision left the Fed's key borrowing rate in a range of 5%-5.25%.

Last week, the Mortgage Bankers' Association (MBA) reported applications for home purchases dropped 1.4% in the week ending June 2, slipping for the fourth straight week, to the second lowest point since 1995.

Mortgage Market News for the week ended August 11, 2023 Inflation Matches Expectations



Without a doubt, the biggest consideration for mortgage rates right now is the progress in the battle to tame inflation. The latest major inflation data was right in line with expectations, however, leaving investors to focus on Japanese monetary policy and U.S. government spending. These secondary influences were negative for mortgage rates, which ended the week a little higher.



The Consumer Price Index (CPI) is one of the most widely followed inflation indicators. To reduce short-term volatility in the reading and get a better sense of the underlying trend, investors and Fed officials often prefer to look at core CPI, which excludes the food and energy components. In July, core CPI was 4.7% higher than a year ago, down from 4.8% last month. This was the smallest annual rate of increase since October 2021.



While the efforts to bring down inflation took another step in the right direction this month, there is still a long way to go. The core CPI annual rate has fallen from a peak of 6.6% in September 2022, but it remains far above the readings around 2.0% seen early in 2021, which is the stated target level of the Fed. Progress has been slow due to stubbornly high prices in certain areas of the economy. In particular, shelter (housing) costs remained elevated and again were responsible for the largest portion of the increase. By contrast, used vehicle prices and airline fares posted significant declines. 


In addition to inflation data, mortgage rates were influenced by a couple of other factors this week. First, investors are paying more attention to the massive supply of debt issued by the government to fund its budget deficit. The Fitch rating agency recently downgraded U.S. sovereign debt, citing high levels of government spending, causing investors to demand higher yields to offset the added risk. In addition, the Bank of Japan (BOJ), which restricts Japanese bond yields to a limited range, announced that it will raise the upper end of that range. Investors are wondering if this will be just the first step in a larger plan to permit yields to rise even more in the future. If so, this would apply upward pressure to yields in the U.S. and other countries as well.


Investors will continue to watch for Fed officials to elaborate on their plans for future monetary policy. For economic data, Retail Sales will come out on Tuesday. Since consumer spending accounts for over two-thirds of U.S. economic activity, the retail sales data is a key measure of the health of the economy. Housing Starts will come out on Wednesday. 



Weekly Change
10yr Treasuryrose0.10


Tue8/15Retail Sales
Tue8/15Import Prices
Wed8/16Housing Starts