September Rate Hike Unlikely


Mortgage rates appear to have gone on a fly-and-flop vacation. We’ve seen little movement over the past week. Even an exceptionally strong employment report for July did little to roil lending rates. Credit-market participants responded mostly with a collective shrug.

It wouldn’t surprise us to see today’s rates hold until Labor Day. Of course, an outlier event (unknown to all) could move the market, but outlier events are in themselves outliers: They happen infrequently. 

Looking further afield, Federal Reserve officials meet again on September 20, but no one expects much. Traders bet there’s a 96% chance of the status quo prevailing. And if it didn’t, it might not matter. 

Consumer price inflation, as measured by the Bureau of Labor Statistics, has gone nowhere. Even if Fed officials did a head fake and raised the fed funds rate next month, it could still be meaningless.

Inflation expectations, more than anything, influence long-term lending rates. If market participants are convinced inflation remains muted, Fed officials can continually raise the fed funds rate (an overnight lending rate) and long-term rates, such as those quoted on long-term mortgages, will remain staid.  

All that said, the Fed’s bias is for higher interest rates. (At least that’s what it is has foreshadowed.) Somewhere over the horizon, they likely loom. This suggests to us that this is as good as it gets. As we’ve noted frequently over the past month, rate dips have provided a good opportunity to lock-in a mortgage rate. Our opinion remains unchanged.

Should We Blame the Old Folks?

Bloomberg featured an article last week titled “Baby Boomers Who Won’t Sell Are Dominating the Housing Market.” The article touches on a couple points most of us know: Millennial first-timers are having a hard time entering the market is one; low supply impeding entrance is the other. 

The article is somewhat anecdotal. It’s peppered with interviews with senior citizens from various U.S. burgs. The feature character, though, is a 23-year-old painter on a home search. The enterprising painter scours older neighborhoods in Philadelphia seeking a home to buy, but to no avail.

Less anecdotal is the trend in older people refusing to sell. Leaning on Trulia data, Bloomberg tells us that those 55-and-older own 53% of owner-occupied houses. This is the largest share since the government started collecting data in 1900. The number has surged 10 percentage points over the past decade.  

On the other end, those ages 18 to 34 own just 11% of owner-occupied homes. Baby boomers (those born between 1946 and 1964) owned twice that level when they were the same age. 

The solution? 

Market solutions are frequently the most sustainable solutions. Builders and lenders have both been weighed down with excessive regulation and restrictions. Entrepreneurship — solving problems profitably — has been stultified.  

If we want to get Bloomberg’s 23-year-old painter into a home, we all need more leeway (and less paperwork) to do our jobs.  We have seen some regulatory easing in recent years, but until we see more Bloomberg’s 23-year-old painter will continue to find the row tough to hoe in his home quest. Just don’t blame the older generation for his excessive laboring.

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