The first week of Q2 gave our hopes for rate cuts some heavy blows. Factory Outputs, Job Openings and the Unemployment Rate reporting all caused fear among those rooting for lower mortgage rates!

The average rate for a 30-year fixed rate conventional loan increased back towards 2024 highs to 6.89% (up from 6.73% the week prior). Make sure you're signed up for our weekly Friday rate texts. It could make a HUGE difference in your homebuying decision. 

Factories are PUMPING!

Manufacturing is back on the rise. Factory output growth hit a 22-month high in March. 

Why is this bad for homebuyers?

Busy factories mean that MORE DEMAND. That demand leads 2 things - both bad for the homebuyer....

1) more, and potentially higher paying, jobs becoming available to Americans at a time when the Fed would like to see LESS employment

2) producers have more pricing power and can begin to start increasing the prices charged to consumers without feeling a significant dip in demand at a time when the Fed wants to see prices come down!
 
From the report: "Average selling prices charged by producers rose at the fastest rate for 11 months in March as factories passed higher costs on to customers, with the rate of inflation running well above the average recorded prior to the pandemic. Most notable was an especially steep rise in prices charged for consumer goods, which rose at a pace not seen for 16 months, underscoring the likely bumpy path in bringing inflation down to the Fed's 2% target.”

Unemployment Rate Falls!

Most people would be happy to hear that unemployment is falling in the US... that is of course unless you're rooting for lower rates. The unemployment rate fell to 3.8% (down from 3.9% the month prior).

The drop in unemployment rate came after payrolls blew expectations out of the water (303k actual vs 200k expected).

“This is another really strong report,” said Lauren Goodwin, economist and chief market strategist at New York Life Investments. “This report and the February report showed some broadening in terms of job creation, which is a very good sign.” Very good - unless you're a homebuyer that is. 

The stock market LOVED the report, but bond markets did not as interest rates continued to march higher. 

Immediate reaction from the Federal Reserve: 

Richmond Fed President Tom Barkin called the report "quite strong" and "given a strong labor market, we have time for the clouds to clear before beginning the process of toggling rates down.”

Dallas Fed President Lorie Logan said "I believe it's much too soon to think about cutting interest rates," and "I will need to see more of the uncertainty resolved about which economic path we're on."

And the worst one... Fed Governor Michelle Bowman said “While it is not my baseline outlook, I continue to see the risk that at a future meeting we may need to increase the policy rate further should progress on inflation stall or even reverse.” 

PIMCO Reduces Rate Cut Outlook

One of the largest US investment firms came out with a big announcement following the jobs report. They now expect the Fed to cut rates just twice (down from 3) in 2024. Better than Bowman's suggestion of increasing rates but not what anyone wants to hear!

While no one wants rates to remain higher for longer... the current interest rate environment is seemingly having 0 effects on the housing market. Keep in mind that we've now been well above 6% interest rates for more than a year and home prices continue going higher and higher. While there are opportunities to purchase homes below the list price or "get a deal", these opportunities aren't the norm.

If you are waiting for rates to fall dramatically before buying, we're getting clear indication that you may be waiting until 2025!

We're seeing demand pick up as more homebuyers start chanting "marry the home, date the rate". Are you one of those buyers or are you taking a wait-and-see approach? 

This week is a HUGE week for homebuyers. It feels like a last stand of sorts against higher rates. If inflation data on Wednesday and Thursday come in worse than expectations, I expect rates to JUMP. I would also expect talks of no rate cuts to begin to become the norm. Based on the jobs, factor, and inflation data we've seen this year, I am expecting the worse - but of course, hoping for the best.