Consequential events occurred last week, what with the elections taking place and the Fed deciding to make another change in policy. Now that these inflection points have passed, the new question looking forward is "What comes next?" At least in terms of initial reaction, investors liked what they saw in terms of the election outcome, with money rushing toward stocks and riskier assets, pushing major domestic stock indices to new record highs.
As has been the case in recent weeks, funds moving into stocks, gold or other assets seemed to come at the expense of bonds, and there was a corresponding selloff in that sector of the market, lifting yields and mortgage rates again. That said, it does appear that after a sizable post-election increase in the yield on the 10-year Treasury has reverted, leaving it about where it was when the week began, so no worse for wear.
When mortgage rates were still on the upswing, mortgage activity was damped again in the week ending November 1. The Mortgage Bankers Association reported a 10.8% decline in requests for mortgage credit, with applications for funds to buy homes down by 5.1% and those to refinance existing loans off by 18.5%, a sixth consecutive decline for the refinancing component. With mortgage rates now back at mid-summer levels and the holiday season ready to kick in soon, it's likely that we'll see home sales return to a muted state to close 2024, after a modest and lower-rate-enhanced lift in sales expected to appear for October.
Elections have consequences, and so do decisions for monetary policy. The problem is that their outcomes are hard to see and discern in the immediate aftermath of those decisions. Based on previous experience, we can guess and speculate the path ahead and how things may turn out, but the reality is that it's just too soon for anyone to know with any certainty what comes next. That goes for any changes to fiscal policy, taxes, tariffs, regulations and more, and certainly for monetary policy, where changes today may not be fully realized for some months yet. Such is the aftermath of change; the path ahead remains unclear and uncertain, but we're going to follow it, regardless.
Was the election the inflection point needed to have long-term interest rates start to settle back again? Possibly. It is modestly encouraging that after the sharp selloff in bonds on Wednesday that yields returned by Friday to about where there were to start the week. If nothing else, there's a bit more clarity now, as we know there will be a change in administration, and the lowering of interest rates by the Fed is a done deal.
This settling of yields probably won't translate into much lower interest rates, at least not right away, but based on how Thursday and Friday's markets performed, we think there's a good chance that we'll see a slight decline of perhaps four basis point decline in the average offered rate for a conforming 30-year fixed-rate mortgage as reported by Freddie Mac come Thursday.
