The “average interest rate” peaked at just over 8% in October. Interest rates then slid downward 1.5% over the next few months before heading back north over the last few weeks.
While they remain 1% lower than where they were in October, the slide upward over the last few weeks has left many people in the real estate and mortgage world all too worried.
The worry is well-justified too, as we see an almost immediate drop off in volume when rates blip up even a little.
Here are a few things that have pushed rates up: (1) a strong retail sales number for December; (2) a strong jobs report; (3) comments by the Fed saying that rates need to stay higher to fend off inflation; and (4) a strong consumer sentiments report (today’s impetus).
So, the question is whether or not rates are blipping up temporarily or trending up again for the long term.
It’s the Narrative Right Now
Many government officials believe the economy is almost entirely driven by the narrative consumers, business owners, and investors see in the media – and that seems to be the case lately.
This is because employers are holding on to employees even if business is down (counting on a resurging economy to make those employees necessary); stock prices remain high; and consumer sentiment is up.
BUT… it really does appear that it is just the “narrative” sparking optimism, as the economy is not that strong. Jeff Snider pointed out that the retail sales numbers were hardly impressive when compared to previous years.
Numerous analysts pointed out that the December jobs report was actually a disaster too, as full-time job numbers in the private sector are plummeting; the job gains all came from government, healthcare, and part-time work.
And – consumer sentiment is up because inflation is down and because consumers are seeing all of the positive headlines. So yes, narratives can drive economies (and rates) in the short run.
But over the long run…not so much, as accurate data and the real economy always surface later on (see job revisions, for example). The accurate data/revisions just never get the same fanfare, particularly when media sources support the current administration.
Dog Park Survey – The “Tortilla Guy”
I take our Bernadoodles to a dog park near our home where I chat with all of the other dog owners – while our Bernadoodles trip over themselves, crash into trees, fall down for no reason, eat mud, and get lost in the parking lot (they’re not very bright).
In any case, I often quiz the various dog owners about their perception of the economy. Most of the retirees, the people with government jobs, the financial advisors, and the people in service industries believe we will avoid a recession.
BUT – the one guy who makes things says we’re probably in a recession now. That guy happens to be the owner of one of the largest tortilla manufacturers in the country with plants all over. His total volume is up year-over-year because of expansion, but his sales to his repeat buyers are way down year-over-year.
I see similar comments on social media all the time too. The people who make things rarely fall for narratives, as their data can’t lie. And many of those people are saying… it looks like a recession’s here already.
So yes, I think we’re in a blip upward while the overall trend remains downward. The only question is how long will this narrative-driven blip last? Unfortunately for the mortgage industry, it could be a few months.
