Global economic policy created another tidal wave of volatility in the last week of September. New economic policy instituted by the United Kingdom’s new Prime Minister, Liz Truss, sparked the worst bond market selloff since the late 1950s. The selloff was so swift, the Bank of England stepped in to stem the tide and buy up bonds and create some stability. The U.K. is also working through quelling intense inflation and dealing with a currency that continues to weaken against the dollar. Just like in the United States, bond markets are crucial as they set interest rates for loans that include mortgage rates. In the U.K. these bonds are known as “gilts.”
United States markets rallied the day of the Bank of England announcement but fell sharply again the following day. The concerning news from the U.K. markets combined with the ever present fear of the Federal Reserve becoming even more aggressive in quantitative tightening spooked investors. The S&P 500 fell to nearly two-year lows and was on track for its worst September performance since 2008.
The American bond market saw a lot of movement during the week as well. On Tuesday, Sept. 27 the 10-year Treasury note yield hit 3.98% only to close at 3.69% a day later. A brief rally Thursday ended with the 10-year sitting at 3.69% in early Friday morning trading. The 10- and 2- year Treasury note yields are still inverted and have been for at least two months.
HOUSING DATA CONTINUES TO SHOW SIGNS OF FURTHER SLOWDOWN
Data is finally showing what many homebuyers and sellers have been seeing firsthand—home prices are cooling off quickly. July’s S&P CoreLogic Case Shiller National Home Price Index showed that home prices rose 15.8% on a year-over-year basis which is a far cry from 18.1% annual growth in June. In their press release for the report, one of S&P DJI’s managing directors said “the difference between those two monthly rates of gain is the largest deceleration in the history of the index.”
Slowing growth of home prices is a much-needed move for homebuyers who have been sitting on the sidelines as interest rates continue to increase. The 30-year fixed-rate mortgage average from Freddie Mac shows rates have risen for six-straight weeks, hitting 6.7% on average for the week ending September 29.
Freddie Mac’s economists note the monetary effect this increase in rates has on homebuyers, saying “The uncertainty and volatility in financial markets is heavily impacting mortgage rates. Our survey indicates that the range of weekly rate quotes for the 30-year fixed-rate mortgage has more than doubled over the last year. This means that for the typical mortgage amount, a borrower who locked-in at the higher end of the range would pay several hundred dollars more than a borrower who locked-in at the lower end of the range.”
One very unexpected thing happened in August—new home sales increased. The Commerce Department’s report shows that new home sales surged by 28.8% on a monthly basis in August. On an annual basis, sales dropped by 0.1%. The volatility of the market did provide some pockets of lower interest rates during the month of August which likely accounts for this unexpected increase. The report from the Commerce department also showed the median price for a new home came in at $436,800.