Could Economic Chaos in China Boost U.S. Housing Demand?

Hello everyone! As October kicks off, and the weather starts cooling down, we're gearing up for an exciting month ahead in the world of mortgages and real estate. I am here to keep you informed! Let's dive into the latest updates!

Read time: ~4 minutes

Rates ended HIGHER compared to last week, and volatility was HIGH. Rates are in the low to mid 6’s for most loan types without paying discount points. Paying discount points can get you in the high 5’s.

“But The Fed Cut Rates- Why Did Mortgage Rates Go Up?”

I have to admit, the Fed’s recent rate cut has left me with mixed feelings.

On one side, it’s great to see that people are hopeful for lower rates—and that’s exciting. But on the other side, I find myself explaining to many that a Fed rate cut doesn’t immediately mean lower mortgage rates.

As soon as the Fed’s decision was announced, I got a wave of calls from clients, all asking if their rates had dropped by 0.50%. They were surprised when I told them that rates had actually gone up since the Fed’s move!

So, why are rates up after a cut?

It comes down to how the bond market works, and it moves faster than the Fed. Mortgage rates are tied to the 10-year Treasury yield, which had been falling in anticipation of the rate cut.

But now that the cut has happened, the bond market has turned its focus to the latest economic data. Strong numbers from housing, retail, and jobless claims after the cut caused bond yields—and mortgage rates—to climb.

For mortgage rates to start falling again, we’d need to see weaker economic indicators, more job losses, and clear signs that the Fed will continue cutting rates in the future.

Could Economic Chaos in China Boost U.S. Housing Demand?

Last week, China rolled out a significant economic stimulus package in response to some serious challenges they’re facing. Unemployment has hit its highest levels in years, their construction industry is reeling from a real estate crisis, and consumer spending is cooling off.

With China being a major player on the global stage, it’s natural to wonder how these issues could spill over into the U.S. market, especially real estate. One concern is that Chinese investors may need to sell off U.S. properties to recover from losses at home, which could have ripple effects here.

But here’s the twist: while that’s one possibility, the current data suggests the opposite might be happening. Despite the turbulence in China, we’re actually seeing an increase in demand for U.S. real estate from Chinese buyers.

If you look at the chart above, in recent years, Chinese investment in U.S. residential real estate has actually doubled!

This shows that U.S. real estate is seen as a safe investment for Chinese investors. As China’s economic struggles continue, we’re likely to see even more demand from overseas, potentially driving up U.S. home prices.

Huge Week Ahead! 📅

There’s a lot of important data dropping this week! Here’s a quick look at what to watch for:

• Monday: Fed Chair Jerome Powell Speaks – Powell’s words are always closely analyzed for hints about future rate cuts, inflation targets, and the overall economic outlook. His remarks could have a big impact on interest rates.

• Tuesday: JOLTs Job Openings Data – A continued decline in job openings could signal a weakening economy and potentially push mortgage rates lower.

• Wednesday & Thursday: ADP Employment & Initial Jobless Claims – Employment data will be released on both days, with the potential for significant rate fluctuations depending on the numbers.

• Friday: September Jobs Report – The most important employment data of the week. Fewer jobs than expected could mean lower rates, while more jobs could drive rates up.

We’re also looking at 11 Fed speaker events this week. Fed members are likely to reiterate the need for more evidence of slowing inflation and a softening economy. Currently, the market expects the Fed to cut rates two more times before year-end.

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