Hi Reader,

The average 30-year fixed mortgage rate ended the week at 6.74%, down from 6.83% the prior week, according to Mortgage News Daily. Freddie Mac reported an average rate of 6.69%, up from 6.66% the week before.

(Mortgage News Daily reflects daily market conditions, while Freddie Mac reports a weekly average based on rates collected earlier in the week, so its numbers tend to lag the market and often differ.)

Highlights - why rates moved down a bit

The bond market spent much of last week balancing two competing forces: concerns about inflation and signs that the labor market is weakening.

1) A weaker jobs report finally gave rates some breathing room

Job openings declined. Private employers added only 44,000 jobs in July, well below the 75,000 expected by economists. Those numbers pushed Treasury yields modestly lower (and with them, mortgage rates), although some Federal Reserve officials continued to signal concern about inflation and the possibility that rates may ultimately need to move higher. ​

The biggest move came Friday. The economy unexpectedly lost 23,000 jobs in July, versus expectations for an 83,000-job gain. Even more significantly, revisions erased another 103,000 jobs from May and June. The 10-year Treasury yield fell to about 4.66% for the week, as investors became less worried about the possibility of another Fed rate increase in September.

The interesting wrinkle is that unemployment actually dipped to 4.1%, partly because more people left the labor force.​

2) Oil prices continue to drive the inflation conversation

Early in the week, Treasury yields (which mortgage rates track alongside) moved lower as hopes grew for a diplomatic agreement that could reopen the Strait of Hormuz. Oil prices fell sharply, easing some of the inflation concerns that have been keeping pressure on interest rates. On Monday alone, oil fell 5%, while the 10-year Treasury yield dropped to 4.684%.

​This morning, however, oil prices are up due to news of a possible stalemate in the Iran/U.S. negotiations. And, U.S. Treasury yields are up off the low of last week:

The main message for buyers: the economic picture is getting softer. When the economy is soft, mortgage rates often fall. As examples of this, the two lowest mortgage rate periods ever in history were during the Great Recession and during Covid. But, the economy isn't giving us a clean "rates are definitely headed down" signal.

Inflation, particularly anything that pushes oil prices higher, is still keeping upward pressure on rates. At the same time, weakening employment is pulling in the opposite direction.

That tug-of-war is a good explanation for why mortgage rates continue to move around rather than decisively breaking lower.

The housing market is increasingly becoming two different markets

​Zillow released a fascinating report showing just how differently the starter-home and luxury markets are behaving.

Nationally, starter-home inventory is up 4.5% from a year ago, while sales are down 5.4%. One-quarter of starter-home listings had a price cut in June.

At the same time, luxury inventory is down 5.2%, while luxury sales are up 6.2% year over year.

In other words, the part of the market where buyers are most financially stretched is becoming more favorable to buyers, but many of those buyers are not taking advantage of it.

Meanwhile, buyers at the top of the market are moving ahead.

Zillow attributes some of that divergence to the broader economy. Rising everyday costs and a softer employment environment are weighing more heavily on starter-home buyers, while stock-market gains have strengthened purchasing power for higher-income households.

And there may be an opportunity hiding inside those numbers.

Starter-home buyers currently have more inventory, more price reductions and less competition. The obstacle isn't necessarily the housing market itself. It's getting financially prepared enough to act.

That's where good mortgage planning becomes particularly important.

For first-time and starter-home buyers, discussions that are particularly important to have are:

1. Figuring out what they can comfortably afford
2. Identifying the right loan structure
3. Understanding how much cash they actually need
4. Strengthening the areas of their financial profile that need work
5. Creating a roadmap so they are ready when the right property appears.

Because if starter homes are sitting longer and sellers are becoming more negotiable, a prepared buyer may have considerably more leverage than they realize.

At the other end of the spectrum, financing a luxury purchase is an entirely different exercise.

For higher-net-worth buyers who choose to use a mortgage, the question is rarely simply, "How much can I qualify for?"

It is often: How much should I finance?

That's where it becomes important to:

1. Work through "invest vs. larger down payment" scenarios
2. Loan structures, rates and liquidity scenarios, often in tandem with a client's investment advisor, so the mortgage fits into the larger financial strategy rather than being considered in isolation.

Two very different buyers. Two very different mortgage conversations.

And increasingly, two very different housing markets.

On a personal note, if you are feeling the heat, just remember it's only four months until the holidays (!) One of my dogs took part recently in a "holiday in July" photo shoot for charity posing in Christmas and Hanukkah scenes.

I hope your week is off to a great start!

-Nicole

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Nicole Hamilton Bernheimer | NMLS #2354049

nicole@homeownering.com, 917-650-0167

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