Hi Reader,

The average 30-year fixed mortgage rate ended the week at 7.20%, up from 7.12% the prior week, according to Mortgage News Daily. Freddie Mac’s weekly survey came in at 6.95%, up from 6.76% the week before.

The big development last week was that the Federal Reserve raised the Federal Funds rate by a quarter of a point on Wednesday, the first time since 2023. The markets had already baked this in to some extent, as on Monday a week ago, the average mortgage rate was already at 7.17%, according to Mortgage News Daily.

Mortgage rates don't track with the Federal Funds rate, however

Mortgage rates are informed by but do not track with the Federal Funds rate.

When the Fed raises or lowers its rate, it changes the broader cost of money and sends a signal about how worried the Fed is about inflation or economic weakness. Bond investors react to that signal, and mortgage rates tend to move with the bond market, especially the 10-year Treasury, rather than moving point-for-point with the Fed.

There are a few important things happening underneath the numbers.

1. Inflation is still the problem the Fed is trying to solve.

Inflation expectations have cooled somewhat, but they remain above the Fed’s 2% target. Earlier in the week, one-year inflation expectations were around 2.5%, up significantly from below-target expectations in early August.

The 10-year Treasury (and mortgage rates) rose in part because the market does not yet believe the inflation fight is finished.

2. The bond market actually liked seeing the Fed take action

There was an interesting reaction after the Fed meeting. Longer-term yields did not explode higher. The 10-year moved only slightly, while the 30-year yield actually declined as investors interpreted the hike as evidence that the Fed is serious about bringing inflation back under control.

That is an important distinction for buyers: a Fed hike does not automatically mean mortgage rates rise by the same amount.

The bond market is trying to figure out what today’s Fed policy means for inflation and economic growth years from now.

3. Oil remains a wild card.

​Oil prices have also been moving closely with longer-term bond yields. If energy prices stay elevated, that can keep inflation concerns alive and maintain pressure on mortgage rates even if the Fed eventually pauses.

This morning, Brent crude futures were falling on hopes of diplomatic progress in the U.S./Iran war, amid evolving Saudi Arabia/Houthis developments.

And there is another wrinkle for real estate: higher borrowing costs make new construction more expensive to finance. Less construction can mean less future housing supply, which can continue supporting prices in markets that already have limited inventory.

Meanwhile, buyers are still buying

​Pending home sales actually rose 0.3% in August, even with higher mortgage rates, according to the National Association of Realtors (NAR).

They were still 4.7% below last year, so this is hardly a booming market. But buyers continue to enter contracts despite the rate environment.

The regional differences are particularly interesting.

The Northeast fell 4.2% month-over-month and the Midwest fell 1.6%, while the South and West posted increases.

NAR Chief Economist Lawrence Yun pointed out:

In other words: higher rates do not automatically mean falling prices.

And young buyers are going where the opportunity is

One of the most interesting housing trends right now is not simply whether people are buying, it is where they are choosing to live.​

​Redfin’s analysis found that both Gen Z and millennials are leaving some of the country’s most expensive coastal markets, including New York, but they are doing it for slightly different reasons.

Gen Z is chasing jobs and opportunity. Millennials are chasing space and affordability.

Texas is a major beneficiary. San Antonio was the top destination for Gen Z movers, while Austin and Dallas were also among the top five. Houston and Dallas were the two most popular destinations for millennials.
But many people are not moving across the country at all.

They are making short moves to more affordable markets nearby.

One of the most common Gen Z migration routes in the country was New York to Philadelphia, with 9,284 movers:

That is something I see as increasingly important in conversations with buyers.

It's not always, “How do I afford this exact house in this exact ZIP code?”

Sometimes it's, “Where can I build the life and financial position I actually want?”

That is also why I keep expanding where I can help

I truly believe in homeownership, not necessarily homeownership at any cost, and not necessarily in one particular market.

Sometimes the smartest financial move is staying in New York. Sometimes it is moving across the river to New Jersey, looking north to Connecticut, or heading to Pennsylvania, the Carolinas, Florida, Texas or Missouri for more affordable housing, more space, a new job or a different quality of life.

I am personally licensed in New York, New Jersey, Connecticut, Pennsylvania, North Carolina, South Carolina, Florida, Texas and Missouri, among other markets.

And now there is even more flexibility: GoRascal, the company I am brokered under, is licensed in all 50 states.

So if one of your clients is selling in Brooklyn and moving to New Jersey, New York to Philadelphia, or New York to Texas, I would love to help them think through the financing and what makes the most sense for their bigger financial plan.

Wherever clients are going, send them my way. I can make sure they are set up financially for success.

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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