Rocket Fuel Newsletter – 09/30/2024
China sees the U.S. Fed rate cut and adds one of their own.
This week’s edition has home sales, global rate cuts and your very own guide to interpreting the oft-mentioned “yield curve” – which can help you anticipate changes in the economy.
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Major Housing Metrics Released
Existing home sales fell by 2.5% in August, more than expected. Meanwhile, housing starts rose by 10% and building permits by 5%, as low inventory continues to support prices, even though higher interest rates have dampened demand.
Global Impacts Of The Fed's Rate Cut
The U.S. Federal Reserve reduced interest rates by 50 basis points, raising some concerns that the Fed may believe the economy requires additional support.
China’s rate-cut moves have been called “eye-popping” and “a day to remember for China’s monetary policy.” They cut central bank rates, mortgage rates and bank reserve requirements; included forward guidance for further cuts; and put in place programs to support stocks and encourage purchases of empty homes and buildings.
What's Behind The Drop In Consumer Confidence?
Consumer confidence unexpectedly dropped to 98.7, the largest decline in 3 years, as consumers anticipate the next 6 months (81.7) to be worse than the current situation (124.3). The primary reason for this decline is the same one the Fed cited when cutting rates: The labor market continues to weaken.
Yield curves: a leading indicator of the economy.
When economists or financial experts talk about the health of the economy, one tool they often refer to is the yield curve. But what exactly is a yield curve, and why is it so important? Simply put, a yield curve is a line that plots the interest rates (or yields) of government bonds with equal credit quality but differing maturity dates. It’s a basic visual that speaks volumes about investor sentiment and economic expectations.
The yields plotted on the yield curve are not determined by any single entity. Rather, it’s a natural result of market dynamics, influenced by supply and demand for bonds, Federal Reserve policies and market sentiment.
There are three main types of yield curves: normal, inverted and flat. In a normal yield curve, long-term bonds have higher yields than short-term bonds, signaling healthy economic growth. In contrast, an inverted yield curve shows that short-term bonds offer higher yields than long-term ones, often foreshadowing a recession. Finally, a flat curve suggests economic uncertainty, as short- and long-term yields are quite close.
Source: Britannica Money
Yield curves are useful because they provide insight into future economic trends. When investors expect a slowdown, they seek long-term security, driving down long-term yields and potentially creating a flat or inverted yield curve. Historically, an inverted yield curve has been a reliable signal of a recession, typically occurring 6 months to 2 years before the downturn.
The yield curve has been inverted for about 20 months, which is unusually long by historical standards. Despite last week’s rate cut – the first since March 2020 – the yield curve has stayed mostly unchanged so far.
U.S. Treasury yield curve
Source: US Treasury Yield Curve
What does this mean for the economy? Some economists expect a slowdown late this year or early next. However, if a recession does occur, it could be a "soft landing"– a mild recession where the economy slows without a severe impact. The prolonged yield curve inversion may have given businesses and the government time to prepare and adjust, potentially leading to a gentler downturn.
Understanding the yield curve can help you stay ahead of economic changes. While it is not a perfect predictor by any means, the yield curve has shown time and time again that its shape can offer insights into what’s coming next. So, whether you’re in the mortgage industry, an investor, or simply curious about the economy, keep an eye on the yield curve – it may just tell you more than any headline.
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Victoria Viorde, Dream Path Mortgage (pictured with Gabby Marinelarena (left)
What do you wish you knew when you got started?
The importance of attending closings. It is such a feel-good moment to be there and put a face behind the name for some clients who you worked with over the phone. It goes a long way. The reason I started to attend my closings was because I read about it in a past Partner Spotlight.
What’s your favorite thing about being in the mortgage industry?
Being an instrumental part of the home buying process and specifically a first-time home buyer.
What’s your market niche?
I will say it is not my niche right now, but I would like my niche to be VA loans. Veterans are my favorite clients to work with.
What are you most proud of within your business?
That I built it myself. I took a leap of faith starting this business and seeing where I am now after 2 years, and the amount of people impacted because of the decision I made, I am very proud of [that].
Why Rocket ProSM TPO?
Simplicity is genius. From signing up as a partner compared to other lenders to the technology in the portal. Every lender I worked with everything was so busy and complicated.
Last week featured another tough puzzle with some excellent times. Congrats to our leader at 22 seconds, as well as the nine others who finished in less than a minute!
This week’s puzzle gets 2 Rockets out of 5.
