Finimize - 📉 Mortgages are cheap(er) again

What’s going on here?

Reports out this week showed signs of US housing activity coming back to life.

What does this mean?

Sky-high mortgage rates have been putting Americans off the housing market, forcing them to forgo the dream of a yard and swing set for a little longer. But with the Federal Reserve hinting at potential rate cuts next year, investors have been buying up Treasuries to lock in the benefits of higher rates before they go. That’s been lowering their yields, and because mortgage rates tend to mirror the bond market, it makes sense that mortgage rates just hit their lowest since June after a five-week slide. So now, Americans have been lining up outside open houses again. Plus, housing construction is up, sales of pre-owned homes have picked up from a 13-year low, and builders are feeling optimistic about future business.

Why should I care?

Zooming out: It’s tarot time.

Economists don’t book psychic appointments: they use the housing market as their crystal ball. Stats like home sales, building permits, and house prices indicate how the economy as a whole is faring – and the latest promising signs are backed up by December’s US consumer confidence rising by the most since early 2021. So with the housing market seeming stable and Americans feeling financially confident, it’s no wonder Goldman Sachs pumped up its economic growth predictions for the last quarter of this year.

The bigger picture: London’s crying.

Homeowners in Britain won’t be quite as cheery, mind you: the average UK home turned 1.2% cheaper between this October and last, the quickest fall in over a decade. The steepest price drops are happening in the capital, too, with folk swapping London life for cheaper, roomier abodes elsewhere. But since the country’s inflation started falling in line in November, the Bank of England may start feeling the pressure from testy homeowners to cut its 15-year-high interest rates.

What’s going on here?

Attacks on cargo ships in the Red Sea fueled concern for supply of oil and goods.

What does this mean?

Yemen’s Houthi movement intensified attacks on fuel tankers and cargo ships in the Red Sea, sparked by the ongoing conflict in Gaza. That’s big: the Red Sea links some of Europe and Asia’s biggest traders. In fact, around $1 trillion worth of goods – that’s 12% of all global trade – pass through the canal every year. The US has already pulled together an international naval task force and scoped out military options in response, but the Houthis movement seem undeterred. The group has threatened further retaliation if the US calls on that force, and it has a track record of following through: previously claimed attacks include drone strikes on major oil facilities in Saudi Arabia.

Why should I care?

For markets: Goldman says relax.

The attacks also pose a risk for all-important oil, which is why major shipping companies like BP, MSC, and Maersk are suspending some routes and taking the long way round instead. And because the 100-plus ships that are taking the scenic tour around Africa will cost more and take longer to arrive, the effects may be seen in higher oil prices – a catalyst for inflation. But rest assured: Goldman Sachs thinks the longer-term effect on oil and gas prices will be capped, predicting prices will rise by only a few dollars per barrel in the worst-case scenario.

The bigger picture: Fail to prepare, prepare to hurt.

Brace yourself for 2024: international relations are already heady, and that’s before a record-breaking two billion voters from 50 countries head to the election polls. Sure, the effects of political changes and geopolitical shocks level out over time, but global volatility remains one of the biggest risks for investors in the shorter term. You’ll want to fortify your portfolio in advance, then, whether that be through more diversification or safe-haven assets like gold.