Mortgage rates were totally fine through Wednesday when Jerome Powell and the Fed gave their rate hike decision, policy statement, and press conference. Then on Thursday all hell broke loose in mortgage-backed securities and rates retested their most recent monthly highs…in just 1 single trading session. Thursday last week was uglier than the back side of a barn…c’mon did you think I was going to make a yo momma joke?!!? Friday was no easier, as the mortgage rate market ended the week significantly up as a reaction to the Fed’s admissions and approach, here’s what I mean.

At last Wednesday’s Fed press conference, Jerome Powell said the following:

• The Federal Reserve is committed to bringing inflation back to its 2% goal.
• The Fed has raised interest rates by 5.25 percentage points since March 2022.
• The Fed is likely to raise rates again at the September meeting if the data known between now and then justifies that choice, but it is also possible that they will hold steady. This demonstrates broad uncertainty…and that scares markets.
• The Fed is closely monitoring economic data to assess the need for further rate hikes.
• And The Fed is aware that raising rates could slow economic growth, but they believe it is necessary to bring inflation under control, and is the better of the 2 options. That OTHER option being long term inflation becoming embedded in the economy and harming much larger segments of the overall economy than some select segments for a shorter period of time. Bottom line, pain for some vs. pain for most.

But in addition to the carefully crafted prepared statements Jerome Powell made, I want to share a few quotes that caught my attention AGAIN!

• #1 The Fed is “acutely aware” that high inflation is causing hardship for many people. Good, Glad you know that…
• #2 The Fed is “highly attentive to the risks” that high inflation poses to the economy. Let me interpret “We hope this works”.
• #3 The Fed is “strongly committed” to returning inflation to its 2% goal. Or simply stated, we aren’t moving off target because we know that it would cause more questions than answers, so we need more time.
• #4 The Fed is going to make decisions “meeting by meeting” to assess the need for further rate hikes. Which means they are not confident enough at this point to know if they are done or not, which also admits that they may not be in control of inflation at all…which is what I really think the story is here.
• #5 The Fed believes that “moderate growth” and “supply and demand coming into better balance” are necessary to bring inflation down. True, but since they’re not directly in charge of that it’s a 2^nd or even 3^rd degree of influence that is taking a very long time to take effect. Even Jerome said it himself “The long-term impacts of inflation running too hot for too long are greater than that of the temporary labor struggles we might face in the interim. Failure to get inflation in control are greater social cost than unemployment.” Yikes.
• And as a bonus: in case you missed this doozy, when asked if they would begin cutting rates when CORE PCE gets at or around 3.0% He responded firmly, “We’re comfortable cutting rates when we’re comfortable cutting rates…and I don’t think that is this year.” Ouch. That’s VERY telling.

 

In Summary, the next Fed meeting in September will get quite a lot of attention. I think the markets are going to really hone in even harder on data that comes out between now and then specifically because the Fed is relying on that data to make their next policy decisions. I couldn’t help but notice a level of discomfort Jerome Powell had during this most recent press conference last week. It’s like he knows more than he can admit at the moment, and they’re hoping the data can lay cover for them over the next few weeks leading up to his next spotlight moment. It may look like there are numerous bright spots emerging amidst the swaths of economic pressure points; however, the admissions that we’re going to be in this for possibly longer than anticipated will ultimately spell even tougher times for hundreds of thousands or even millions of Americans over the next 24 months. Housing and will be no exception, but that’s where tenure, decades of experience, and staying power shine. Where having experienced rough times as a team before, makes us Veterans during challenging times in mortgage and Real Estate. So in case you think it’s all doom and gloom, these are also the times where prepared people Win, and they win big in the end. Ask us questions, seek feedback, lean into what we’re teaching you, and decide what’s BEST for you and your family to take advantage of this quickly changing landscape.

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And here’s a quick look at what’s coming up in the markets this week.

Monday: Marks the end of the month, and no big news will be released.

Tuesday:  We will get ISM manufacturing Prices and more importantly the JOLTS jobs openings report. And this is important because of what Jerome Powell said last week…employment is still TOO hot for them to back off rate hikes.  Yes, there are less openings now than there have been in the past few months BUT the demand for labor is still very strong.

Wednesday: The all-important ADP non-farm employment change will be released which will is an early look at employment expansion or contraction.

Thursday: Unemployment claims comes out along with ISM services PMI

Friday: Is the big dog this week. Average Hourly earnings month over month, Non-farm employment change, and Unemployment rate all come out together in the morning

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Mortgage rates were pretty neutral last week which is what we expected because it was the week leading up to what we call Fed week. That brings us to today – the week where we expect to hear from Jerome Powell about their interest rate decision, any changes to monetary policy, and then watch his Q&A session with the press afterwards. It is typical that in the week leading up to this particular week that mortgage rates are rather subdued because the markets are aware that any major move for the better or for the worse would be made on the eve of Fed week. Thus there is little sense to make wild adjustments in the days leading up to a fed decision like the one we will get this week.  For those of you that were looking to lock a loan this week Wednesday is potentially going to be the most volatile day of the week due to the Fed press conference and what they say about the state of inflation, the economy, the jobs market, whether or not this is their last rate hike, and if they provide any hints or clues about the timing of achieving their goals relative to how long it has taken to even get this far.

What I’m looking for on Wednesday is a quarter percent interest rate hike as well as a semi obvious tell that the Fed is going to pause any future rate hikes in exchange for more data collection over the next few months. This should allow them to more accurately measure whether their moves over the last year and a half have finally done enough to accomplish their stated outcomes of 2% inflation, restoring price stability, and tightening the labor market sometime in 2024 or 2025.  There’s still a lot of mixed opinions on whether or not the Fed will start cutting rates later this year, which I spoke about in last weeks episode, so go back and catch that if you missed it. If cuts were to happen, then all the data and charts they’ve been showing us this year would be rendered SO incorrect that I could easily justify never trusting them again moving forward. All this to say, some things are just not adding up. So this is where we find ourselves coming into this new week where the only way to get through it, it to go through it.

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And here’s a quick look at what’s coming up in the markets this week – And remember most, if not all of this is already known by the Fed coming into their policy statement and press conference Wednesday.

Monday: The Flash Manufacturing AND Flash Services PMI both come out.

Tuesday:  Consumer Confidence reading will be released.

Wednesday: Before the Federal Reserve fireworks we will see New Home Sales, which are forecast to be right at their current levels just above 700,000 units. And there’s no surprise here because new homebuilder sentiment and permits have both been up and on the rebound for quite some time. So this is the positive consequence of those moves having been made upstream a few steps. Hopefully this will continue to drive inventory to neighborhoods and eventually ease these shortages…we’ll see.

And then Jerome Powell will deliver the Fed’s rate decision, prepared remarks and take Q&A with the Press. We’re all expecting him to announce a quarter percent rate hike, and I would be surprised if he announces that it’s the final one. Based on his previous comments explaining that they need to remain data dependent and let their moves up to this point take their full effect, don’t hold your breath waiting for him to admit they’re finished…they keep telling us they’re nearing “wait-and-see” status.

The fun doesn’t stop on Wednesday because Thursday we get advanced GDP, unemployment claims, some durable goods data, and pending home sales.  All of which will mostly fall in line with the Fed’s remarks and posture on the previous day, or maybe even be cast into the shadows all together.

And finally on Friday we get he CORE PCE month over month, employment cost index and the revised consumer sentiment….this could have the potential to rock the boat at the end of the week, but that all depends on how much Jerome knows BEFORE Wednesday, decides to admit that he knows on Wednesday, and then whether they let the cat outta the bag by revealing any of these readings before are made official. Friday could actually be pretty telling when it’s all said and done.

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Mortgage rates got better last week but only returned closer to where they were 2 weeks ago. The mortgage rate story over the last year has been mostly about the Federal Reserve’s attempts to squash inflation and reduce their balance sheet. In the wake of that, mortgage rates have been on a tear upwards since last year and the month of July 2023 has seen more interest rates moves for the better and worse in relation to where everyone THINKS the puck goes to next. With the next Fed meeting right around the corner everyone is reacting super quickly to inflation and jobs data as THOSE TWO things weigh heavily on the Fed’s next decision more than anything else. And even the idea of inflation and jobs being inextricably linked might be weakening, because unemployment is still way lower than the Fed wants long term, but inflation is slowing in line with what they have been hoping to see. In short, it doesn’t look like the “strong labor market” is aiding inflation anymore, so how the heck will they get unemployment up to 4.5%?!?! That question…still remains UN-answered. Thus, like a sailboat stuck out at sea, mortgage rates continue to get whipped around by the influence of data dependent decision making coming from the powers that be.

The question that dominates looking forward is whether the Fed will pass on another rate increase at the next FOMC meeting? Of course, there are varying opinions but I believe the Fed will follow-through with what most Fed officials are indicating. There’s a 92% chance the Federal reserve will increase their rate at the next meeting, and the NEW change is July’s hike could be…could be…the final one. It will certainly take more data to support that theory; however, with both ears and eyes open I can’t ignore that there’s already been a few hints that THAT could be the case.

What has me scratching my head is the idea that Investors, traders, money managers, and markets think the Fed may begin lowering rates by the end of the year – They already said they would NOT be doing that.

So:

A) These people don’t believe the Fed is being honest.

B) These people think there’s something un-named lurking around that would cause the Fed to begin lowering their rate before end of year, or

C) they’re anticipating such great pain to the economy from the current rate impacts that a rate drop would be necessary to prevent an all out catastrophe.

So which one is it?… “D – ALL THE ABOVE”?!? This is honestly, so wacky!

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And here’s a quick look at what’s coming up in the markets this week:

Monday: Empire State Manufacturing Index

Tuesday: CORE Retail Sales and Retail Sales

Wednesday: Building Permits & Housing starts

Thursday: Unemployment Claims & Existing Home Sales

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Mortgage rates went up last week while you weren’t looking. It WAS a short week, but we still ended up taking one in the chin when it comes to rates. These 4^th of July markets weren’t playing around, and the release of the Fed meeting minutes confirmed what was already admitted by Jerome Powell – They see higher rates on the horizon. Thus, the markets followed suit and mortgage rates went up.

So now here we are again with a potential new interest rate range slightly above the most recent “sideways” range that we’ve been talking about for weeks. But before you start to worry about what that will do to the markets we have an interesting trend that seems to be emerging in real estate contracts these days – counteroffering that buyers provide a loan lock within 48 hours of the offer being accepted. There’s been a few examples of this I’ve seen so far, and I can rationally understand why sellers would want this level of security so that when accepting a buyers offer and taking their property off market, a lock confirmation could bring them confidence in the deals ability to close… especially during these upward swings of interest rates. The last thing you’d want as a seller is a buyer who cancels because the interest rate spits them out from affording the loan.

As we approach the weeks leading up to the next Federal Reserve rate decision, overall sentiment is brace and prepare for a rate hike, most likely 25 basis points, or 0.25%. All things considered, I have to think that the real estate and mortgage markets know that these upcoming moves are really the final nudges of policy, after a prolonged, yet consistent, march upwards that generated significant slow downs in demand compared to the years prior. And even when they do come to a stop in rate policy, the duration of holding their position will create a wake in real estate and mortgage all in the name of curbing inflation. How long DO you think it will take? I’ll go first….2025.

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And this week the markets are all going to be focused on inflation and jobs. Those are the primary indicators of what might already be a foregone conclusion of the Fed raising rates at their next meeting coming up at the end of this month.  And everything kicks off on Wednesday.

Wednesday: CPI Month over month, year over year, and Core CPI month over month. These will be watched super closely so that the Fed can have the data they claim they will be most reliant on moving forward in their decision making.

And the same goes for Thursday when we get Core PPI month over month, PPI month over month, and Unemployment claims. Again, these are super important data sets that will help gauge Fed decisions as they measure the impacts that policy is taking on the broader economy.

Friday we get the Preliminary University of Michigan consumer sentiment reading which has been surprisingly strong as of late (just don’t go checking the personal credit card debt chart that seems to be trending in the exact same direction…up and to the right).

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Thanks again for tuning in to Monday Mortgage Minute.

Remember to like, subscribe and turn on notifications so you see this show right when it posts each week.

Share this video with someone you care about so they can WIN in mortgage and real estate in 2023.

We’ll see you again next week!