Monday Mortgage Minute – A directionless future? #thefed #rates #mortgage #realestate #inflation

Last weeks Fed rate hike decision and press conference was mostly what we were expecting. Jerome Powell and the Federal Reserve increased their key interest rate by 1/4 percent which takes their new target range to 5.00% to 5.25%, which is in line with exactly what they said their average terminal rate of 5.1% would be in 2023…this essentially gets us there.

After issuing their decision and prepared statements Jerome Powell took several questions from reporters. A few instances he was talking out of both sides of his mouth saying that he believes there is still the possibility of a soft landing, while at the same time stating that the risk of inflation continuing at the same time unemployment rising is still a threat to the plan. The problem with answering one question a certain way to a reporter, and then answering that same question a different way with another reporter just a few minutes later causes confusion, and uncertainty which leaves us all feeling a little bit directionless. And that’s exactly the main takeaway from last week’s Federal Reserve press conference: I think they’re directionless.

You can’t come out and say the banking system is “strong and resilient” 2 days after another massive bank failure (First Republic Bank), then admit you had to make exceptions of current rules in place in order for JP Morgan Chase to acquire them. And it all happened over the weekend, so that on the reopening of business on the following Monday, depositers could access their accounts. (Noticing a pattern here?). Oh, and also, “Strong and resilient” isn’t how I would describe the system that the FDIC, the Fed, and the Treasury have all had to step in an assist, change rules for, and make back room deals with, in the face of imminent failure of really large banks. But sure keep telling the public “Strong and resilient” …sounds to me like this term will be the new “transitory”…where’d that theory go?…

At least they admitted that they have seen substantial slowing in the business and personal credit sectors, including real estate. This brings into question what will happen at the next meeting, and the meeting after that? The industry at large is left to sift through any clues and hints of what might be next day by day, and week by week, until there is a defined direction set forth by the markets as a result of fed policy making.

So what does that mean for mortgage rates Andy?

The Fed being directionless, means that the mortgage industry could probably become directionless for the duration of 2023. Will we see more strict lending, or an ease in lending? Will the Fed’s next meeting help or hurt the rate markets? Outside of an actual need to move, where will more listing inventory come from? Can we avoid mass foreclosures since homeowners can sell their house and access their equity if they are in personal financial duress? Doesn’t the resurgence of homebuying that we’re regionally seeing indicate that the price correction has run it’s course? There’s a lot of questions up in the air right now. Yes, these are always questions that we ask ourselves in mortgage and real estate; However, when there is so much broad uncertainty at the macro level these types of things become much more localized and hypersensitive in the micro markets of major cities, and San Diego is no exception.

And what about interest rates? You already know they’ve left us to our own devices since they stopped purchasing billions of dollars of mortgage backed securities that were keeping rates at historic lows for a very long time. Since they backed off their buying program, you all have seen rates, they rose and rose and rose, then stopped, came down from their most recent highs in the summer and fall of 2022, but have mostly sputtered around in 2023. And that’s what we should expect between now and the Next Fed meeting in June. Rates will continue to react positively or negatively within a tight range while we remain generally “directionless” economically. Just last week alone, rates declined Tuesday the day before the Fed meeting, declined Wednesday the day of the Fed meeting, wrestled around sorta stuck in place on Thursday, and BACK up again on Friday to where the whole week began. Which essentially leaves us exactly where we started off – AND ON A FED RATE DECISION WEEK. As a little dose of extra nerdiness, this week’s 10y yield (which mortgage rates closely follow) traded in the EXACT same price range as it did the week of the PREVIOUS Fed Meeting back on March 22. Interesting…)

If you are looking for any hints in the marketplace this week keep your eye on CPI that comes out on Wednesday and PPI that comes out on Thursday. Both readings will give us a sense of the most recent month over month and year over year inflation readings and it’s expected that they come in at or below their forecasted numbers. There is no big surprise if they do, but given how big last week was due to the Fed meeting, this week will be light on impactful news, at least for now. That being said we always keep our eyes on the markets and watch for anything unexpected that could cause disruption. Right now it’s BOTH eyes open…ALL THE TIME!


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