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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Mortgage rates this week are most likely to continue hovering in their most recent range; however, it is notable that certain sectors of mortgage rates crept up in line with the 10-year yield (which rates most closely follow). If this is the first time you’re hearing this. The 10-year yield and mortgage rate directions follow one another relatively closely, closer than any other chart in fact. Therefore, for a general sense of How-did-rates-get-here and Where-are-they-going-next, the 10-year yield is a pretty reliable running mate. Remember that in the end, the mortgage-backed security market determines market rates and then all your personal qualifications, program type and features. If you’re looking for a general sense of where rates are going then you watch the 10-year yield, and if you are looking to find out what rates look like for your specific scenario then you need to contact your loan officer.

On a really short market week like this one there is a very low-level chance for there to be disruptions in the mortgage industry or mortgage rates. Although there is a lot of important economic data coming out the overall general consensus about the markets is that buyers have accepted the new interest rate ranges and have come to terms with the availability, or unavailability, of inventory depending on ones local market. Therefore, it is safe to assume that what we are experiencing on a week like this is most likely to continue for the next several weeks as we look into the end of the month towards the next fed meeting. THAT will be the next really important indicator of what the rest of 2023 will look like.

And as always it is most important that you stay connected to your loan officer. If you want to buy a house in 2023 or even in 2024 it is more important than ever that you get that process started early and develop a plan of attack that sets you up for the best buying experience possible. As we have begun to see in our local market in San Diego buyer demand is starting to cause more jockeying and positioning among qualified buyers, and sellers are able to take their pick from the litter. This means for every listing there are again, numerous offers being made, each of which could all close on a sale. But since only one can go to escrow that leaves all others back out on the path of House hunting right alongside you. So get a head start, make a plan, become super disciplined and close on that house you want!

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And now here’s a quick look at what we’re watching in the markets this week:

Monday: The ISM Manufacturing PMI comes out and has had a pessimistic reading each month in 2023. This weeks forecast won’t turn that around in just one month. And as we get deeper and deeper into the year the weight of this pessimism adds pressure to the recession conversations, whether we feel like we’re in one or not. In the end, manufacturing matters.

Tuesday: is the 4^th of July. Happy Birthday America! All banks and U.S. Markets are closed. Enjoy your day off if you get one 😊

Wednesday: The Fed meeting minutes come out, and there should be no dramatic changes in the notes that differ from what Jerome Powell stood at the podium and read aloud. Anyone interested in reading these notes will be scouring for any crumbs that indicate rate hike factors in order to try and get ahead of the Fed’s next moves.

Thursday: ADP Non-Farm Employment Change, JOLTS and Unemployment claims all come out. These ARE going to be closely watched because the Fed needs that labor market pain in order to justify ramping up rates still. We also get ISM Services PMI on this day. It’s the biggest day of the week.

Friday: We have Average Hourly Earnings month over month, Non-Farm employment Change, and unemployment rate. So it’s a short week, with a lot of future pacing data packed inside.

And that’s it for this week, like this video, Subscribe to the channel, and turn on notifications so you catch every episode.

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Mortgage rates this week are most likely going to continue to trend sideways, having it’s ups and downs in relation to which way the wind blows and market reaction to economic news, especially anything that relates to inflation – good or bad.

And here’s why, last week Jerome Powell spent 2 days on Capitol Hill. In remarks to the House Financial Services Committee on Wednesday, Jerome Powell cautioned that he and all other Fed members expect to raise interest rates further to bring down inflation. The only concession he made was that it appears the Fed won’t moves at the expedient pace they have since March 2022.

On one hand, they’re confident about their actions up until now, but maybe not SO BOLD as to think their work is done.

And I quote, “Given how far we’ve come, it may make sense to move rates higher but to do so at a more moderate pace,” which came straight from Jerome Powell during the question-and-answer session with committee members.

Here are some of the key points we’re watching closely as we creep closer and closer to their next rate and policy decision coming up in July.

• The Fed is likely to continue raising interest rates in an effort to cool the economy and bring inflation under control. But when they do this and how much they do this by it still up for grabs.
• The Fed is aware that there is a risk of a recession, but Jerome Powell said that the central bank is “strongly committed” to its dual mandate of price stability and maximum employment…which he’s been saying ad nauseum for many many meetings in a row.
• Jerome also repeated that the Fed is “not trying to induce a recession,” but that it is “prepared to do whatever it takes” to bring inflation down.
• And lastly, he acknowledged that the Fed’s actions to raise interest rates could have a negative impact on economic growth, but he said that the central bank is “laser-focused” on its inflation goal. Remember when he said there would be MORE PAIN AHEAD?…This is that same admission, but stated a little more nicely.

In addition to these key points, Powell continues to shrink its balance sheet, which has ballooned to over $9 trillion in recent years. He said that the Fed will continue to reduce its balance sheet by allowing some of its Treasury and mortgage-backed securities to mature without being replaced. Remember, these are the instruments that helped us have historic low rates in 2020 and 2021.

In general Jerome Powell’s testimony was met with mixed reactions from lawmakers. Some criticized the Fed for not doing enough to raise interest rates sooner, while others expressed concern that the Fed’s actions could lead to a recession….and they’re both right. Which reinforces our opinion we’ve been sharing with you: The Fed is Stuck. They know it. We know it. They know that We know it.

Overall, Powell’s testimony gave a clear indication that the Fed is serious about bringing down inflation, even if it means taking some risks to the economy. It remains to be seen how successful the Fed will be in its efforts, but Powell’s testimony suggests that the central bank is determined to do whatever it takes to achieve its goals.

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And here’s a quick look at what we’re watching in the markets this week:

Tuesday: Consumer Confidence reading comes our and New Home Sales data

Wednesday: Jerome Powell is slated to participate in a panel discussion at the European Central Bank Forum on Central Banking in Sintra, Portugal.

Thursday: Final GDP Quarter over quarter is expected to come in at 1.4% which is Lower than we’d like to see in a thriving economy, but this IS in line with Fed expectations. We also get unemployment claims and pending home sales. Pending Home sales is important as it shines a light on inventory which we desperately need and will likely have a light impact on overall rate policy for the time being.

Friday: is all about Core PCE, one of the Fed’s favorite measurements! Look for this number to be in positive territory still, which means inflation still has not flattened, but keep an eye open for a miss to the high side of low side. A miss to the high side could weigh in on a Fed rate hike possibility in July, and a miss to the low side could hint at a possible July Pause once again, in order to gather more data.

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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!