Mortgage rates had a pretty rough go about things last week. There was a significant spike in rates to begin the week and then things settled down more towards the end of the week. But the wild volatility is what we have been talking about for a very long time and it is what everyone should be expecting for the weeks and months ahead. If you missed our previous conversations regarding the relationship of mortgage rates and the mortgage-backed security market to the 10 year yield, it is a great indicator of where we are going based on where we have been. Given the fact that the Federal Reserve is trying to fight inflation, restore price stability, and increase unemployment, the forecast is for more volatility not less.

This week will be no exception as we are coming off of the BRICS summit as well as the Federal Reserve’s Annual Jackson Hole symposium both of which had bombshell announcements. As for the BRICS summit they made even more progress last week by adding 6 new member countries to the group in their effort to advance a new basket of currency exchange separate from the US dollar. So what will happen to the dollar? Only time will tell, but as for now a new competitor is warming up in the bullpen.

As for the Federal Reserve, last week’s Jackson hole symposium really overshadowed a lot of last week’s economic data releases. In summary last week’s Jackson Hole symposium revealed that Jerome Powell and the Federal Reserve are still concerned about inflation and went as far to call inflation “too high” and warned that “We are prepared to raise rates further” This should come as NO SURPRISE to those of you paying attention. You would have to literally ignore what they’ve been telling us to think there’s a Pivot on the horizon, let alone rate cuts by the end of year. Aside from a catastrophe of some sort that mandates a knee jerk course correction…it’s not gonna happen people!

While acknowledging that progress has been made, the central bank leader said inflation is still above where policymakers feel comfortable. The speech resembled remarks Powell made last year at Jackson Hole, during which he warned that “some pain” was likely as the Fed continues its efforts to pull runaway inflation back down to its 2% goal. A strong economy and decelerating inflation also give the Fed room to “proceed carefully” at upcoming meetings. All of which is short code for we have more rate hikes in the tank if things don’t start to get better for us. Be forewarned and ready for the September meeting, it will be watched very intently by the markets.

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So with that, let’s take a quick look at what’s coming up in the markets this week.

Tuesday: We get the S&P Case-Shiller House Price Index (HPI) which began this year in the positive, but then turned negative starting May 2023…and to this day remains in the negative with yet again another month of negative reading expected this week. If it does come in negative it will mark the 4^th month in a row. Not to be outdone, Consumer confidence reading and JOLTS job openings also come out.

Wednesday:  We get ADP non-farm payroll employment change, preliminary GDP and pending home sales. This set of releases is important leading into September because the Fed had previously told us that they are closely watching inflationary and jobs related data in order to drive their decisions moving forward.

Thursday: Core PCE and Unemployment claims both some out, once again adding more data to the stack to help the Fed come to their conclusions about whether to Hike rates in September or pause.

Friday: Marks the beginning of the new month where we will see Average Hourly earnings month over month, non-farm employment change, unemployment rate, ISM Manufacturing PMI and ISM Manufacturing Prices.

This is yet again a jam packed week of data the Fed needs and WE NEED to gauge the pulse of what to expect leading up to the September Fed meeting.

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Mortgage rates were up last week. This is sorta par for the course right now as bond traders, investors, Central banks and governments grapple with inflation, the reality that monetary policy may have to remain in place for longer than they initially intended, and remain at elevated levels. It’s become abundantly clear that there are no rate cuts on the horizon and if there’s another pause it’s not totally because everything is turning the right direction swiftly. It took us a long time to get here, so it’s gonna take us a long time to get out of this. It’s creating the perfect storm of trying to fix a problem on this side while allowing certain problems on the other. And right now mortgage rates are in for some continued pain in the weeks and months ahead, because they’re on the side of things that are semi-sacrificed while we battle the inflation headwinds.

As we near the end of summer and turn our focus into the fall, housing data and statistics aren’t historically on the side of a super strong real estate market in the months coming up. In fact, one recent report from Altos research revealed that available inventory in 2023 is the second worst it’s been in the last 6 years, only second place to 2021, when most of the nation was still hunkered down trying to avoid moving by all means necessary. So this chart of available inventory signals that we are in for fewer existing homes hitting the market this fall, which then means values are most likely to stick right where they’re at. And with no substantial mortgage rate correction to the downside, it could be choppy waters for some communities. Buyers who are serious will still be able to find a desirable place, but it will be their persistence and grit that gets them into a home, not just their qualifications.

Remember the Philly Fed Manufacturing Index I told you about last week and how it could come in with its 12^th consecutive month in the negative?  Well to most people’s surprise it came in with a positive +12 reading, which was nice to see. Not only did it break it’s 11-month streak in the negative, but the distance from the previous months reading of -13.5 to +12 marks a pretty health resurgence. But wait, you know what surprised on the ugly end of the news last week? The Empire State Manufacturing index, which missed by a Lot! It missed BIG TIME! The expectation was -0.9 reading, and it was -19. So now we have BOTH of these to look at to forecast the health of manufacturing as it relates to overall economic health, productivity, and GDP – which all weigh in on the data the Fed’s watching leading up to their next meeting in September.

And about those FOMC meeting minutes that came out last week. In summary, the Fed is still worried about an upside risk to inflation and that a failure for inflation to recede is possible. This goes hand in hand with the revelation that only a few fed members admit they see an end to tightening. So here we go again, all the market speculation about a Pivot, an end to the Fed raising rates, and possible rate cut by the end of 2023 are ALL out the window. By the way, if you’re new to this show, we TOLD you this. Months ago the Fed signaled on their own charts that they don’t envision rate cuts until 2024 at the earliest. So please don’t act surprised that numerous Fed members aren’t on board with what the TV market analysts are calling for…that’s just a case of the tail trying to wag the dog.

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So with that, let’s take a quick look at what’s coming up in the markets this week.

Monday: There’s no data coming out

Tuesday: The BRICS Summit begins, For those of you who have had your eyes on the emergence of a new joint currency, it’s actually been underway for well over a decade, but only recently begun to get more attention as it’s making some people fear that it will make a move against the dollar even harder than it is already this early on in it’s lifespan. We also have 3 Fed members speaking ahead of the annual 3-day Jackson hole symposium that begins later this week.

Wednesday: Flash Manufacturing & Flash Servies come out, along with New Home Sales. I’m personally hoping for healthy signs out of all these reports – we could honestly use more good news as often as we can get it.

Thursday: Unemployment claims will be released, another Fed member speaks, and the 3-day Jackson Hole Symposium kicks off

Friday: 2 more Fed members speak, Revised Consumer sentiment is released, and Fed king Jerome Powell will speak about the economic outlook from the Jackson Hole Symposium.

This week is wall to wall jam packed with data the Fed needs and WE NEED to gauge the pulse of what to expect leading up to the September Fed meeting.

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As we expected, last weeks inflation and housing data would be center stage as everyone anxiously awaited the results of our progress, or lack there of, against inflation. And with CPI and PPI data coming it right about where it was projected to – we learned that inflation is still healthfully in the positive. And to add insult to injury, unemployment isn’t heading up as fast as the Fed needs it to, which sets in motion another round of guess work heading through the month of August.

Look no further than that these 2 Fed members had to say last week:

Federal Reserve Bank of Philadelphia President Patrick Harker said the US central bank may be able to cease interest-rate increases, barring any surprises in the economy, though rates would need to stay at their current elevated levels for some time ß So how long will that be anyways….no timeframe means it’s not safe enough to even guess…and THAT should tell you something.

“Absent any alarming new data between now and mid-September, I believe we may be at the point where we can be patient and hold rates steady and let the monetary policy actions we have taken do their work,”

Speaking elsewhere on Tuesday, Richmond Fed President Thomas Barkin argued it was too soon to say whether another rate increase at the Fed’s next meeting in September would be appropriate ß Well ya…you all said you’re gonna remain data dependent, and you DEFINITELY need more data, cause this week’s info ain’t gonna cut it.

“I’m leaning toward waiting until September to decide. We’ll get two labor reports and two inflation reports. I don’t see any reason to pre-judge. Should we be at that point where we can hold steady, we will need to be there for a while,” Harker said in his speech. “I do not foresee any likely circumstance for an immediate easing of the policy rate.”

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So with that, let’s take a quick look at what’s coming up in the markets this week. We only get pertinent data on 3 days this week starting off with

Tuesday:  Core Retail Sales, Empire State Manufacturing Index, Retail sales Month over month

Wednesday: Is a really important day for mortgage and real estate when we get Building permits, housing starts, and the FOMC Meeting Minutes. We’re hoping for no big surprises here, but like we have warned before…when the Fed releases their minutes, trust that all interested parties are going to scour through those notes for ANY hints of what could be coming next. If there’s nothing tipping off what the Fed will do next, then any hype about these notes coming out will be all for naught.

Thursday: Unemployment claims comes out which everyone will be looking at since jobs data is a key factor the Fed is data dependent on, in order to make their next rate hike, or rate pause decision. And also Thursday is a report we don’t often talk about on this show, called the Philly Fed Manufacturing Index. And the reason we’re bringing it up this week is because if it brings a negative print this month, it will mark the 12^th consecutive month in negative territory. You heard that right, this index has had a  negative reading EVERY MONTH since September 2022. Every month since then was projected to be negative and has been reported out as negative. This is a Survey of about 250 manufacturers in the Philadelphia Federal Reserve district and asks respondents to rate the relative level of general business conditions.  Anything above 0 indicates improving conditions, and anything below 0 indicates worsening conditions. This week’s reading is expected to be -13.5….Whiiiiiiiiich is also what last months ACTUAL reported reading was. Although this is only a microcosm of ALL manufacturing conducted in our nation…it’s an ominous sign. It may not make the top of the headlines in the news, but pay attention to what this means if this losing streak continues for even longer.  Quick historical footnote, I went back as far as I could in preparation for today’s show….and going back all the way to 2010, in the past 12.5 years there’s never been more than ­­­5 consecutive months of negative readings, which happened back in 2012…and even during the Spring & summer of 2020…the worst it got was 3 consecutive monthly negative readings….Three.

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Mortgage rates we’re on a total roller coaster last week up and down then up and up and up and down. There were a few market impacting events that happened during the week but those weren’t the main influences on the mortgage market That came with a heavy slew of jobs related data which is the very thing that Jerome Powell and the Fed have their eye on from now until their next meeting in September. Then we follow that up with this week’s upcoming economic data which will be several fed members speaking at various events, and inflation data trickled out throughout the week. So as much as I would like to say that last week could have been the most volatile we’ll see for a while, it probably won’t be, This week because this week could be just as volatile or even more volatile.

As you have heard me explain in the past when it comes to monitoring mortgage rates and its association with the 10-year yield we saw the 10-year yield breakthrough 4% and stay above 4% throughout all of last week. Inevitably this means that elevated mortgage rates will most likely stay this way until there is a dramatic turn for the better in the 10-year yield market as well as the mortgage-backed security market. Until we see that happening there is no honest way for me to advocate that lower mortgage rates are on the horizon. Therefore, if you’re looking to buy or refinance, what you see is what you get, and it will remain this way for quite some time.

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

Monday: A couple of Fed members speak.

Tuesday: We get some wholesale inventory data what will tell us whether supply constraints are easing or worsening.

Wednesday: Crude Oil Inventories, 10-year bond auction

Thursday: CPI month over month, CPI year over year, Core CPI month over month, unemployment claims. This and Friday are going to be the MOST critical of this week…and likely the rest of this month.

Because on Friday: we get Core PPI month over month, PPI month over month, and preliminary Consumer Sentiment. So as you can see CPI and PPI data will RULE the WEEK. Hold on Tight!

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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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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!