Mortgage Rate Watch
What Debt Ceiling? And Who's Lying About The Jobs Report? Fri, 02 Jun 2023 22:40:00 GMT
After dominating the news cycle for weeks, the debt ceiling issue is suddenly resolved and the bond market doesn't seem to care. The jobs report proved to be far more relevant, but with half of it indicating a much stronger labor market and the other half saying the opposite, who's telling the truth and why did rates only pay attention to the bad (good) news? Let's take one paragraph to put the debt ceiling to bed.  Last week's newsletter went into more detail on its relative unimportance--now confirmed by the absence of any major reaction after this week's Senate passage (and imminent signing this weekend).  The following chart is potentially confusing, but it attempts to show one line that only cares about non-debt-ceiling stuff (the green one), one line that cares a great deal about the debt ceiling (the red one), and finally, the blue line of 10yr yields to serve as a proxy for longer-term rates.  Bottom line: if the blue line correlates more with the green line, the debt ceiling wasn't a big deal for rates. On to the jobs report!  This month's installment showed much stronger job creation with payroll counts at 339k and more than 90k of upward revisions to the last 2 months.  Analysts were expecting less than 200k.  Super strong! This month's installment also shows the unemployment rate ticking up to 3.7% from 3.4% last time, handily outpacing the 3.5% forecast.  Occasionally, movement like that happens when the labor force participation rate changes, but it was perfectly steady this time.  In other words, this is the opposite of super strong!
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Mortgage Rates Quickly Down to 2-Week Lows Wed, 31 May 2023 20:43:51 GMT
After hitting the highest levels in several months last Friday, mortgage rates have fallen fairly quickly in the new week.  As bond markets improved this afternoon, many lenders were able to make mid-day adjustments.  That brought the average top tier 30yr fixed rate down to the lowest levels since Thursday, May 18th (not QUITE 2 weeks, but close enough!). The credit for the rate reversal is multifaceted.  The move began in Europe where friendly inflation data added to an even sharper drop in rates.  As is often the case, European rate momentum has an effect on US rate momentum.   Traders are also feeling more confident about re-entering the market for US Treasuries--the foundation of interest rates in the US--as the debt ceiling debate progresses.   If there's one important takeaway, however, it's that the next big move for rates remains up for debate.  Upcoming economic reports will set the tone for the Fed meeting in 2 weeks.  Several Fed officials commented that they were thinking about "skipping" a rate hike at the upcoming meeting.  Others have recently said they would like to hike again.  Both sides of the debate may change their minds by June 14th, depending on the data.   The Fed doesn't directly set mortgage rates, but when a Fed rate hike is hotly debated, the Fed's decision can have a bigger impact than normal.  Moreover, the market will be trying to adjust to what it perceives as the Fed's likely course of action based on the outcome of economic reports between now and then.  The only surefire bet is for more volatility.  It has just happened to be friendly volatility so far this week. 
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Rates Drop Sharply to Start The New Week Tue, 30 May 2023 20:19:31 GMT
The past 2 weeks were fairly rough for fans of low mortgage rates.  The average lender moved higher at the fastest pace since February over that time.  By the end of last week, the average lender was back above 7% for a top tier 30yr fixed scenario (and "well above" on Friday). What a difference a weekend makes.  While we're nowhere near the lower levels seen several weeks ago, the bond market (which underlies rates) was able to recover all of the losses seen on Thursday and Friday as well as a small portion of Wednesday's to boot.   Mortgage lenders responded accordingly, dropping rates back in line with the levels seen at the beginning of the week.  This brings the average lender just under 7% for a top tier 30yr fixed scenario.  As always, keep in mind that rates are most frequently offered in 0.125% increments.  That means rate quotes are 6.875 to 7.00% in the most common cases, but more than a few lenders are outside that range as well.
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Do Rates Care About Debt Ceiling? Fri, 26 May 2023 19:45:00 GMT
It was nearly impossible to avoid news regarding the debt ceiling this week, but how much does it actually matter? Let's make sure we're on the same page first.  What follows are a few NON-POLITICAL thoughts on the debt ceiling, which is different than a "default."   The debt ceiling has to be increased periodically in order for the US government to borrow enough money to fund day to day operations.  There's theoretically a point at which the government doesn't have enough money to make payments that it had already agreed to make in the past.  That money can come from the issuance of Treasury debt (i.e. borrowing) or from sources of revenue (such as taxes). In that theoretical scenario, the US could default on its obligations and that would be incredibly serious.  A missed payment on Treasury bills, for instance, could cause major fallout in financial markets.  It has never happened and is all but guaranteed to not happen this time either. We can't know with certainty exactly how long the government could make ends meet if it really had to, but it's certainly longer than claimed, regardless of any drop dead dates you may see in the news. That leaves us with what is mostly an exercise in political theater and/or brinksmanship on both sides of the aisle (no value judgments in this newsletter, ever).  Despite that, some traders take logical, defensive measures JUST IN CASE this happens to be the time where we finally see a default (even if it's very temporary and heavily qualified).  
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Mortgage Rate Highest in More Than 6 Months Thu, 25 May 2023 20:34:57 GMT
It was bad news but big news a few days ago when the average top tier 30yr fixed rate made it back to 7% for the first time since early March.  After trying to stage a modest recovery yesterday, the pain continued today. The bond market (which dictates day to day rate movement) is experiencing more volatility than normal due to the debt ceiling debate.  It's causing traders to be more defensive than they otherwise might be heading into the holiday weekend.  The average lender was almost right in line with 7% over the past two days, but moved up closer to 7.125% today.  That's the highest since November 9th, 2022. Tomorrow's PCE inflation data could cause more volatility, for better or worse, depending on the results, but true healing would require downbeat data in the week ahead.   [thirtyyearmortgagerates]
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Mortgage Rates Start Lower But End Higher Wed, 24 May 2023 20:43:18 GMT
Wednesday was a fairly volatile day for mortgage rates.  The movement wasn't extreme, but there were a few lead changes.  The day began with the average lender offering just slightly lower rates compared to yesterday.   As the day progressed, bonds began to lose ground.  Bonds dictate rates and when they lose ground, it refers to lower prices and higher yields/rates, all other things being equal.  The losses were ultimately enough for most lenders to change rates in the afternoon, bumping up to levels that are just slightly higher than yesterday afternoon's.  Lenders who did NOT change rates today would have more of an implied increase to deal with tomorrow morning based on the bond market's suggestions--assuming that tomorrow morning's bond market looks about like it does right now. The average lender is still over 7% for a top tier conventional 30yr fixed.  
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Mortgage Rates Move Back Above 7% Tue, 23 May 2023 20:58:08 GMT
Today's headline is the most dramatic part of today's story on mortgage rates.  The average top tier 30yr fixed rate has been mostly operating in a 6-7% range since September 2022.  There were several weeks in the low to mid 7s in Oct/Nov and a few days in early March.  Then the mini banking crisis unfolded and ushered rates to the bottom of the range.  Ever since then, 7% has been working it's way back to you, babe. Credit the progressive improvement in bank sentiment, mixed but resilient economic data, and a Federal Reserve that has been steadfast in its reminders about their "higher for longer" rate mantra.  The debt ceiling debate is ongoing background noise, and while it may cause intraday volatility, it isn't something that will provide any lasting interest rate momentum, for better or worse. Rates were already quite close to 7% yesterday and today merely provided a gentle nudge.  Interestingly enough, the underlying bond market currently suggests lenders would be able to drop back below 7% tomorrow, but only if current trading levels hold until then (they almost never do). [thirtyyearmortgagerates]
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Mortgage Rates Approaching 7% Again Mon, 22 May 2023 20:36:59 GMT
There are some broad rate surveys/indices that show 30yr fixed mortgage rates under 6.5% or close to it, but it's a bit of a mystery as to how such a thing could be justified--even after accounting for the typical lag between weekly surveys and our daily records. Indeed, most of the past week saw the average top tier rate at 6.625% or higher for the average lender.  And as of today, we're painfully close to 7.0% again.  To be fair, we were already close to 7.0% on Friday.  Most lenders didn't move much higher since then, and many lenders were already there. As always, keep in mind that we're talking about top tier scenarios with no additional upfront costs due to FICO/LTV.  And just because it bears repeating in light of some of the atrocious journalism on the topic, keep in mind that the best loan pricing is still reserved for those with the highest credit scores (many news sites continue to get this wrong, sadly).  What's behind the spike?  In general, the market is coming to terms with the possibility that the Federal Reserve may not have been that off-base over the past few months as it has maintained the need to keep rates "higher for longer."  Recent economic data has confirmed more economic resilience (and more inflation persistence) than initially expected after the Fed's last forecast update in March. The true trajectory of rates will depend on additional economic data, with the more important reports not coming out until the first 2 weeks of June.
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A Ceiling That Actually Matters Fri, 19 May 2023 20:24:22 GMT
The debt ceiling debate is all over the news, but it's a different ceiling is commanding more of the bond market's attention.  Still, we wouldn't say the debt ceiling is irrelevant, so let's take a brief moment to address its implications for the housing and mortgage markets. The most direct effect of the debt ceiling debate is a general ebb and flow of risk sentiment in the market.  If it's resolved without issue, investors may be slightly more interested in buying stocks and selling bonds.  The latter puts upward pressure on interest rates and it was the general theme this week. The 10yr Treasury yield is a good benchmark for rate momentum.  Some of this week's upward momentum may be attributed to potential progress on the debt ceiling, but we really didn't see any compelling evidence that traders were on the edge of their seats over political drama.  It would take a true "default" on US debt to roil markets, and that's tremendously unlikely. Markets found the Fed and the economic outlook to be much more worthy of attention this week.  Retail Sales data on Tuesday morning set the tone for the week.  Traders were more receptive to the slew of Fed speakers who echoed the same general sentiment: the fight against inflation is far from over and the data will determine when the Fed is done hiking rates. At the start of the month, just after the last Fed meeting, market participants had almost fully priced out  additional rate hikes.  By the end of this week, we're back up to nearly a 50% chance of another hike in June (rate outlook of 5.0% moved up to 5.11%, which is about half of a 0.25% rate hike).
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Mortgage Rates Now at 2 Month Highs Thu, 18 May 2023 19:20:25 GMT
It may not be a death by a thousand cuts, but mortgage rates are suffering a bit of blood loss from roughly 5 cuts.  Specifically, the past 5 days have seen consecutive moves to higher levels.  The whole affair has been fairly steady relative to the types of volatile swings that have been all too common for most of the past year and a half.   The average lender is now at their highest levels since early March, just before the Silicon Valley Bank failure kicked off a flight to safety that helped bonds/rates improve substantially. Despite the unfriendly movement, we're not necessarily facing a persistent threat.  Unfortunately, it's just as fair to say we're not expecting any persistent drop in rates for any particular reason either.  That juxtaposition speaks to the rate market's recent indecision and the fact that we continue waiting on an unequivocal case to be made for or against inflation returning to lower targets. In other words, rates may be at 2-month+ highs, but that's more incidental than prophetic.  They could go a bit higher without violating the broader consolidation that's been in place since late 2022.  We continue to expect that it will take weeks to confirm the direction of the next major trend, and that we'll have 2-way volatility inside a range between now and then. [thirtyyearmortgagerates]
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