MMG Weekly | 12.5.2022
A Look Into the Markets
This week, Fed Chair Jerome Powell spoke, and interest rates touched the lowest level in almost 3 months. Let's discuss what happened and look into the week ahead.
"Time To Moderate Pace of Rate Hikes May Come as Soon as December Meeting" - Fed Chair Powell Nov 30, 2022.
On Wednesday, November 30th, the anniversary of the Fed flip-flopping on inflation and telling us they were wrong about its high nature, Powell delivered the most "dovish" speech in a year.
The quote above is the one that really sent the markets soaring, as it confirms the Federal Reserve will lower the size of rate hikes going forward.
Since June, The Fed has raised the Fed Funds Rate by .75% four times. Now the markets are pricing in a smaller .50% rate hike at the Fed meeting in two weeks.
"Growth in Economic Activity has Slowed to Well Below Longer-Run Trend, and This Needs to be Sustained" - Powell.
This quote highlights the Fed's desire to slow demand and thereby lower inflation/prices. Many critics of the Federal Reserve have been saying the Fed needs to slow down the size of rate hikes for this very reason as the economy has materially slowed down. And, the Fed is going to have raised rates by 3.50% in the back half of 2022...none of which has impacted the economy. There is a lag of anywhere from 6 to 9 months for rate hikes to make an impact on the economy, so seeing the Fed acknowledge that conditions have slowed is seen as further confirmation to slow the size of rate hikes.
"The Federal Reserve has been pretty aggressive already with its interest rate hikes and won't try to crash the economy with further sharp increases just to get inflation under control faster" - Powell.
This quote came from the question-and-answer session and confirms what market conditions are saying. We have seen inflation peak and we must direct our attention toward not putting the economy into a deep recession through overly strict monetary policy.
Remember, long-term rates only go higher if the economy can absorb the Fed rate hikes. Watching the 10-yr Note fall from 4.30% to 3.57% over the course of the last month tells us long-term rates are sensing the economy can't absorb much more Fed rate hikes without going into a recession.
Consumer Inflation May Have Peaked
On Thursday, the Core Personal Consumption Expenditure (PCE) Index for October came in lower than expectations and lower than September. With the economy slowing as the Fed Chair acknowledged, we should expect lower inflation readings going forward.
Bottom Line:
Home loan rates have improved a bit. With more inventory coming to market and many sellers eager to make deals, now could be a great time to consider taking advantage of the opportunities in housing.
Looking Ahead:
Next week the economic calendar is a little lighter, with only some medium impact reports set to be released. Additionally, the Federal Reserve members are in the quiet period where they do not speak one week prior to the next Fed Meeting. This all leads to the next Fed Meeting on Dec 13-14, where it is now widely expected the Fed will raise the Fed Funds Rate by .50% to a range of 4.25 to 4.50%.
Mortgage Market Guide Candlestick Chart
Mortgage-backed security (MBS) prices determine home loan rates. The chart below is a one-year view of the Fannie Mae 30-year 5.5% coupon, where currently closed loans are being packaged. As prices go higher, rates move lower and vice versa.
You can see on the right side of the chart the Green Candles moving above $101 for the first time since September. Should prices remain above this once tough ceiling, today's rates could be about as bad as rates can get going forward.
Chart: Fannie Mae Mortgage Bond (Friday Dec 2, 2022)
Economic Calendar for the Week of December 5 - 9
John Higgins
NMLS #136061
The material contained in this newsletter has been prepared by an independent third-party provider. The content is provided for use by real estate, financial services and other professionals only and is not intended for consumer distribution. The material provided is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, there is no guarantee it is without errors.
As your mortgage professional, I am sending you the MMG WEEKLY because I am committed to keeping you updated on the economic events that impact interest rates and how they may affect you. 
MMG Weekly | 11.28.2022
A Look Into the Markets
A little history about the Thanksgiving Holiday:
Sarah Joseph Hale campaigned for a national Thanksgiving in the United States during the 19th century, eventually winning President Abraham Lincoln's support in 1863. He and subsequent presidents proclaimed a National Day of Thanksgiving annually for the last Thursday in November. In 1870, Congress passed legislation making Thanksgiving (along with Christmas Day, New Year's Day, and Independence Day) a national holiday. On December 26, 1941, President Roosevelt issued a proclamation designating the fourth Thursday in November (which is not always the last Thursday) as Thanksgiving Day.
And now, a look into the markets...
y elevate the chance of a recession.
Be mindful that as the Fed talks about higher rates, they are talking about their overnight Fed Funds Rates. The only way long-term rates like mortgages go higher, is if the economy can absorb the rate hikes.
It's clear that long-term rates are having a tough time believing the economy can absorb the higher rates as the 10-yr Note is yielding 3.79% and the 2-yr Note is yielding 4.53%, representing the widest inversion in over 40 years. This suggests the end of the rate hiking cycle is coming near and that long-term rates have peaked.
Bottom Line:
Home loan rates have stabilized a bit. With more inventory coming to market and many sellers eager to make deals, now could be a great time to consider taking advantage of the opportunities in housing.
Looking Ahead:
Next week there are a bunch of continued "Fed speak" but the main event is the November Jobs Report, and the Fed's favorite inflation gauge, the Core PCE, reported next Friday. If that report shows weakness, it will further confirm the smaller Fed rate hike in December. If the number comes in strong, it could very well embolden the Fed to talk tough while elevating uncertainty around a potential .75% hike again.
Mortgage Market Guide Candlestick Chart
Mortgage-backed security (MBS) prices determine home loan rates. The chart below is a one-year view of the Fannie Mae 30-year 5.5% coupon, where currently closed loans are being packaged. As prices go higher, rates move lower and vice versa.
You can see a lot of Green Candles which tell us prices are higher from where they opened the day, meaning rates are lower from where they opened the day. For rates to improve further, we need to see MBS climb above $101, which will serve as a ceiling of resistance.
Chart: Fannie Mae Mortgage Bond (Friday Nov 25, 2022)
Economic Calendar for the Week of November 28 - December 2
John Higgins
NMLS #136061
The material contained in this newsletter has been prepared by an independent third-party provider. The content is provided for use by real estate, financial services and other professionals only and is not intended for consumer distribution. The material provided is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, there is no guarantee it is without errors.
As your mortgage professional, I am sending you the MMG WEEKLY because I am committed to keeping you updated on the economic events that impact interest rates and how they may affect you.
MMG Weekly | 11.21.2022
A Look Into the Markets
This week, interest rates touched the lowest levels in two months on the idea that inflation may have peaked. Let's break down what happened and look into Thanksgiving Week.
0-yr Note Touches 3.67%
The 10-yr Note yield touched 3.67% this week, a large rate improvement from 4.23% seen the previous week. The downtick in long-term rates also fed into home loan rates, which have declined as much as .50% in the last week or so.
The big question? Does this decline in rates have "legs" and will it continue?
Peak Inflation Equals Peak Rates
The readings on inflation suggest that we may have just seen the peak in inflation. We will want to see future inflation readings to confirm this, but long-term bonds, which are forward-looking, appear to be pricing at a peak.
Do not tell the Federal Reserve that inflation may have peaked. There were several Fed speakers out this week saying that inflation is still a problem, and they want to keep rates higher for longer.
Short-Term – Higher for Longer
Remember, when the Federal Reserve says they want rates higher for longer, they are talking about the Federal Funds Rate, which is an overnight rate that banks lend to each other. The Federal Funds Rate affects short term loans like credit cards autos and home equity lines of credit.
It is important to note that while the Fed Funds rate may increase by another 1.25% between now and next May, long-term rates like the 10-yr Note and mortgages, may have already peaked.
Smaller December Hike
The financial markets are now pricing in a high probability the Federal Reserve will only raise rates by .50% next month. Additionally, the markets are also sensing the Terminal Rate, or peak in the Fed Funds Rate will be 5 to 5.25% achieved by May of 2023. The Fed will attempt to lift rates that high and keep them there if the economic readings will support it.
Should we see the labor market struggle and inflation come down even further, the Fed may be forced to do less hikes. As the old saying goes, time will tell.
Bottom Line:
Home loan rates have improved. With more inventory coming to market and many sellers eager to make deals, now could be a great time to consider taking advantage of the opportunities in housing.
Looking Ahead:
Next week we celebrate Thanksgiving, which means bonds are closed Thursday and only open a half day on Friday. There is also little in the way of economic data, with just Durable Goods Orders and Consumer Sentiment on Wednesday. There will be plenty of Fed speakers out to remind us of the need to hike rates more.
Mortgage Market Guide Candlestick Chart
Mortgage-backed security (MBS) prices determine home loan rates. The chart below is a one-year view of the Fannie Mae 30-year 5.5% coupon, where currently closed loans are being packaged. As prices go higher, rates move lower and vice versa.
You can see on the right side of the chart the Green Candles moving higher means a nice improvement in rates. For rates to improve further, we need to see MBS climb above $101, which will serve as a ceiling of resistance.
Chart: Fannie Mae Mortgage Bond (Friday Nov 18, 2022)
Economic Calendar for the Week of November 21 - 25
John Higgins
NMLS #136061
The material contained in this newsletter has been prepared by an independent third-party provider. The content is provided for use by real estate, financial services and other professionals only and is not intended for consumer distribution. The material provided is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, there is no guarantee it is without errors.
As your mortgage professional, I am sending you the MMG WEEKLY because I am committed to keeping you updated on the economic events that impact interest rates and how they may affect you.
MMG Weekly | 11.14.2022
A Look Into the Markets
This week, interest rates moved a bit sideways after Election Day and only added to the uncertainty as ballots continue to be counted. Let's discuss what happened and look into the week ahead.
Consumed By Uncertainty
It has been nearly a year since the Federal Reserve flip-flopped on the idea that high inflation was "transitory" and the need for that word to be retired. Since that time, we have experienced unprecedented uncertainty in the financial markets, with home loan rates moving from 3% to 7%...the fastest rate of change in our history.
A lot of the uncertainty, and thus volatility, is surrounded by where inflation and the overall economy is and how far is the Fed going to go with rate hikes. With the election results still up in the air, we should expect to see more of the same continued uncertainty and volatility.
Balance of Power Rate Impact
Mixed control between Congress and the White House could benefit interest rates. How? It makes it more challenging to deliver large scale changes to tax policy or deficit spending to try and help the economy. On the spending, lower spending likely helps to lower inflation, which means lower rates.
The Terminal Rate
How high will the Fed raise rates? Currently the Fed Funds Rate, which is an overnight rate the Fed hikes and cuts, is in a range of 3.75 – 4.00%. This week, major financial institutions, with most forecasting the terminal rate, or the peak in the Fed Funds Rate to be 5.00%, coming by May 2023.
It is important to note, that while the Fed Funds Rate may increase by another 1.25% between now and next May, that doesn't mean long-term rates will go higher.
The only way long-term rates go higher is if the economy can absorb the increased rates. Mortgage bonds and Treasuries are essentially at the same levels they were back in late September, so long-term rates are starting to buck the idea of moving higher.
The Fed Step Down
After four consecutive .75% rate hikes, the markets are wondering and hoping the Fed will "step down" the size of rate hikes come December. Currently, there is a 57% chance of a .50% rate hike. A smaller rate hike would make sense as the Fed will have raised rates by 3.50% in the second half of the year and those hikes have yet to hit the economy.
Bottom Line:
Home loan rates have improved from the highest levels of 2022. With more inventory coming to market and many sellers eager to make deals, now could be a great time to consider taking advantage of the opportunities in housing.
Looking Ahead:
Next week brings some important readings like the Producer Price Index, which is a reading on wholesale inflation, Retail Sales, a reading on consumer spending and some housing data. As always, there will be plenty of Fed speak and central bank activity across the globe, which can move the markets.
Mortgage Market Guide Candlestick Chart
Mortgage-backed security (MBS) prices determine home loan rates. The chart below is a one-year view of the Fannie Mae 30-year 6% coupon, where currently closed loans are being packaged. As prices go higher, rates move lower and vice versa.
Prices have moved slightly higher in the last week. If prices can remain at or above current levels, we will have seen the rate peak of 2022. However, if the bond falls beneath those 2022 price lows, home loan rates will make new highs.
Chart: Fannie Mae Mortgage Bond (Friday Nov 11, 2022)
Economic Calendar for the Week of November 14 - 18
John Higgins
NMLS #136061
The material contained in this newsletter has been prepared by an independent third-party provider. The content is provided for use by real estate, financial services and other professionals only and is not intended for consumer distribution. The material provided is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, there is no guarantee it is without errors.
As your mortgage professional, I am sending you the MMG WEEKLY because I am committed to keeping you updated on the economic events that impact interest rates and how they may affect you.
MMG Weekly | 11.7.2022
A Look Into the Markets
This week interest rates revisited 2022 highs in response to the Fed meeting, where the Federal Reserve raised the Fed Funds Rate by .75%. Let's discuss what happened and investigate the week ahead.
"It's very premature in my view to be thinking about or talking about pausing our rate hikes. We have a ways to go." Fed Chair Powell at Wednesday's press conference.
This quote, which took place 30 minutes after the Fed raised rates, was the main driver in a selloff in stocks and bonds. Stocks reversed 900 points lower intraday and the 10-year yield went from 3.97% to 4.11%.
Heading into the meeting there was growing speculation that the Fed would somehow tell the markets that future rate hikes would be smaller. There was even a Wall Street Journal article a couple of weeks ago which highlighted the debate Fed members had about how to message this "step down" of lower rate hikes ahead.
Mixed signals = Uncertainty and Volatility
"In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments." FOMC Monetary Policy Statement - November 2022.
This line within the statement was initially read as a positive sign to both stocks and bonds that the Fed will pause or slow the pace of rate hikes to allow the existing rate hikes to seep into the economy.
However, just a short 30 minutes later at the press conference, Fed Chair Powell did not let the markets believe the Fed will make a smaller hike in December. Yet at the same time, he said "it could happen."
Some other hawkish Fed quotes which led the market to believe the Fed will continue with higher for longer with rates were the following:
-
"Don't think we have overtightened"
-
"No sense of inflation coming down"
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"Overheated labor market"
Other Central Banks Around Globe Are Hiking
The Bank of England also raised their benchmark rate by .75% and said, "if we do not act forcefully now (against inflation) it will be tougher later on." As yields around the globe inch higher, it pulls our yields higher as well. The opposite is true.
Fed Rate Hikes and Home Loan Rates
It is important to remember, the Fed is looking to raise the Fed Funds Rate (an overnight rate) to potentially 5.00% sometime in the spring of 2023. And the Fed's goal, for the moment, is to hold it elevated until inflation comes down to 2%. The Core PCE measure is currently running at 6%.
Long-term rates, like the 10-year yield and home loans, will only increase if the economy can absorb the hikes. Right now, those rates are showing some resistance to move higher, suggesting the economy can't afford the higher rates without slipping into a recession.
Fed Chair Powell closed out his press conference by saying the chance of seeing a "soft landing" in the economy has "narrowed." The increased threat of a recession will limit how high rates will go and for how long.
Looking Ahead:
It's a big week with Election Day on Tuesday and an important inflation reading, the Consumer Price Index (CPI) on Thursday. If the inflation reading comes in soft, we will very likely see smaller rate hikes next month. If the reading comes in strong and supports the Fed's "no sense of inflation coming down" mantra, then we could very well see another .75% increase in December.
Mortgage Market Guide Candlestick Chart
Mortgage-backed security (MBS) prices determine home loan rates. The chart below is a one-year view of the Fannie Mae 30-year 6% coupon, where currently closed loans are being packaged. As prices go higher, rates move lower and vice versa.
Prices have moved lower over the last week and are now close to the lows seen a couple of weeks ago. If prices can remain at or just above current levels, we will have seen the rate peak in 2022. However, if the bond falls beneath those 2022 price lows, home loan rates will make new highs.
Chart: Fannie Mae Mortgage Bond (Friday Nov 4, 2022)
Economic Calendar for the Week of November 7 - 11
John Higgins
NMLS #136061
The material contained in this newsletter has been prepared by an independent third-party provider. The content is provided for use by real estate, financial services and other professionals only and is not intended for consumer distribution. The material provided is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, there is no guarantee it is without errors.
As your mortgage professional, I am sending you the MMG WEEKLY because I am committed to keeping you updated on the economic events that impact interest rates and how they may affect you.
John Higgins
NMLS #136061 Mobile: 248.895.7272
Mortgage 1, Inc.
43456 Mound RoadSterling Heights, MI 48314