[Note from editor: The “Mastermind Showcase” highlights companies and news from members of the GEM. Today’s showcase: WeatherCheck.]
WhetherCheck monitors severe weather conditions (mostly hail) so that insurance carriers, mortgage companies, and property owners can take action–for 20 homes or 2,000. Monitoring assets from $45,000 to upwards of $4.5 million, they help uncover hidden damage in the tens of thousands, still eligible for insured repairs. They can monitor conditions in the most challenging time period, 24 hours before and after an event by using proprietary algorithms to aggregate and process storm data.
The company has received 150K in funding from 2 different investors.
Represented in the GEM: Demetrius Gray
What we like: WeatherCheck provides address-specific information for owners in order to minimize out-of-pocket expenses, maximize profit, and safeguard their investment
You know what loan officers and real estate agents love almost as much as cashing a commission check? Complaining about other loan officers and real estate agents. And they have good reasons to do so.
Talk to a top producer in either field and he or she will tell you: the biggest problem their respective industry faces is that there are far too many sloppy, inexperienced, yee-haw types who, I’m sorry, just shouldn’t be in this business! Those people harm consumers as well as industry professionals by wasting time, making mistakes and driving up acquisition costs, they’ll tell you.
It shouldn’t surprise you that a sizable percentage of newer LOs and real estate agents are washing out in the current market. The latest statistics from the National Association of Realtors found that the percentage of agents with fewer than two years of experience fell to 17% in 2022 from 25% in 2021. Meanwhile, the number of active nonbank loan officers is about a third lower than it was during the glory days in 2021, several industry sources told HousingWire.
But at 343,000 workers in May, the mortgage LO workforce remains quite elevated for the origination volume being produced. And there are north of 1.5 million Realtors competing for about 4.2 million existing home sales.
There are compelling arguments that the housing industry should shed far more agents and LOs than it currently is. Like, a lot more. So let’s dive in a little deeper.
In March of 2021 the mortgage industry was running at a $4.4 trillion annualized pace. The industry is down about 75% from that level, at an annual pace of between $1.2 trillion and $1.4 trillion in 2023.
“That’s still nuclear winter-ish kind of volume, especially for the size of the industry. The industry has not shrunk 75%,” Brian Hale, founder and CEO of Mortgage Advisory Partners LLC, told my colleague Bill Conroy.
Looking at the productivity of the LO’s real estate agent partners is key, he said.
“The top 1.5% of real estate agents last year accounted for 68% of all sales in America. That’s a shocking number,” Hale said. “If you go up to the top 2%, you’re at about 75%. If you go to the top 10%, you’re north of 90%.”
But in many cases, LOs are still calling and looking for business from the bottom 50% of Realtors, Hale said. (The typical NAR member averaged one deal per month in 2022, according to the latest NAR Member Profile.)
This is among the market inefficiencies caused by too many unproductive agents and LOs chasing nonexistent leads. It’s no wonder that the cost to originate a mortgage is over $10,000.
Garth Graham, a senior partner at mortgage M&A shop STRATMOR Group, told Conroy that roughly 80% of the volume is done by 40% of the loan originators. He estimated that about 75% of mortgage companies lost money in the first quarter, and a big reason is they pay relatively high compensation for LOs who simply aren’t doing the volume to warrant it.
In other words, the housing industry is still carrying a lot of dead weight.
“We still don’t have enough sales, and if you want to be successful in the mortgage business, you have to do business not just with people who are in real estate, but you have to do business with people who sell real estate,” Hale told Conroy. “There is a big difference between being in real estate versus actually selling real estate. And even the big ones are finding volume difficult to get a listing on. Valuable people today are those with listings.”
Relatedly, the Consumer Federation of America released an intriguing study this week that examined 1,000 deal sides each for home sales in Minneapolis, Jacksonville and Albuquerque during a few months in 2021 and 2022. The CFA study found that “marginal agents” – who completed five or fewer sales over the past year – took home between 25% and 30% of the overall commissions in each market. That’s not a positive.
“Industry experts have noted that this surfeit of agents creates economic inefficiencies, deprives full-time agents of needed income, frustrates both consumers and experienced agents who must deal with inexperienced agents, forces agents to spend inordinate time and money acquiring new customers, reinforces relatively high and uniform commission rates, and damages the reputation of the industry,” the trade group argued.
Indeed, the median real estate agent in 2022 worked just 30 hours a week, according to the NAR. And nearly 50% of agents worked fewer than 40 hours per week. You won’t be surprised to read that part-time agents aren’t very productive or able to generate much income from doing a couple deals a year – many make under $10,000 a year in commission income.
It’s not just Side Real Estate’s Guy Gal who would argue that part-time real estate agents cause more harm than good. My Aunt Betty doing a deal or two a year doesn’t benefit the industry or consumers. How many billions of dollars in commissions go to uneducated, unprofessional, mistake-prone agents and LOs? How many hours do full-time professionals waste chasing leads that go to the Aunt Bettys of the world? Residential mortgage lending and real estate brokerages are low-margin businesses; if we want a healthier housing industry, we should disincentivize part-time agents and stop paying high comp to average or below-average LOs.
One quirk that I found especially interesting in the CFA study was that those “marginal agents” were just as likely to work a deal at the highest sales category in Jacksonville, Minneapolis and Albuquerque as they were the lowest.
Anyway, what do you think about all this? Share your thoughts with me at [email protected].
In our weekly DataDigest newsletter, HW Media Managing Editor James Kleimann breaks down the biggest stories in housing through a data lens. Sign up here! Have a subject in mind? Email him at [email protected]
The global COVID-19 pandemic is changing life as we know it, and nearly every industry has been forced to adapt in one way or another. The rental industry is no exception – the industry as a whole has discovered new ways to meet safety guidelines while continuing to provide essential housing services to renters across the nation.
Widespread layoffs and economic turmoil has resulted in many Americans struggling to keep up with cost-of living expenses. According to the U.S Department of Labor, the national unemployment rate is at almost 8 percent, with more than 12.5 million Americans currently unemployed. Even with federal stimulus checks and other benefits, a majority of qualifying recipients used the money to catch up on overdue bills.
Rent is often the most expensive cost-of-living expense, with one in four renters in the United States spending more than 50% of their income on housing. As a response to a climbing unemployment rate, several states across the nation have implemented an eviction moratorium to protect renters who are struggling to pay rent. Unfortunately, landlords still need to make an income in order to see a profit on their investment. The good news is that the majority of renters are still making full or partial rent payments on time. However, data from September 2020 indicates that renters are more financially burdened now than at the onset of the pandemic.
Rental payments decline as the pandemic continues
We pulled aggregated anonymous data from our Rentec Direct property management software platform, representing 620,000 rental properties nationwide. Using January and February as a baseline and considering March to be the official onset of the pandemic (when most state shutdown orders occured), our data showed that the number of rent payments received by property managers and landlords has been steadily declining over the past several months. As of September 10th, rent payments received nationwide were 35 percent lower than rent received for the same period in March, prior to the onset of the pandemic in the United States. This is the biggest drop we’ve seen in rental payments received by landlords so far, following a 29 percent drop in August.
These numbers indicate that renters are struggling financially right now more so than when the pandemic first hit the U.S. It is not necessarily surprising when you consider the fact that 16 percent of Americans have no emergency savings. The pandemic is worsening the financial hardship for many when it comes to elevated unemployment, reduced income and increased debt.
Online rental payments see little change
Interestingly, but not surprisingly, electronic rent payments in September saw a 1 percent increase compared to electronic rent payments received prior to the pandemic. When compared to the 35 percent decrease in total rent payments received, it is clear that online rent payment options increase the likelihood of on-time rent payment.
Not only are electronic payment options becoming increasingly critical for property management businesses in order to meet social distancing measures, but electronic methods also give renters the option to set up reliable automatic payments. According to a 2018 study, only 33 percent of renters who scheduled recurring monthly rent payments were charged a late fee, compared to the 47 percent of renters who were charged a late fee making manual rent payments. Of renters with no online payment options, 57 percent were charged a late rent fee.
Moving forward
It’s a true challenge to predict the future during these unprecedented times, but the continued rise of national COVID-19 cases certainly poses a threat to America’s economic future. Despite the unemployment rate decreasing slightly in recent months, this is still the highest unemployment rate our nation has seen since the Great Depression. Several states are implementing re-closures, layoffs are continuing, and federal benefits are expiring. All of these changes will absolutely impact renters across the country, potentially burdening their financial situation further.
The coming months will help us further understand the impact of the pandemic and reveal how renters will handle their cost-of-living expenses. My advice for landlords and property managers is to strongly consider implementing online rent payment options, if you haven’t already. Not only is it safer given the current social distancing mandates, but it is likely to save you money in the long run.
In several previous articles I have opined that an increase in mortgage rates may be our only hope for slowing the escalation of home prices that we’ve been experiencing for the past year. With mortgage rates hitting above 3% last week for the first time since June, it’s a good time to revisit this conversation and what we should expect next for mortgage rates.
Since the summer of 2020, I have argued that if mortgage rates could get over 3.75%, days on market would rise and the rate of price growth would cool. This will be bullish for housing because the price gains we have been seeing are extremely unhealthy.
A common theme in the interviews I have done in 2021 has been that this is the unhealthiest housing market since 2010 — not because we have a credit boom or a bubble forming, but because we have forced bidding on too few homes. We need the days on market to grow out of the teenager stage.
If the antidote to our housing market ills is higher mortgage rates, when can we expect getting this cure? The unfortunate answer is not anytime soon.
If you are familiar with my work, you are aware that I rely heavily on the movements of the 10-year yield to guide my mortgage rate predictions. Even though I have been extremely bullish on the U.S. economy, my bond market forecast for the 10-year yield in 2021 was that it wouldn’t go above 1.94%, with the lower end of the range being 0.62%. This translates into the upper range of mortgage rates to be 3.375%-3.625% at best, and lower end of the range to be 2.25% – 2.375%.
In my America Is Back recovery model that was published on April 7, 2020, I wrote that the goal for the 10-year yield would be to create a range between 1.33% – 1.60%. This is something that couldn’t have happened in 2020 but in 2021 should be the case.
Considering the strength of the economic recovery we have been having since April 2020, I would have been shocked and disappointed if the 10-year never got to 1.60%. Like clockwork, the 10-year yield did what I thought it should do. As much as I love Van Gogh and Monet, the chart below may be the best piece of art I’ve seen this year.
In 2021, we have had the fastest growth and hottest inflation data in recent history. This has led some to predict that mortgage rates would skyrocket. I am sympathetic to those who are shocked that the 10-year yield is at 1.48% in October, but the 10-year yield has been in a downtrend since 1981 and that needs to be respected.
Trust me, in recent years it hasn’t been easy trying to convince people that mortgage rates would have a 2 handle before a 6 handle. During November 2018, when the 10-year yield was at 3.24%, I was speaking at a conference and got scolded by another economist for talking about the 10-year yield falling in 2019 and the thought of a 1 handle on the 10-year yield. This isn’t surprising since The Wall Street Journal polled 50 economists that year and all said rates were going up. However, using the chart above, I made a prediction that we could see a 1 handle in the 10-year yield in 2019. This happened as well.
I was recently asked in a podcast interview why I always talk about 1.94% as a key level since 2019. When the inverted yield curve happened in 2019, this was something I had forecast at the end of 2017 for 2018. I truly believe we inverted the yield curve in 2018. However, after the accepted inversion happened, I talked about the 1.94% level on the 10-year yield being a key level in 2019 and even in the 2020 forecast article, I made sure to emphasize that again. (More on that topic and the entire AB economic recovery model in this podcast, where Wall Street has taken notice of my work here at HousingWire.)
Since the start of 2015, when I began incorporating bond yield forecast in my prediction articles, I have always stated that the 10-year yield should be in a range between 1.60%-3%. During COVID-19, I forecast recessionary yields of -0.21% – 0.62%. Given that the recession ended in April of 2020 and we have been in recovery mode ever since, we should see the range of 0.62% – 1.94%, which is what I forecast for the economic expansion period.
What can take bond yields higher than 1.94% and get mortgage rates to 4% and higher? And why is this important? The most important data line I want to see grow is the days on market, as it’s simply too low currently and creating too much price growth in housing.
One common thing I see is that people say when QE (quantitative easing) ends, the bond market bubble will end and bond yields and mortgage rates will rise and housing will collapse. Let me just make this is as simple as possible, by referencing the chart below:
QE1 ended, bond yields fell.
QE2 ended, bond yields fell.
Tapering started to go into the final stages in 2014 and bond yields fell.
QE3 was supposed to be the end of humanity when it finished. After the end of QE3, bond yields fell.
Just be careful of putting all your eggs in the “bond market is a bubble and rates have to skyrocket when QE ends” basket. It didn’t end well for those forecasting much higher mortgage rates and bond yields, as you can see below.
While bond yields are historically low, that long-term downtrend stayed intact even with the best economic growth and hottest inflation data in years. Can the bond market have an algo model bond selling fit? Yes, it can. However, nothing of note will happen as long as we are below 1.94% on the 10-year yield. I am just sticking to my guns here, the same way as in 2019, 2020, and 2021.
In 2021, when the mention of tapering started at some point, bond yields fell.
The most realistic scenario I have come up with to break that 1.94% level is that the world economies start to come together and move past this COVID-19 historical stage. This means Japan and Germany bond yields move up as well. It’s really hard for the U.S. to break away too much from Germany and Japan’s 10-year yield.
When the world economies are running in a more normal fashion, that could serve as a reasonable premise to get the 10-year yield above 1.94%. My next-level peak would be only 2.42%. However, that bridge has not only not been crossed, but it’s not close enough to be tested. So, until that happens, no 4% plus mortgage rates here in America.
As crazy as this sounds, 2021 looks remarkably normal with regard to the bond market and mortgage rates.
I am big believer in range-yield work — it’s been a staple of mine for many years and a big factor in writing my American recovery model back on April 7, 2020. Economic models keep us in line and we always look for things that can break it with live events daily. However, for now everything looks just right to me.
While I do understand that bond yields being this low with our economic growth and inflation data seems strange, just remember: respect the trend as it is your friend. Don’t betray it and you will be fine at the end.
On Oct. 5, I will be speaking at the virtual California Association Of Realtors REImagine Conference and Expo with other economists about the state of the U.S. housing market and what to look for in 2022. I will be attending the Mortgage Bankers Association Annual conference in San Diego Oct. 17-20 and hope to see many of you there.
Renters and homeowners are experiencing inflation differently, according to new data from Bank of America — and, unsurprisingly, renters are taking the hit.
Using Bank of America internal data to identify homeowners and renters by housing-related payments in bank accounts — mortgage payments, homeowner association fees or rent payments — analysts found that a wedge has opened between spending by renters and homeowners. Renters are seeing weaker spending growth outside of housing.
Two things are causing the split in spending.
First, while the majority of homeowners’ monthly payments have not risen, the cost of renting has surged. Rent inflation jumped from around a 2% year-over-year increase in 2021 to 8.8% year over year in March 2023, according to the Consumer Price Index, although it has moderated marginally in recent months.
Meanwhile, the majority of US homeowners with outstanding mortgage balances have fixed interest rates that were locked in at ultra-low levels prior to the slew of recent interest rate hikes from the Federal Reserve.
Higher inflation and interest rate hikes have caused mortgage rates to climb from an average rate for a 30-year fixed mortgage of 2.65% in January 2021 — the lowest average weekly rate since the beginning of Freddie Mac’s records going back to 1971— to last week’s 6.81%, according to Freddie Mac.
The analysts say those homeowner households are not yet feeling the direct impact from rising rates. Only the handful of total homeowners who got a mortgage after early 2022 or those with floating mortgage rates (a very small number) are feeling pinched.
Secondly, even if a typical mortgage payment is higher than a typical monthly rent payment, because renters’ income tends to be less than homeowners, more renters put a larger share of their income toward rent than homeowners put toward mortgage payments. That is leading renters to pull back on their discretionary spending more than homeowners, according to Bank of America.
More renters are becoming “cost burdened,” which means households are paying more than 30% of theirincome toward housing, generally considered to be a financially sound share.
High housing costs hit renters hardest. Nearly half of renters — an estimated 49% — are cost burdened, according to a recent report from the Joint Center for Housing Studies at Harvard University. Between 2019 and 2021 (the most recent data available) the number of cost-burdened renters increased by 1.2 million to a record 21.6 million households. Among these, 11.6 million were severely cost burdened, meaning they spent more than 50% of their income on housing. Although the share of renter households experiencing cost burdens had been steadily declining over the past decade, the trend reversed during the pandemic.
While the share of homeowners who were cost burdened also rose during the same time — increasing by 2.3 million to 19 million homeowners, including 8.7 million households that were severely cost burdened in 2021 — only 23% of all homeowners are cost burdened, the Joint Center for Housing Studies report found.
That means they are likely to have more money for discretionary spending.
The year-over-year rate of total spending from the accounts, not including rent, has been weaker for renters since the start of 2022, the Bank of America report said, which coincides with the rise of rent inflation. Year-over-year spending by renters dropped in June by 1.4%, according to the report. But for homeowners, it was up 0.8% over the same period.
This trend is visible by spending sector, too, the report showed. Homeowners showed relative spending strength in all major sectors except furniture. (The weakness in furniture spending is likely related to weak home sales, analysts noted, which would impact homeowners more since they are less likely to be switching homes and have less need for new furniture.)
Restaurants are the only sector where homeowners and renters are both still showing an increase in spending from last year, and homeowners significantly outpace renters.
Even controlling for income — which is necessary because renters tend to have lower incomes than homeowners — renters are showing less spending strength than homeowners in their same income group in most spending categories. The disparity tends to be greater at lower income brackets with the difference between owners and renters less notable for the highest-income group, those earning over $125,000.
Looking ahead, however, this wedge between the spending of renters and homeowners may narrow, the report points out.
As the share of homeowners who have bought a home with higher mortgage costs increases and rent inflation moderates as the Fed winds down its rate hikes, the analysts say some convergence between the spending growth rates for the two groups is likely.
Home prices rose to record levels in May thanks to a lack of supply of existing houses for sale.
Home prices rose 0.7% nationally compared with April at a seasonally adjusted rate — hitting a record, according to a report from Black Knight released on Monday. Additionally, home prices in May were 0.1% higher than the year before.
GOP WHIP REPORTS MASSIVE FUNDRAISING HAUL AS PARTY FIGHTS TO KEEP HOUSE MAJORITY
Even as the spring homebuying season comes to an end and mortgage rates push to multimonth highs, there are signs that the housing market is reheating following a slump last year. Black Knight’s vice president of enterprise research, Andy Walden, noted that five back-to-back months of price increases have now reversed the pullback that began last July.
“There is no doubt that the housing market has reignited from a home price perspective,” he said. “Firming prices have now fully erased the pullback we tracked through the last half of 2022 and lifted the seasonally adjusted Black Knight HPI to a new record high in May.”
More than half of the 50 biggest U.S. housing markets are seeing prices at or above their 2022 peaks. A mere eight of the top 50 markets are still down more than 5% from their zeniths.
The Federal Reserve has been raising interest rates for more than a year and has penciled in further hikes after holding off last month.
As of this past week, the average rate on a 30-year fixed-rate mortgage was 6.81%, up a tenth of a percentage point from the week before, according to Freddie Mac. Mortgage rates are now the highest they have been since November when they skyrocketed to above 7%.
This most recent number is up from a recent trough of 6.08% registered in February. The rate on an average 15-year fixed-rate mortgage is now sitting at 6.24%.
During the outset of the pandemic, the Fed slashed rates to near-zero levels to ignite economic activity and stave off a recession. That caused mortgage rates to plunge to super low levels — during much of 2020 and 2021, homebuyers were able to lock in mortgages at below 3%.
Because mortgage rates have surged so much, owners of existing homes who have mortgages with rates locked in before 2022 are shying away from selling because they want to keep their historically low rates. That means less existing home inventory on the market, making new homes more of a hot commodity.
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As a result, sales of new homes have been ticking up to make up the slack. The most recent new home sales data for May showed that sales rose 12.2% to a seasonally adjusted annual rate of 763,000, according to the U.S. Census Bureau, far above the number expected by forecasters.
The lack of inventory has also had the effect of lifting home construction. In June, it was revealed that the number of multifamily units under construction hit a record in May — 994,000. That surge in supply should hopefully help lower rent pressures for families across the country.
As mortgage rates reached their 2023 peak, mortgage applications rose slightly but remained very low last week.
For the week that ended July 7, mortgage applications rose 0.9% from the prior week, according to data from the Mortgage Bankers Association.
“Incoming economic data continue to send mixed signals about the economy, with the overall impact leaving Treasury yields higher last week as markets expect that the Federal Reserve will need to hold rates higher for longer to slow inflation. All mortgage rates in our survey followed suit, with the 30-year fixed rate increasing to 7.07%, the highest level since November 2022,” said Joel Kan, MBA’s vice president and deputy chief economist. “The jumbo rate also increased to 7.04%, a record high for the jumbo series, which dates back to 2011.”
Last week, mortgage rates increased dramatically with the 30-year fixed rate increasing to 7.07% from 6.85%, per the MBA’s data. The jumbo rate was higher than the conforming rate for the fifth week in a row. The MBA data showed that for jumbo loan balances (greater than $726,200), the rate jumped to 7.04% from 6.97% last week.
At Mortgage News Daily, mortgage rates were 2 basis points higher on Wednesday, at 7.09%.
Purchase applications rose, with the purchase index climbing by 2% from one week earlier and was 26% lower than last year’s level on an unadjusted seasonal basis. Refinancing applications decreased 1% last week compared to the previous week and were 39% lower than the same week one year ago. It was the refinance index’s lowest level since early June, as demand for rate/term and cash-out refinances remains extremely low with mortgage rates over 7%, noted Joel Kan.
The refinance share of mortgage activity decreased to 26.8% of total applications from 27.4% the prior week.
The rise in purchase activity was driven mostly by increases in both FHA and VA purchase applications. The Federal Housing Administration loans’ share increased to 13.3% from 13% the week prior. The U.S. Department of Veteran Affairs loans’ share increased to 12.6% from 11.7% the week prior. And the U.S. Department of Agriculture loans’ share remained unchanged at 0.4% of the total applications.
Adjustable-rate mortgages increased to 6.6% of total loan applications last week. The average contract interest rate for 5/1 ARMs rose to 6.24% from 6.00% a week prior.
The 10-year yield and mortgage rates have done a slow dance together since 1971, moving in tandem. Recently they have drifted apart because the mortgage market is stressed, but they’re still bound to each other. I always look at where I believe the 10-year yield will range in a year and the inflation growth rate wasn’t the main driver this year: It was the labor market.
Last year the bond market had a crazy ride while trying to digest all the Federal Reserve rate hikes and dramatic world events. In addition, the inflation growth rate was the highest in recent history last year while the 10-year yield was lower than mortgage rates. That can be confusing, but sometimes the growth rate of inflation isn’t the main driver of mortgage rates.
In my 2023 forecast, I said if the economy stays firm, the 10-year yield range should be between 3.21% and 4.25%, equating to mortgage rates between 5.75% and 7.25%. Of course, the spreads with the mortgage rate and the 10-year yield have worsened since the banking crisis, which is the big story of 2023. However, outside of that, the 10-year yield looks right as the labor market hasn’t broken yet and the inflation growth rate is falling. I define the labor market breaking as jobless claims getting over 323,000 on the four-week moving average, and we aren’t there yet.
The CPI data
The CPI data from BLS: The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.2 percent in June on a seasonally adjusted basis, after increasing 0.1 percent in May, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 3.0 percent before seasonal adjustment.
The headline inflation growth rate is slowing down as everyone anticipated, and if any Fed member says no progress has been made on inflation, I need to come up with a term stronger than old and slow. The growth rate of headline CPI has collapsed, as you can see in the chart below.
Last year on CPI day in September, I went on CNBC to explain that the shelter inflation portion of CPI data, which is 44.4% of the weighting, was going to lag reality and that in 2023 it would be a positive story as the growth rate of inflation would cool. We are now seeing this process take its course, which will help cool down core inflation over the next 6-12 months.
In real time, the biggest component of core CPI — shelter — is already cooling off, but it’s still lagging in the data.
The most frustrating inflation aspect has probably been car prices: the shortage of chips and supply of cars boosted inflation because of the pandemic lags and other issues. However, the growth rate of car inflation is falling and the used car price index should be cooler over the next few months, which will help. We now have two positive stories looking out 6-12 months on core inflation which will cool the growth rate of inflation down.
All in all, today’s report is positive but one that the markets have expected for some time. If inflation was taking off like the 1970s as the Fed fears, rent inflation would be skyrocketing and honey, that story is dead.
The Federal Reserve over-hiked for no reason the last three rate hikes and if they hike again, the only purpose at this stage would be to target American workers so they lose their jobs. But the 1970s are dead, and the Fed doesn’t need to create a job-loss recession to bring down the inflation growth rate. The Fed needs to endure, let the supply side of certain items come to place and not crash the plane.
If you wonder why the Fed is still talking about more rate hikes with all the data we have now, the best answer I can give you is this: The Fed believes it needs to make real yields higher. As the inflation growth rate falls, it is being more restrictive, which will help it get the unemployment forecast of 4.5%. If it seems like they want to hike more or not even talk about cutting rates, that’s because it was always about attacking the labor market, which is still too strong for them.
We’re almost halfway through the week and mortgage rates have yet to move out of a tight range. We do get the minutes from the Federal Open Market Committee’s meeting a few weeks back. Financial market participants will be tuned in and ready to act on any information about the 2018 rate hike path. Read on for more details.
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Market Outlook 2.19.18 from Total Mortgage on Vimeo.
Where are mortgage rates going?
Rates flat ahead of FOMC Minutes
We’re approaching the halfway point of the week and, as expected, mortgage rates have remained mostly flat. There’s been very little economic data out over the past few days, which has been a major factor in keeping rates on an even keel.
Click here to get today’s latest mortgage rates (Jul. 13, 2023).
That could potentially change today, though, with the release of the FOMC minutes from their meeting a few weeks ago. Investors will be tuned in for that release at 2:00pm to see if there are any clues about the Fed’s rate hike path in 2018.
Depending on who you talk to the Fed could raise the nation’s benchmark interest rate–the federal funds rate–anywhere from 2-4 times throughout the year.
The one thing that everyone does seem to agree on, however, is that the Fed is going to follow through with a quarter point increase to the federal funds rate next month.
That would bring the target range up to 1.50%-1.75%. With regards to today’s minutes, the big question for investors is what happens after the March meeting.
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If you take a step back and consider that the 30-year fixed rate is expected to hit 5% at some point this year, current levels seem pretty appealing.
Today’s economic data:
Fedspeak
Philadelphia Fed President Patrick Harker at 9:00am
Minneapolis Fed President Neel Kashkari at 8:15pm
PMI Composite Flash
The PMI Composite Flash hit 55.9 for all three readings. This is a 27-month high that’s above both the prior reading and the consensus from analysts.
Existing Home Sales
Existing home sales for January came in at an annualized rate of 5.380 million. That’s a drop of 3.2% from the prior month, and a drop of 4.8% year over year.
FOMC Minutes
The FOMC minutes will get released this afternoon at 2:00pm
Notable events this week:
Monday:
Markets Closed: President’s Day
Tuesday:
Wednesday:
Fedspeak
PMI Composite Flash
Existing Home Sales
FOMC Minutes
Thursday:
Jobless Claims
Fedspeak
EIA Petroleum Status Report
Friday:
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Carter Wessman
Carter Wessman is originally from the charming town of Norfolk, Massachusetts. When he isn’t busy writing about mortgage related topics, you can find him playing table tennis, or jamming on his bass guitar.
Let’s not build up the upcoming CPI data too much. It’s important and it is highly likely to result in a level of bond market movement commensurate with its distance from forecasts. But that distance can be seen both above and below the forecast levels. Each option carries a different implication for the rate reaction and there’s no way to know which option we’ll get ahead of time. What we CAN know with relative certainty is that the bigger the “beat” the larger the jump in rates should be. The bigger the “miss,” the bigger the drop in rates.
09:19 AM
Modestly stronger overnight with yields as low as 3.95. Slight bounce early but still down 1.4bps at 3.986. MBS up 1 tick (0.03).
02:35 PM
Modest gains in the PM hours, but giving them up now. Bonds at exactly the same levels as the last update.
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