Weekly Mortgage Rate Update- 02-06-2024

Rates have been on the move and it’s been a bumpy ride .  Thursday had the best rates of the week, a half point lower than what I quoted yesterday.  And this morning a slight improvement in rates from Friday/Monday’s sell off, but still overall rates are higher now than in my last update.

 On Wednesday Powell spoke after the January Fed meeting and said that things look promising, but pointed out that it is partially a function of labor conditions normalizing as participation increased in 2023 and supply strains correcting which caused inflation to ease.  “What’s happening though is the supply side has been recovering in the middle of this…that won’t go on forever. So a lot of the growth we are seeing, it isn’t just a tug of war between interest rates and demand.  You’re getting more activity because of the labor market healing and supply chains healing.” -Powell

This post- pandemic cycle is unique, we don’t have a historical reference for it.  This is why the Fed wants to hold steady for now to see if the growth is sustainable or if it’s just a product of getting back to square one. The risk here is the Fed cuts too soon based on inaccurate data that is skewed as we re-balance the economy. Powell also pushed back on the soft landing saying that has not been achieved yet, and it’s too early to declare a victory.

 Besides these cautions, the tone of the Fed has notably changed, the language in the policy statement revised to now accommodate a view to begin talking about lowering rates rather than raising them.  According to Powell we have reached the peak rate and now the challenge is when and how much to cut.  He pushed back on the first cut being in March, saying that was unlikely.  He also pushed out the discussions on changing the quantitative tightening schedule to the March meeting, no information was provided at this meeting on the topic.

The immediate rate response to the Fed comments was somewhat muted. But Friday the employment data surprised to the upside - 353K jobs added versus expectations of 180K, with revisions higher in both November and December readings too.  Wage increases also doubled expectations.    

Monday ISM services also came in hotter than expectations but the major reaction from this report was that the prices paid really shot up.  The prices paid signals higher inflation as does the jobs data showing higher wages.  Mortgage rates moved higher as these early indicators could show up in the next official inflation reports.

The market is no longer pricing in a March rate cut that was certain just a month ago. As of this update according to the CME Fed watch tool the market shows now only 19% expect a March cut.  Currently 53% of the market is betting on a May cut , but that is months away.  Mortgage rates are not set by the Fed and move ahead of any Fed action, rates are adjusting according to the new consensus expectations now.

* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.

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