Weekly Mortgage Rate Update-05/07/2024
The Fed ended its May meeting last week with no changes to the rate policy or outlook, still in wait and see mode. However, they announced a change to the quantitative tightening schedule starting on June 1st. Instead of 60 billion a month in Treasuries rolling off their balance sheet, they will slow the runoff to 25 billion a month. This is a more accommodative policy and offers a little relief to the bond market, while still being restrictive by holding the Fed funds rate higher. Essentially like Sammy Hagar, they are driving with their foot on the gas and brake at the same time.
Mortgage rates are impacted in a significant way by the supply of bonds hitting the market. Not only from the Federal Reserve’s quantitative tightening schedule we have been on for the past 2 years, but also from the rapidly increasing bond supply issued to fund our Federal deficits. Speaking of which, we have 125 billion in debt hitting the market over the next 3 days. The demand will be important to watch for our rate outlook.
Even though we are talking about Treasuries and not mortgage bonds, it affects mortgage rates because both Treasuries and mortgage bonds are chasing the same dollars. The Fed is also trying to reduce its mortgage bond holdings, but due to lower prepayments- the result of people not wanting to give up their Fed gift of 3% mortgage rates, its not rolling off very quickly. In the 2 years since tightening began, the Fed’s mortgage holdings have gone from just over 2.7 trillion to about 2.4 trillion, not much of a dent. Keep in mind the Fed has been the largest purchaser of mortgage bonds since 2020. The demand now needs to come from elsewhere.
On another note, while inflation remains high, the Fed’s dual mandate requires they support not only inflation at target, but full employment. Friday, we had a few more signs that the employment sector is softening when non-farm payrolls revealed a big miss on jobs expected to be added to the economy, the lowest reading in 6 months, and un-employment ticked back up to 3.9%. Then ISM Services reported in contraction territory for the first time since December 2022. This is important, the services sector is over half the economy and has been the one strong point, while the manufacturing side has been struggling for some time. These key reports and the FOMC moves last week helped mortgage rates to improve.
For the week ahead no major data points to be on the lookout for. The 10 year has been declining since last week, and that helps us to be a little more optimistic that rates could make another move lower.
|
Loan Type |
Conventional 30 year |
Conventional 15 year |
FHA 30 year |
VA 30 Year |
|
Interest rate |
6.999% |
6.375% |
6.25% |
6.25% |
|
APR |
7.136%* |
6.461%* |
6.984%** |
6.311%*** |
LICENSED BY THE CALIFORNIA DEPARTMENT OF REAL ESTATE LICENSE A division of TYKY (DRE #01919683) (NMLS LICENSE #257773)
RATES ARE CURRENT AS OF 05-07-2024. SUBJECT TO BORROWER APPROVAL, FICO SCORE, LTV AND PROPERTY TYPE
*APR IS BASED ON ESTIMATED FINANCE CHARGES OF $6935
**APR IS BASED ON ESTIMATED FINANCE CHARGS OF $10,969 THIS INCLUDES FHA MORTGAGE INSURA
NCE PREMIUM
***APR BASED ON ESTIMATED FINANCE CHARGES OF $8343
FEES INCLUDE 1% POINTS, NO Loan Origination Fee , $1095 PROCESSING AND $0 UNDERWRITING FEE
* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.