Weekly Mortgage Rate Update-11-6-23

PIVOT! One of the best scenes from the TV show Friends was Ross directing the gang to move a couch up a tiny stairwell. Its probably too soon to call for the real pivot on the direction of rates- but we had a MAJOR improvement of about .50% last week, so I couldn’t help using the analogy. RIP Matthew Perry. 

The real catalyst for the improvement was on Wednesday when the Treasury announced lower borrowing needs than expected and most importantly, they weighted most of the upcoming bond sales on the shorter-term bonds.  Signaling to the market that they will support keeping longer terms rates lower by reducing the supply side on the longer bonds.  This worked to calm the bond market and brought back investors to bonds who were exiting and stabilized the prices- at least for now. 

It’s a good time to point out that the Federal Reserve and the Treasury are two different entities that have different roles.  The Fed controls monetary policy and oversees banks. The Treasury controls fiscal policy and reports to Congress, essentially the job is to make sure the bills get paid, either with the tax revenue and/or issuing bonds to fund deficits.  We have been dominated by Fed policy until recently where fiscal policy took over the direction of mortgage rates specifically as long bonds sold off (causing rates to rise).

I am clarifying the rolls of the Fed and Treasury because one of the key take aways from the FOMC meeting that concluded Wednesday afternoon was the Fed adding a phrase- “tighter financial conditions”. This refers to the Treasury and the recent bond market sell off that caused rates to rise over and above the Fed policy that we have been pointing out over the past few weeks.  They added the phrase because increased deficits that the Treasury must fund with their bond sales will slow the economy by causing rates to rise or stay elevated.  This is in addition to the already tightening credit conditions that were brought in by Fed policy.  The markets took the change in the policy statement as a confirmation that the Fed is done,  they don’t need to hike the Fed rate anymore.  Markets are now pricing in a possible cut to Fed policy by spring 2024.

Friday rates improved further as the employment data showed a cooling job market.  October non-farm payrolls increased 150k vs 180k expected,  September and August numbers also revised lower by 100k jobs.  Unemployment rate rose from 3.8% to 3.9% Still low unemployment, but moving up, it was 3.4% in January 2023.  Labor costs declined signaling slowing inflation.  All good news for mortgage rates.

This week the Fed has a lot of speakers out and about, if they feel the market got it wrong, they may try to double down on not being done.  We also need to see if the longer dated bonds continue to believe that the Treasury and Congress will get their act together on fiscal policy.  We will soon see if this is the real pivot we have been waiting for.


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