Weekly Mortgage Rate Update 1/16/24
Very little movement in rates since the December 13th Fed meeting when Powell signaled rate cuts ahead where the markets started pricing in a Fed pivot.
Last week inflation news showed CPI (Consumer Price Index) hotter than expected at a month over month increase at 0.3%, but it didn’t seem to affect pricing as overall inflation has eased and is expected to continue.
This week we will get more 2024 forecasting as the World Economic Forum is underway in Davos now. Also, several Fed members are due to speak this week. Market movers will be comments on the rate outlook and maybe more importantly- the outlook on quantitative tightening.
I try to point out in the weekly updates that there are other factors besides the Fed fund rate impacting mortgage rates, like the risk-based pricing changes we talked about last week with current mortgage spreads. The Fed fund rate directly impacts short term rates. Longer term rates like mortgage bonds are a different animal. But the Fed does have a tool to impact mortgage rates that it has been using quietly and that is quantitative easing/tightening.
You’ll recall one of the tools the Fed used to stabilize the economy and markets after the great recession was purchasing treasury and mortgage bonds (quantitative easing) which continued for over a decade, keeping rates artificially low because these purchases lower long-term rates by absorbing supply and increasing demand. When the pandemic hit, they then ramped up the purchases to an unprecedented scale that resulted in the lowest mortgage rates in history.
As part of the fight against inflation, in 2022 the Fed began quantitative tightening by letting its bond holdings roll off as they matured (including mortgage-backed securities). The Fed no longer actively buys mortgage and treasury bonds and around 60 billion is rolling off their books every month, but they still hold over 7 trillion of treasury and mortgage bonds.
There was another time in late 2018/2019 that the Fed attempted to start quantitative tightening, it had to stop almost as soon as it started because the financial markets came under stress. In 2022 when they started again, banks also came under stress. The Fed implemented a stop gap that has worked until now but concern over another disruption is growing. This was laid out in a WSJ piece yesterday, “ The Fed expects to cut short-term rates this year because inflation has fallen, its rationale for tapering bond run off is different: to prevent disruption…in a critical corner of the financial markets”.
We are due to get more direction on their plan moving forward, perhaps in the comments this week.
|
Loan Type |
Conventional 30 year |
Conventional 15 year |
FHA 30 year |
VA 30 Year |
|
Interest rate |
6.50% |
5.875% |
5.75% |
5.75% |
|
APR |
6.658%* |
6.131%* |
6.765%** |
5.895%*** |
LICENSED BY THE CALIFORNIA DEPARTMENT OF REAL ESTATE LICENSE A division of TYKY (DRE #01919683) (NMLS LICENSE #257773)
RATES ARE CURRENT AS OF 01-16-2024. SUBJECT TO BORROWER APPROVAL, FICO SCORE, LTV AND PROPERTY TYPE.conv
*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.