This past week, home loan rates hovered near the lowest levels in over a month as the Federal Reserve raised rates once again. Let's walk through the Fed Meeting and the other big events impacting the markets.
Fed Funds Rate Hike
"Some additional policy firming may be appropriate" – FOMC Monetary Policy Statement on 3/22/2023.
This past Wednesday, the Federal Reserve raised the Fed Funds Rate by .25%, the 9th rate hike in just over one year. This lifted The Fed Funds Rate to a range of 4.75% to 5.00%. There was some speculation the Fed may pause hiking rates at this meeting amidst the fallout of the SVB and Signature Bank failures.
The good news was the quote above along with the Fed's updated Economic Projections are suggesting one more rate hike in May, so rate hikes could be nearing the end.
Credit Tightening
"Likely to see tighter credit conditions that weigh on economic activity." FOMC Statement.
This may be the main reason rate hikes are nearing their end. The SVB failure, uncertainty around potential bank runs and overall liquidity concerns will likely lead to banks making it tougher for small business and commercial loans. As Fed Chair Powell said in his press conference on Wednesday, "Credit tightening post-bank failure is akin to rate hikes."
Lower Rates Equal Housing Relief
A backward-looking housing report may reveal better times ahead for housing. Existing-Home Sales for February rose 14.5% from January, ending a 12-month streak of declining sales.
This good reading came on the heels of improved mortgage rates in January and February. With home loan rates now within a whisker of those levels and spring in the air, better days for housing lie ahead.
Bottom Line:The end of Fed rate hikes is near and long-term rates, like mortgages, may have likely already seen their peak. With mortgage rates now near the levels seen in early February, when home sales jumped, it will be no surprise to see this trend continue through spring.
Looking Ahead: Next week will be chock full of headline risk as Fed officials are back speaking and we monitor the banking sector for more potential issues. And from the economic front, the Fed's favored gauge of inflation, the Core PCE, will also be reported. If this report comes in showing hot inflation, rates could suffer. The opposite is true. |
Mortgage-backed security (MBS) prices determine home loan rates. The chart below is a one-year view of the Fannie Mae 30-year 5.5% coupon, where currently closed loans are being packaged. As prices increase, rates move lower and vice versa.
MBS prices have moved sharply higher over the last several days, providing a nice improvement in rates. For rates to improve further, we need to see MBS push above $101, where they started at the beginning of February. A move above this ceiling would lead to another move lower in rates.
The material contained in this newsletter has been prepared by an independent third-party provider. The content is provided for use by real estate, financial services and other professionals only and is not intended for consumer distribution. The material provided is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, there is no guarantee it is without errors.
As your mortgage professional, I am sending you the MMG WEEKLY because I am committed to keeping you updated on the economic events that impact interest rates and how they may affect you. 
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This past week, home loan rates improved to their lowest levels in a month in response to the closures of Silicon Valley Bank (SVB) and Signature Bank. Let's walk through what happened as we approach the Fed Meeting next week.
SVB Failure and Rates
It's important to remember that bonds enjoy bad news, so when word broke earlier this week that SVB was shuttered by the FDIC, home loan rates improved to their best level in six weeks. At the same time, the 2-year Note yield, which tracks Fed rate hike activity, plummeted from over 5.00% to under 4.00% in just a couple of days. This was an epic decline in rates not seen even after 9/11 or the Great Recession.
The good news (in the case of SVB and even Signature) is that bad management, failure to manage interest rate risk and a widespread desire for depositors to gain access to their funds (bank run) is what caused these banks to shutter.
In response, the Federal Reserve immediately created a line of credit and an implicit backstop to protect any depositors from any losses. This was good news and will hopefully limit any further fallout in the banking sector.
So, what does the Fed do with rates now that we have high uncertainty and contagion risk in the banking sector?
Stability > Inflation
Seeing that one reason SVB failed was in response to a rapid rise in interest rates, there is increased pressure for the Fed to limit rate hikes going forward and regain stability in the financial sector.
Just last week there was a high probability the Fed would raise rates by .50. Now just days later, there is a 75% chance of a .25% and a 25% chance the Fed doesn't hike rates at all.
Next week's Fed Meeting and press conference will hopefully have the markets feeling that the Fed is going to take every measure possible to ensure stability while they closely watch the pace of inflation decline.
Housing Numbers OK
It wasn't all bad news this week. Housing numbers for February highlighted the little rate relief we saw in January and brought some optimism into February. Both Housing Starts (which is putting the shovel in the ground), and Permits (a leading indicator of future building), came in better than expectations.
This bodes well for housing in the months ahead, especially combined with the rate relief we are experiencing.
Bottom Line:This week's news in banking has changed everything as it relates to the Fed and rate hikes. The markets are suggesting the Fed will be cutting rates in the second half of the year which is a big change from the rate outlook just days ago.
Looking Ahead: Next week brings the Fed Meeting and monetary policy decision. As we shared, it appears the Fed is only going to raise rates by .25%, rather than .50% to foster stability in the financial markets and avoid contagion in the banking sector. What the Fed says will be important in bringing calm to the markets during this uncertain moment. |
Mortgage-backed security (MBS) prices determine home loan rates. The chart below is a one-year view of the Fannie Mae 30-year 5.5% coupon, where currently closed loans are being packaged. As prices move higher, rates move lower and vice versa.
MBS prices have moved sharply high over the last several days, providing a nice improvement in rates. For rates to improve further, we need to see MBS push above $101, where they started at the beginning of February. A move above this ceiling would lead to another pop higher in rates.
The material contained in this newsletter has been prepared by an independent third-party provider. The content is provided for use by real estate, financial services and other professionals only and is not intended for consumer distribution. The material provided is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, there is no guarantee it is without errors.
As your mortgage professional, I am sending you the MMG WEEKLY because I am committed to keeping you updated on the economic events that impact interest rates and how they may affect you.
This past week, Fed Chair Powell testified on Capitol Hill and his words sent rates higher. Let's walk through what happened and take a peek at what to watch next week.
"Rates Need to Go Higher, Faster"
On Tuesday and Wednesday, Fed Chair Jerome Powell testified before both the House and Senate on the state regarding the economy and monetary policy.
His prepared speech set off fireworks in the financial markets on Tuesday as stocks moved sharply lower, and rates spiked once again. He started by suggesting that rates need to go higher and faster. This was a surprise as the Fed Chair recently said, "The disinflation process had begun." He had the markets sensing there would be possibly three more .25% rate hikes.
As of this writing, things have changed a lot. Now, there is a 69% change of a .50% hike at the March Fed Meeting in two weeks. Before the Fed Chair spoke, the chance of a .50% was just 25%. The threat of even more rate hikes elevated short-term rates (which move closely with Fed rate hikes) to the highest levels in 16 years.
2-Year & 10-Year Yield Curve Inversion Widens
With the 2-year Note yield spiking to 5.00% and the 10-year yield remaining beneath 4.00%, we witnessed the largest yield curve inversion since 1981. Why is this important? Yield curve inversions are typically accurate in predicting recessions. So, seeing the widest yield curve inversion in decades suggests the bond market is screaming that a recession is likely to happen within the next 12 to 18 months.
"We do not think we need to see a sharp increase in unemployment to get inflation under control." Powell
Here, the Fed Chair is trying to soothe the markets on the notion they can hike rates more to help lower inflation and avoid a large uptick in unemployment. Currently the labor market remains very tight. There are still nearly 11 million jobs available and nearly half that amount of people unemployed, so there is a 5 million gap between jobs available and people to fill those positions.
Let's hope the Fed Chair is correct and inflation will continue to come down and we do not experience significant unemployment...as jobs buy homes.
Bottom Line:The uncertainty, confusion and volatility in the financial markets has elevated pessimism in the economy and housing. History has shown when pessimism or optimism elevates, it's generally a contrarian indicator and a change in sentiment is forthcoming. The other good news? Despite all the noise, both inflation and home loan rates have likely peaked.
Looking Ahead: Next week the financial markets will get some relief from Fed speak as Fed speeches will be limited during the "quiet period", one week before the next Fed Meeting on March 22nd. Meantime, there will be important inflation readings which could move rates. |
Mortgage-backed security (MBS) prices determine home loan rates. The chart below is a one-year view of the Fannie Mae 30-year 5.5% coupon, where currently closed loans are being packaged. As prices go higher, rates move lower and vice versa.
MBS prices fell to the lowest level since November 10th. If prices fall beneath the lows of November 10th, we will likely see home loan rates move another leg higher.
The material contained in this newsletter has been prepared by an independent third-party provider. The content is provided for use by real estate, financial services and other professionals only and is not intended for consumer distribution. The material provided is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, there is no guarantee it is without errors.
As your mortgage professional, I am sending you the MMG WEEKLY because I am committed to keeping you updated on the economic events that impact interest rates and how they may affect you.
This past week, home loan rates touched their highest levels since November. Let's walk through what happened and mention the big events in the week ahead.
Global Inflation Remains High
Back in early February Fed Chair Jerome Powell stated that the disinflation process has begun and that's a good thing. Since that moment, the U.S. has endured several higher-than-expected inflation readings causing interest rates to spike to the highest levels since November.
This included the recent Q4 2022 Unit Labor Cost Numbers, which came in double expectations.
And if that were not enough, inflation across the pond rose to record levels causing global yields to rise. France, Spain, Germany and Italy all reported record inflation prompting markets to start pricing in more rate hikes ahead for the European Union.
The European Central Bank is now expected to raise their benchmark interest rate to 4%. It was not long ago where that interest rate was negative and as interest rates rise around the globe, it places upward pressure on our yields.
4%
On Wednesday, the ISM Manufacturing Index was reported. And while the headline number was disappointing and shows the manufacturing sector contracting, the prices paid component or inflation reading was elevated. After several higher-than-expected inflation readings over the last few weeks, this report was enough to push rates higher, with the 10-year yield breaking a psychological barrier at 4%. With this break above 4%, market watchers' sense that the November highs of 4.20% will be tested.
Fed Tough Talk Is Back
On the heels of the hotter than expected inflation numbers, Federal Reserve officials were out in full force, reminding markets that interest rates will go higher for longer. Fed President Kashkari said, "If we declare victory too soon, there will be a flood of exuberance and we will need to do even more work (rate hikes)."
The financial markets are now pricing .25 basis point rate hikes in March, May, and June, lifting the Fed Funds Rate to over 5% for the first time since 2007.
The good news? The Fed's efforts to fight inflation, slow demand create some unemployment and lower asset prices is good for long-term bonds like the 10-year Note and Mortgage-Backed Securities (MBS). We will now watch carefully to see if MBS prices can remain above the November price lows and if the 10-year yield can remain beneath the closing peak of 4.20% last seen in November.
Bottom Line:In the absence of market-moving economic data we should not expect any meaningful improvement in rates. The good news is the cure for higher rates is higher rates. Rates are near peaks seen in the Fall. The economy is slowing and all of the Fed rate hikes from last year have yet to hit the economy.
Looking Ahead: Next week brings big news which could reverse the negative sentiment in the bond market. On Tuesday and Wednesday, Fed Chair Jerome Powell will be delivering the Fed's Semi-annual testimony in front of Congress. This event includes speeches in front of the Senate and House, along with a long question and answer session. And if that were not enough, on Friday we get the February Jobs Report which comes on the heels of January's surprisingly strong report. |
Mortgage-backed security (MBS) prices determine home loan rates. The chart below is a one-year view of the Fannie Mae 30-year 5.5% coupon, where currently closed loans are being packaged. As prices go higher, rates move lower and vice versa.
MBS prices fell to the lowest level since November 10th. Next week's big news may determine whether rates can improve from this recent spike and if we see some relief.
The material contained in this newsletter has been prepared by an independent third-party provider. The content is provided for use by real estate, financial services and other professionals only and is not intended for consumer distribution. The material provided is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, there is no guarantee it is without errors.
As your mortgage professional, I am sending you the MMG WEEKLY because I am committed to keeping you updated on the economic events that impact interest rates and how they may affect you.
The US Department of Housing and Urban Development (HUD) recently announced a decision to reduce the mortgage insurance premium on Federal Housing Administration (FHA) mortgages. The decision was made to provide more affordable housing options to first-time homebuyers and low- to moderate-income borrowers.
The reduction in mortgage insurance premium is significant. FHA borrowers will now pay an annual insurance premium of 0.55% of the loan amount, down from the previous rate of 0.85%. This change is expected to save new FHA borrowers an average of $700 annually, and make homeownership more accessible to those who are struggling to save for a down payment.
FHA loans are popular among first-time homebuyers because they require a lower down payment (as low as 3.5%) than conventional loans. However, FHA loans also require borrowers to pay mortgage insurance premiums (MIP) for the life of the loan. The reduction in MIP rates will make FHA loans even more attractive to first-time homebuyers, who are often cash-strapped and looking for affordable housing options.
This decision by HUD is a positive step towards making homeownership more accessible to a wider range of borrowers. It will not only benefit individual borrowers but also the housing market as a whole. More affordable housing options will encourage more people to enter the housing market, which will help to stimulate demand and boost the economy.
However, it is important to note that the reduction in MIP rates does not mean that FHA loans are the best option for everyone. Borrowers should still shop around and compare different loan options to find the best fit for their individual needs and financial situation. Additionally, while FHA loans are a great option for those with lower credit scores or smaller down payments, they may not be the best option for those with higher credit scores or larger down payments.
In conclusion, the recent announcement by HUD to reduce the mortgage insurance premium on FHA mortgages is a positive step towards making homeownership more accessible to first-time homebuyers and low- to moderate-income borrowers. The reduction in MIP rates will make FHA loans even more affordable and attractive to those looking for affordable housing options. However, borrowers should still carefully consider their options and financial situation before committing to any loan. |
The material contained in this newsletter has been prepared by an independent third-party provider. The content is provided for use by real estate, financial services and other professionals only and is not intended for consumer distribution. The material provided is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, there is no guarantee it is without errors.
As your mortgage professional, I am sending you the MMG WEEKLY because I am committed to keeping you updated on the economic events that impact interest rates and how they may affect you.
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Mortgage 1, Inc.
43456 Mound Road
Sterling Heights, MI 48314
JHiggins@mortgageone.com
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