Mortgage News

Since the Fed has cut rates 50bp on September 18th, 30-year mortgage rates have risen by roughly 0.75%.

“But why? I thought the Mortgage rates were tied to the Fed rate”

When the Fed cuts rates it has specific impact on these and more:

• Money Market accounts
• Short term Treasuries
• Credit cards
• Car loans
• Personal loans
• Small Business loans

What you don’t see on the list is mortgage rates, which are tied to Mortgage-Backed Securities (MBS) or, more specifically, the 10-year Treasury bond.

The Federal Reserve’s actions encourage money managers to buy bonds now, anticipating future rate cuts. For instance, a bond purchased today might offer a 10-year Treasury yield of 4.18%, guaranteed, as opposed to waiting until next year when rates could be 1.50% lower due to the Fed’s reductions.

It’s a delicate balance, and historically, October tends to be a challenging month for mortgage rates.

I was considering adding a more technical bond chart, but then I thought, why not a picture of a cute cat instead? And after some more thought, I figured, why not go with something more personal—a bit of a self-portrait, in a way.

Production Capacity Utilization simply refers to how much a company or industry can produce versus how much they are actually producing.

When production is at full capacity (100%), prices tend to be higher because demand is strong. During the 2008 financial crisis, production utilization dropped to 60% due to weaker demand.

Currently, we are at 77.5%, the lowest since January. While it’s not a bad number, it suggests production is slowing down, and manufacturers are reducing prices to encourage sales.

As a result, prices are falling and are expected to continue dropping, which could bring inflation below 2% sooner, leading the Federal Reserve to lower interest rates.

Graph below shows the hills and valleys over the last 50 years.

Fed Governor Waller has three possible projections with regards to the economy.

• Economy Stays strong, inflation nearing Fed’s target and unemployment only ticks up slightly. Fed continues with rate cuts.
• Inflation falls materially below 2% for some time. Labor market significantly deteriorates. Fed would suddenly be behind the curve and have to cur rates more aggressively.
• Inflation picks up again, labor market improves. The Fed can pause rate cuts.

The Feds next meeting in November 7th. At that point the Fed will have a lot of data to chew on including the October 31st Personal Consumption Expenditures (PCE).

What this means is the Feds will continue to cut rates unless something extraordinary happens. We have seen tremendous improvement with interest rates and expect that to continue.

If you are on the fence either buying or selling, lets keep pushing forward and run through the tape.

With the market changing and interest rates trending down, there are allot of buyers and sellers starting to get back into the market.

Your Success is largely a result of preparation, foresight, and actions in advance.

Back to the Data:

ADP Employment Report for September higher than expectations at 143,000 jobs created but with August’s report factored in, it still remains a weak report.

CoreLogic Home Prices Insights reported home prices fell in August just slightly by 0.1% with Home prices year over year up 3.9%.

Mortgage Applications up 1% for purchases and 9% year over year.

Refinances fell 3% but that is only because of the big increase the last two weeks. 55% of applications are for refinances.

www.YourApplicationOnline.com

Looking back to the beginning of September, it’s remarkable that rates have dropped by a full percentage point. A quick calculation shows that this translates to roughly $84 less per month for every $100K borrowed. For a $700K loan, that’s nearly $600 in monthly savings.

This morning, the International Longshoremen’s Association (ILA) went on strike, potentially affecting up to 50% of U.S. imports, with Walmart holding a significant share of these goods.

Initially, you might expect the bond market to react negatively due to potential inflationary pressure. However, with global tensions on the rise, savvy money managers are turning to bonds as a safe haven.

And that’s exactly what’s happening. While yesterday’s stance was “Lock, baby, lock,” I held off—and rightly so, as the bond market has improved, positively impacting mortgage rates.

Sometimes, what seems obvious at first glance deserves a closer look (that’s a headline I’ll use for the next update).

The Personal Consumption Expenditures – (PCE) which measures the cost of goods and services in the US, rose 0.1% in August putting the 12 month inflation rate to 2.2%.

Personal income remained steady with a slight increase of 0.2%, while spending also grew by 0.2%. However, caution prevails in the market, prompting manufacturers to lower their prices in an effort to attract a restrained consumer base.

We’ve observed ongoing improvements in interest rates, accompanied by a growing sense that the market is shifting. There’s been an uptick in activity, with more applications for purchases and refinancing, an increase in homes on the market, and a generally more optimistic outlook.

One of the larger components of the Personal Consumption Expenditures (CPE) is Shelter and Energy. Saudi Arabia who is the world’s largest oil exporter will be increasing Production by the end of the year. Right now oil is running just under $68 per barrel. They abandoned their $100 target.

As oil prices go down so does inflation. When inflation drops so does the Feds proclivity to drop their rates, as their rates drop….

Pending homes sales rose 0.6% in August stronger than expected.

Initial Jobless Claims fell for the first time in awhile 4,000 to 218,000.

Q2 GDP shows the US economy grew 3%, stronger than expected.

All in all generally good news but a mixed bag. We have seen a pull back with the bond market that has not helped rates this week..

Lets see what tomorrow brings when the PCE Inflation numbers hit.

According to the Mortgage Bankers Association (MBA), interest rates are now 1.25% lower than this time last year, dropping from 6.15% to 6.13%.

While new home sales fell 4.7%, they still surpassed estimates of 700,000, though only 105,000 homes were completed. What’s more interesting is the pace of sales compared to the number of available or completed homes.

Last month, 716,000 contracts were signed, equating to 7.8 months of inventory, but only 1.7 months of that inventory represents completed homes.

Despite these dynamics, housing demand remains strong, especially as interest rates continue to decline.

Bonds are sensitive to global events, and a major one occurred today. The People’s Republic of China announced several stimulus measures to boost their economy.

Key actions include cutting the average interest rate on existing mortgages by 0.5%, lowering minimum down payment requirements, and other steps to release a significant amount of funds.

While this may seem positive on the surface, it raises global inflation concerns and China’s stability. More global funds drives demand, limits supply and increases prices.

When I’m asked how far and when I expect rates to drop, the answer is more complex than it initially appears. The Bond Market around the world moved lower in price. Translation slight rate improvement.

Case Shiller Home Price Index rose 0.2% in July with Home prices up 5% year over year.

I never thought I’d hear these words. Here’s the exact quote:

“Inflation is on a lower path than we were potentially expecting. I think inflation is on the right path, as log as we don’t let it get too low”.

Even Fed Pres Minneapolis Neel Kashkari said even after the 50bp cut the Fed is still restrictive. He wants another 50bp by end of the year.

What’s coming up this week.

• Tuesday – Cash Shiller Home Price and FHFA house Index
• Wednesday – Mortgage Applications and New Home Sales
• Thursday – GDP, Initial Jobs Claims
• Friday – Personal Consumption Expenditures – PCE.

PCE is the big news of the week. If expectations come in at 0.1% in August that will put inflation at 2.3% down from 2.5%.

In my view, interest rates are falling. How much they’ll drop remains uncertain, but we’re finally seeing some light at the end of the tunnel. For years, low inventory has been a challenge, with homeowners locked into 3% rates and buyers either unable to afford homes or waiting for rates to decrease.

If you’re a homeowner looking to move, now’s the time to tune up your finances and get pre-approved—just in case you find your new dream home. For home buyers, inventory is up 22% from last year, and more homes are hitting the market, with more expected in the future.