Mortgage Rates

Apache is functioning normally

Record-high home prices and elevated interest rates have weighed down mortgage markets. The Federal Reserve signaled its intention to maintain higher-for-longer rates, confirming that a reprieve is not on the horizon for borrowers and originators alike. Recent stagnation in refinancing loans, coupled with supply and demand discrepancies in housing, means originators still find themselves in an increasingly competitive landscape despite having expectations of the worst being over. These market developments underscore the reality we must face: Playing the interest rate waiting game is not a viable strategy. Instead, originators must aggressively seek out innovative ways to serve borrowers and generate business in this challenging market.

Meet your clients where they are

Because originators’ loan activity has decreased significantly, it’s imperative that you incorporate new products and services in order to grow your business and meet borrowers’ needs in the current market.

Housing sales have slowed due to waning supply and record-high prices.  However, a record $17 trillion of home equity is still available in the market. The bottom line: People are staying put. So how can you leverage this massive amount of equity? Explore HELOCs, which come in all shapes and sizes, meaning you can tailor them to your client base. For example, bank statement HELOCs serve self-employed borrowers, who might not qualify for traditional products. Bank statement HELOCs offer borrowers the flexibility to fund the endeavors that matter most to them, such as business ventures, home renovations, and other expenses.  

Furthermore, elevated interest rates have made it more difficult for borrowers to obtain personal loans. That’s where HELOCs come in: By offering bank statement HELOCs, originators can provide a valuable service that meets borrowers’ current needs while expanding originators’ own businesses through broadened product offerings.

In addition to HELOCs, flexible non-agency loans, such as non-QM loans, can help originators serve a greater range of borrowers. These loans are particularly beneficial for the growing number of self-employed borrowers who might not meet traditional criteria for mortgage qualification. 

By growing your experience with and expertise in niche products such as HELOCs and non-agency loans, you will hold a competitive advantage over your peers that stick to offering only conventional loan products.

Be proactive to stay ahead

Offering innovative products to your clients isn’t only for their benefit; it’s an investment in your own growth too. The time that originators spend becoming an expert in niche products enables them to offer tailored solutions to more diverse borrowers, expanding the potential reach of their practices and opening the door to long-term business growth. Keeping a finger on the pulse of borrower behaviors and motivations allows originators to anticipate their clients’ needs and stay ahead of market challenges. 

Continuous education on products is crucial for originators, and those that don’t make a proactive effort to increase and improve their knowledge are at a disadvantage when it comes to delivering on their clients’ needs and standing out among industry peers. Originators must seek out webinars, workshops, and training that enhance their understanding of new and developing product offerings, ongoing market trends, and industry best practices. Looking beyond their own education, originators must also be prepared to educate clients on the benefits of different loan products and how certain mortgage innovations could be applied to help them achieve their goals. Educated borrowers are likely to be confident in their financial choices, offer business referrals, and establish trusting relationships with their originators. 

By remaining flexible and innovative, originators can thrive even in a challenging interest rate environment. Remember to focus on delivering value to borrowers and to proactively seek out new opportunities. No matter what the market is like, you can turn industry innovation into a growth opportunity for your business.

This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.

To contact the editor responsible for this piece: [email protected]

Source: housingwire.com

Apache is functioning normally

Record-high home prices and elevated interest rates have weighed down mortgage markets. The Federal Reserve signaled its intention to maintain higher-for-longer rates, confirming that a reprieve is not on the horizon for borrowers and originators alike. Recent stagnation in refinancing loans, coupled with supply and demand discrepancies in housing, means originators still find themselves in an increasingly competitive landscape despite having expectations of the worst being over. These market developments underscore the reality we must face: Playing the interest rate waiting game is not a viable strategy. Instead, originators must aggressively seek out innovative ways to serve borrowers and generate business in this challenging market.

Meet your clients where they are

Because originators’ loan activity has decreased significantly, it’s imperative that you incorporate new products and services in order to grow your business and meet borrowers’ needs in the current market.

Housing sales have slowed due to waning supply and record-high prices.  However, a record $17 trillion of home equity is still available in the market. The bottom line: People are staying put. So how can you leverage this massive amount of equity? Explore HELOCs, which come in all shapes and sizes, meaning you can tailor them to your client base. For example, bank statement HELOCs serve self-employed borrowers, who might not qualify for traditional products. Bank statement HELOCs offer borrowers the flexibility to fund the endeavors that matter most to them, such as business ventures, home renovations, and other expenses.  

Furthermore, elevated interest rates have made it more difficult for borrowers to obtain personal loans. That’s where HELOCs come in: By offering bank statement HELOCs, originators can provide a valuable service that meets borrowers’ current needs while expanding originators’ own businesses through broadened product offerings.

In addition to HELOCs, flexible non-agency loans, such as non-QM loans, can help originators serve a greater range of borrowers. These loans are particularly beneficial for the growing number of self-employed borrowers who might not meet traditional criteria for mortgage qualification. 

By growing your experience with and expertise in niche products such as HELOCs and non-agency loans, you will hold a competitive advantage over your peers that stick to offering only conventional loan products.

Be proactive to stay ahead

Offering innovative products to your clients isn’t only for their benefit; it’s an investment in your own growth too. The time that originators spend becoming an expert in niche products enables them to offer tailored solutions to more diverse borrowers, expanding the potential reach of their practices and opening the door to long-term business growth. Keeping a finger on the pulse of borrower behaviors and motivations allows originators to anticipate their clients’ needs and stay ahead of market challenges. 

Continuous education on products is crucial for originators, and those that don’t make a proactive effort to increase and improve their knowledge are at a disadvantage when it comes to delivering on their clients’ needs and standing out among industry peers. Originators must seek out webinars, workshops, and training that enhance their understanding of new and developing product offerings, ongoing market trends, and industry best practices. Looking beyond their own education, originators must also be prepared to educate clients on the benefits of different loan products and how certain mortgage innovations could be applied to help them achieve their goals. Educated borrowers are likely to be confident in their financial choices, offer business referrals, and establish trusting relationships with their originators. 

By remaining flexible and innovative, originators can thrive even in a challenging interest rate environment. Remember to focus on delivering value to borrowers and to proactively seek out new opportunities. No matter what the market is like, you can turn industry innovation into a growth opportunity for your business.

This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.

To contact the editor responsible for this piece: [email protected]

Source: housingwire.com

Apache is functioning normally

Powell was referring to the current situation in which homeowners holding historically low rate mortgages aren’t feeling incentivized to sell their homes, reducing the number of properties available in the market.

A Federal Housing Finance Agency research paper published in March 2024 shows that nearly all 50 million active mortgages have fixed rates, and most have interest rates far below prevailing market rates, creating a disincentive to sell.

The paper suggests that a homeowner with a 4% mortgage rate — closer to the pandemic-era levels of 2% to 4% — is more than 50% less likely to sell with mortgage rates at 7% than if they were at 4%.

Also on Wednesday, as expected, the Fed maintained its short-term policy interest rate between 5.25% and 5.5%. It also released estimates showing that most of its officials forecast only one rate cut this year, compared to a majority who were planning for a total of three cuts in March. That’s despite the lowest annual inflation report since early 2021.

“The Fed is wrangling with tenacious inflation. The consumer price index for May was lower than expected, but the Fed won’t claim success until inflation has improved several months in a row,” Holden Lewis, a home and mortgage expert at NerdWallet, said in a statement.

According to Lewis, mortgage rates dropped slightly last week, but the decline doesn’t imply a long-term trend. In his opinion, “mortgage rates are likely to remain stubbornly above 6.5% for the rest of 2024.”

Fed officials not only reduced the number of projected rate cuts this year from three to one but also increased their year-end rate estimate. The median federal funds rate at the end of 2024 is expected to be 5.1%, compared to 4.6% in March. For 2025, projections went from 3.9% in March to 4.1% in June.

It means that “once it starts, this cutting cycle is likely to be shorter than past cycles,” according to Mortgage Bankers Association (MBA) chief economist Mike Fratantoni.

Wednesday’s announcement, however, did not change the MBA’s forecast that mortgage rates will drop to about 6.5% by the end of 2024.

Freddie Mac’s latest index, released on Thursday, shows that 30-year fixed mortgages are averaging 6.95%. The conforming loan rate was 7.15% at HousingWire’s Mortgage Rates Center.

“Mortgage rate trends aren’t likely to bust the mortgage rate inventory lock-in effect until at least the end of the year, and possibly well into 2025, as the Fed holds fast on fighting inflation,” Realtor.com senior economist Ralph McLaughlin said in a statement.

According to McLaughlin, the 10-year yield has to drop by 150 to 200 basis points for homeowners to feel comfortable selling and buying another home.

“At current spreads, this could require 3-4 quarter-point rate cuts by the Fed,” McLaughlin said. “As of now, the market is pricing in just one cut by the end of the year and 2-3 cuts in 2025. As such, anyone hoping the lock-in effect will be busted this year may be sorely disappointed.”

Housing industry experts believe that deals are being made by sellers and buyers who face life events — such as people divorcing or retiring, moving to another state for work or forming families.

Chuckie Reddy, partner and head of growth investments at QED Investors, a fintech venture capital firm with more than $5 billion under management, said that as relief in mortgage rates is delayed, “we are starting to see some signs of inventory build, which may lead to some price reductions.”

“We’re really starting to see for the first time some data showing that buyers are a little bit exhausted and that sellers are coming to the market, setting up the scenario where we could return to market equilibrium with housing price cuts and softness in house prices,” Reddy said in a statement. 

Source: housingwire.com

Apache is functioning normally

Before the Fed held its press conference, we got a softer-than-anticipated CPI report, which sent the 10-year yield (and mortgage rates) lower at first. Then, the Fed announced its policy and bond yields headed higher as Powell spoke. However, the 10-year yield finished the day lower. We have had some wild moves on key data lines lately, but we have itchy fingers from crowded trades, as shown in the 10-year yield below.

The ten-year yield, vital for mortgage rates, closed at a critical technical level today. However, we must remain vigilant, as we need to see softer economic data or a much softer PPI inflation print tomorrow morning to confirm this trend.

The PPI inflation report is critical because it filters more into the PCE inflation report later in the month, and that is the Fed’s preferred inflation data to track. As you can see below, we are again at this crucial level for the 10-year yield, so we shall see if this breaks lower.

We discuss Fed day in more detail on the HousingWire Daily podcast that drops tomorrow morning, but let’s first look at today’s inflation report because the CPI inflation report was a big surprise today.

From BLS: The Consumer Price Index for All Urban Consumers (CPI-U) was unchanged in May on a seasonally adjusted basis after rising 0.3 percent in April, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 3.3 percent before seasonal adjustment.

The month-to-month inflation data shocked bond traders, hence the big waterfall dive with the 10-year yield right after the report. It wasn’t like rent inflation drove this lower either — the shelter inflation grew monthly, but other inflation data came in lower than anticipated. As you can see in the chart below, we have made some good progress on the year-over-year inflation data heading lower. 

However, going out for the second half of the year, the base effects of the CPI data means it will be harder for these year-over-year gains to show progress. This is one thing Jay Powell discussed, which is a huge deal. This means the Fed will be more focused on the month-to-month data reports, as they should be, going out for the rest of the year. 

The big takeaway from the Fed meeting is that although they talked about the inflation data being good, the key talking point wasn’t about inflation at all — it was about the labor market.

The Fed believes the labor market data is back to balance enough to publicly say we are at levels we had before COVID-19. This is very big, as I feared Powell would wait for the job openings data to get back toward 7 million or the wage growth data to get back to 3% before he said this. The fact that he made this public is enormous.

So, what do we make of today’s double event? The inflation data was cooler than expected, but that won’t move the needle for Fed rate cuts. However, Powell’s labor talking points are a big deal. I recently talked about this on the podcast covering all the reports on jobs week.

The fact that the Fed is open to talking about labor supply data being balanced means they know that the labor market is softening. If we see labor data breaking, they will find the cover needed to cut rates without worrying so much about inflation because they will be back to a dual mandate Fed. On the mortgage rate side, this means mortgage rates can go lower and stay lower when the labor data gets weaker.

I see this as a sea change because one concern I had was the Fed would wait too long before admitting that the labor market is back to pre-COVID-19 trend data. It has been at that level for months now, so better late than never! As Powell said today: the best thing we can do for housing is get inflation lower so we can cut rates. My argument has been that the labor data will dictate this and today, we can finally see the path to a Fed pivot, but it does require the labor market getting weaker.

Source: housingwire.com

Apache is functioning normally

As expected by virtually all market participants, the Federal Reserve maintained its short-term policy interest rate between 5.25% and 5.5% at its June meeting that concluded Wednesday afternoon.

That’s the seventh consecutive time policymakers with the Federal Open Markets Committee (FOMC) kept the rates unchanged, reflecting mixed signals from the leading U.S. economic data. Job creation came in stronger than expected in May, but inflation slowed slightly.

According to the FOMC, “the risks to achieving its employment and inflation goals have moved toward better balance over the past year.” In recent months, there has been “modest” progress toward the 2% inflation target, but the economic outlook is “uncertain,” and the committee remains “highly attentive to inflation risks.”

“The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%,” the FOMC said in a statement. “In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities.”

For mortgage companies, today’s Fed decision means that rates for home loans will remain at higher levels for longer. Following the release of inflation data on Wednesday morning, the 30-year fixed rate for conforming loans was at 7.18%, according to HousingWire’s Mortgage Rates Center.

All eyes are now on the Fed’s next moves. Officials no longer expect three rate cuts for 2024, as indicated in March. According to new economic projections, 11 policymakers expect no more than one rate cut this year since more evidence of a cooling economy is needed.

The data shows that eight participants estimate a target level for the federal funds rate of 4.875% at the end of 2024, compared to seven participants at 5.125% and four at 5.375%. Overall, the median for the federal funds rate is at 5.1%, compared to 4.6% in March, the new projections show.

Monetary policy watchers believe there is a 91.1% chance of rates staying unchanged in July, along with a 65.4% chance of a rate cut in September, according to the CME FedWatch Tool, which measures the likelihood of changes to rates at upcoming meetings. 

Fed officials have consistently stated that economic data drives their decisions. 

In May, the U.S. economy added 272,000 jobs, above the market consensus estimate of 180,000, per data released by the U.S. Bureau of Labor Statistics. But the unemployment rate was at 4%, the highest level since January 2022 and up from 3.7% one year earlier.

Meanwhile, the Consumer Price Index (CPI) cooled slightly in May, with the all-items index posting a 3.3% annual increase before seasonal adjustment, down from 3.4% in April. On a month-over-month basis, inflation remained flat, marking the first month without an increase since July 2022. In April, the index posted a month-over-month increase of 0.3%. 

Fed officials are expecting higher inflation for 2024 than previously projected. PCE inflation is estimated at 2.6%, higher than 2.4% in March. Core inflation, which excludes food and energy, is estimated at 2.8%, up from 2.6% previously. Unemployment rate expectations remained unchanged at 4% from March to June.

“We need to see more good data to bolster our confidence that inflation is moving sustainably towards 2%,” Fed Chairman Jerome Powell told journalists during a conference on Wednesday afternoon. “It’s going to be not just the inflation rate readings; it’s going to be the totality of the data.”

According to Powell, reducing policy restraint too soon or too much could reverse the progress already made. Meanwhile, waiting too long would impact the U.S. economy.

But if the economy remains solid and inflation persists, Powell said the Fed is ready to “maintain the current range for the overall funds rate as long as appropriate,” adding that there’s no “commitment to a rate path.”

“It’s the full economic picture, not a singular factor, that will guide their decision,” First American deputy chief economist Odeta Kushi said in a statement.

“The FOMC will hold off on making any changes to the federal funds rate until inflation, and the factors that drive inflation, such as a more balanced labor market, make significant and sustained progress toward the Fed’s target, or there’s a significant decline in economic activity or worrisome weakness in the labor market.”

According to Kushi, the FOMC rate announcement itself is unlikely to significantly impact mortgage rates, but a more hawkish tone than markets anticipate can move them up further, or vice versa.

Realtor.com chief economist Danielle Hale said that “there are ample data points for both sides to factor into the debate” of where rates should be.

“Although recent inflation and labor market data have raised questions about whether additional increases in the Fed’s rate are necessary, I still expect the current rate to be sufficiently restrictive to bring inflation back to 2%, and updated economic projections suggest that Fed decision makers agree,” Hale said. 

“For home shoppers and sellers, I expect that peak mortgage rates likely remain in the rearview, but volatility remains a risk, complicating moving decisions for home sellers, homebuyers, and renters alike,” she added.

Regarding the housing sector, Powell said that the situation is “complicated” and the best the Fed can do is “bring inflation down,” noting that the country will still have to deal with a housing shortage.

Editor’s note: This is a developing story and will be updated.

Source: housingwire.com

Apache is functioning normally

Home prices are likely to increase slightly faster than previously thought in 2024, but slower than a prior projection for next year as the number of for sale property listings should rise, a survey of housing experts by Fannie Mae found.

A second quarter survey found a panel averaging 4.3% growth pace for 2024, up from 3.8% in the first quarter survey. Year-to-year for 2025, the panel expects growth of 3.2%, down from 3.4% one quarter ago. Annual appreciation last year was 6.6%, Fannie Mae said.

Most of those surveyed, 84% of the 95 responses, support the belief that the lock-in effect — potential sellers are staying where they are because they have a much lower mortgage rate than what is currently available in the market — is diminishing.

The Home Price Expectations survey was conducted with Pulsenomics between May 9 and May 21. That was a period where average mortgage rates dropped to 6.94% on May 23 from a 7.22% peak on May 2, according to Freddie Mac.

However, 16% of respondents supported the proposition that the recent rise in inventory is a “temporary jump” related to the needs of a certain group of current property owners who could no longer delay moving on from their current home.

Home prices are rising, and although the pace is diminishing, they are still going up, said Doug Duncan, chief economist at Fannie Mae, in an interview with National Mortgage News editors and reporters.

At the same time mortgage rates have stayed in the 7% range.

“Is the 7% mortgage a breaking point?” Duncan asked. “Incomes have not grown enough to catch up to that combined pair of costs.”

Part of the reason why house sales are so low is that many people bought earlier this decade as a result of the pandemic and the work from home trend that made proximity to an office unnecessary, allowing movement to lower cost areas.

It might have moved approximately 1.5 million buyers forward in time for when they normally might have purchased a home, Duncan continued.

When the survey asked about the impact on price appreciation if evidence arises that the lock-in effect is fading in the coming months, just under half of the responses, 49%, said it would decelerate somewhat. Another 10% thought it would decelerate significantly.

Approximately one-quarter of the 94 responses to the question said home price appreciation would not change much and another 15% went as far to say that this would accelerate somewhat.

On a cumulative basis, the panel expects two-year price growth of 7.67%, three-year growth of 11.4%, four-year growth of 15.92% and five-year growth of 20.78%.

The rate forecast from the panel also was significantly increased, with the 30-year to end 2024 at 6.6%, versus 5.9% in the last survey.

“A slowdown in home price growth and easing mortgage rates offer a glimmer of hope that the peak of the housing affordability crisis may be behind us,” Terry Loebs, founder of Pulsenomics, said in a press release. “However, the price surge of over 50% nationwide since early 2020 has created a high hurdle that will, unfortunately, keep many aspiring homeowners on a slower path to achieving their dream.”

Meanwhile, for the four weeks ended June 2, home prices rose 4.4% on a nationwide basis year-over-year to a new high, Redfin found. But it too is seeing evidence of softening, as 6.4% of sellers on average during the period cut their asking price, the highest share since November 2022.

While the median sales price for this period was $392,200, the median asking price rose 5.9% from one year earlier, to $417,274.

Prices actually fell in four large metropolitan areas — the Texas cities of Austin; down 2.9%; San Antonio, 1.2% lower; and Fort Worth, which also had a 1.2% fall; along with Portland, Oregon, where prices were off by 0.9% compared to the same time last year. That is the most metros with price declines since January.

For those observers looking for increased inventory easing the market, the data in the Redfin report might give them pause.

New listings increased by 6.9%, the smallest amount in the past four months, with the exception of the four-week period ended May 5.

Active listings grew 15.8%, Redfin said, and the median time on market increased by three days to 32.

Source: nationalmortgagenews.com

Apache is functioning normally

After last week’s jobs week, everything gets more intriguing as each month passes. The labor market has gotten softer but hasn’t broken yet. As we approach the midway point of the year, let’s examine last week’s data.

10-year yield and mortgage rates 

Last week, the labor data, a vital driver of the 10-year yield and mortgage rates, significantly influenced the market. After reaching a critical level on the low end, the 10-year yield experienced a reversal as the labor report on Friday not only surpassed estimates but also revealed robust wage growth data, pushing yields higher.

I did an in-depth analysis of Jobs Week, complete with charts, discussing the labor market’s softening trend. Still, the labor market hasn’t broken yet. Our upcoming HousingWire Daily podcast will delve into these reports with even more detail, providing a comprehensive understanding of the market dynamics between the labor market and mortgage rates.

The chart below shows the 10-year yield right before the jobs report; once the labor report came, yields shot up and closed the week at 4.43%. 

Mortgage spreads

The spread between the 30-year mortgage rate and the 10-year yield has been an issue since 2022, and in 2023, things got worse after the March 2023 banking crisis. However, a positive story for 2024 is that the spreads are better this year than last year.

If we took the worst levels of the spreads from 2023 and incorporated those today, mortgage rates would be 0.48% higher. So, things could be worse on the mortgage rate front this year. However, if spreads get back into a normal range, mortgage rates would be 0.75%-1.00% lower today without any movement lower on the 10-year yield.

Purchase application data

The seasonality of purchase application data is over, as volume typically starts to fall after May. However, we always keep track of this data line because if rates fall like they did late in 2022 and 2023, we need to keep track of the weekly data. 

Since November 2023, when mortgage rates started to fall, we have had 12 positive prints versus 13 negative prints and two flat prints week-to-week. Once mortgage rates began rising in 2024, some demand was removed. As shown below, the year-to-date data isn’t even positive for 2024: we’ve had six positive prints, 13 negative prints, and two flat prints. As we can see, we aren’t getting any real mortgage demand growth with rates this high and the bounces we see in the data are coming from depressed levels.

Weekly housing inventory data

I can’t stress enough that the best story for 2024 has been that active inventory and new listing data is growing. We desperately needed to get off these record lows in inventory and create a buffer for breathing room when rates fall. While inventory didn’t hit my target growth number again, the fact that we have hit that level three times this year is a plus. If mortgage rates are high — 7.25% or higher — we should get some weekly inventory growth between 11,000 and 17,000. This week, we only hit 6,674.

  • Weekly inventory change (May 31-June 7): Inventory rose from 604,922 to 611,596 
  • The same week last year (June 2-June 9), Inventory rose from 437,007 to 443,749
  • The all-time inventory bottom was in 2022 at 240,194
  • This week is the inventory peak for 2024 at 611,596
  • For some context, active listings for this week in 2015 were 1,165,714

New listings data

New listings had their traditional rebound after the Memorial Day weekend decline, which isn’t shocking. However, the real story is that we see year-over-year growth, which is a plus. It doesn’t look like I will reach my assumed easy target of 80,000 new listings. I had hoped we could even get above 95,000 this year, something that was more common in the past decade, but I am simply running out of time before the seasonal decline of new listings. Here are the new listings for last week over the last several years:

  • 2024  72,061
  • 2023: 63,001
  • 2022: 85,068

Price-cut percentage

In an average year, one-third of all homes take a price cut — this is standard housing activity. When mortgage rates increase, demand falls and the price-cut percentage grows. When rates drop and demand improves, the price-cut percentage can fall. This data line is very seasonal, and we have seen consistent year-over-year price-cut percentage growth since the end of March. 

This is one of the reasons we will see a cooling in home prices from the start of the year. I recently discussed this in the HousingWire Daily podcast and explained why I believe this is the case. Here are the price cut percentages for last week over the previous few years:

  • 2024: 36%
  • 2023: 31%
  • 2022: 26%

Pending sales

One of the new data lines we will start incorporating in the tracker is Altos’ pending contract data — this will give people a better idea of how future sales will go. Below, you can see that the weekly pending contracts data has shown slight year-over-year growth, which aligns with the year-over-year increase in the new listing data. These are the pending home sales for last week over the past several years:

  • 2024: 393,636
  • 2023: 380,231
  • 2022: 455,678

The week ahead: Inflation and Fed Week! 

Last week we had a crazy jobs week and now we are going straight into the fire with CPI inflation and Fed meetings on Wednesday. We also have a few bond auctions happening this week with the PPI inflation report. So, there is no rest for anyone, as the coming week can make mortgage rates more volatile.

Source: housingwire.com

Apache is functioning normally

The BLS jobs report shows the honey badger labor market woke up and once again chose violence this morning. Not only did headline jobs beat estimates, but negative revisions were minor and wage growth picked up. This is obviously negative for mortgage rates, as bond yields were close to breaking a key technical level but reversed course.

Fortunately for the mortgage industry, the Federal Reserve focuses more on the underlying data it tracks rather than the headline BLS prints. In a recent meeting, when asked if robust headline job numbers would lead to a rate hike, Fed Chair Jay Powell responded that the growth rate of inflation fell faster than anticipated, with the labor market printing big job numbers in 2023. This suggests that the Fed’s view of jobs week is more nuanced and that one jobs report is not the sole basis for their decisions. Let’s review what the Fed is looking at.

Job openings data

The Fed loves job openings data as they cite it as their reason for the unbalanced labor supply premise. My working theory is that the Fed wants to see us drop to 7 million job openings — that’s when they will take a more dovish tone. We have come down from a record 12 million job openings after COVID to nearly 8 million. Softer labor data makes the Fed smile, but we’re not at the target yet.

The quits ratio, my key data line to show whether the labor market is tight, is back to pre-COVID-19 levels. Based on what the Fed tracks, we are no longer in a tight labor market. However, I believe the 7 million number is their target level for job openings and when we get there it should drive the quit rate percentage to below 2%.

Jobless claims

Jobless claims are the critical recession labor trigger for me. My recessionary target level is 323,000 on the four-week moving average. If the Fed waits to pivot even when we get close to this number or after we hit this number, the soft landing disappears. Just heading closer toward this number is a very bearish labor signal. Jobless claims are rising from the recent low but not enough to get the Fed’s attention and since Jay Powell said the Fed watches jobless claims data, it’s a key data line to track weekly. This week, we saw a mild decline but it’s trending higher from the recent lows.

BLS jobs Friday

From BLS: Total nonfarm payroll employment increased by 272,000 in May, and the unemployment rate changed little at 4.0 percent, the U.S. Bureau of Labor Statistics reported today. Employment continued to trend up in several industries, led by health care; government; leisure and hospitality; and professional, scientific, and technical services.

Here is a breakdown of the jobs created this month:

As always, one of the labor sectors I watch for a recession is residential construction workers, who tend to lose their jobs before the recession. So far, that hasn’t happened yet. Note: Don’t put all your eggs into the inverted yield curve basket without economic data looking recessionary. I believe this is the big mistake stock traders made for two years now.

Wage growth data is critical for me and my model for the Federal Reserve. I believe the Fed is targeting 3% wage growth because they don’t think the productivity numbers are as strong as they report. So, while wage growth is not spiraling out of control and has been cooling off since 2022, I believe we need to get below 3.5% to have the final countdown to 3% wage growth where the Fed no longer sounds hawkish.

This is the critical topic that I want to discuss. One of my labor market recovery calls has been based on the premise that if we hadn’t gone through COVID-19, there should be around 157 million to 159 million people working. As this economic cycle progresses and we get close to 159 million, job growth numbers should cool down. This means we should be trending between 140K and 165K per month as we get closer to 159 million people employed. So far, this call isn’t looking good as we are currently at 158,543,000 total nonfarm payrolls, and the last thre-months’ average is 249,000.

However, I do expect the headline jobs data to slow. Because that data line should slow, the unemployment rate should be ticking up over the next 12 months. Keeping the unemployment rate lower will be more complex and more challenging unless we are pushing 250K jobs per month. This is something to consider for the rest of this year and 2025.

Overall, the headline jobs print beat estimates and wage growth was a bit stronger than anticipated, but jobs week data is still showing me what I have been seeing for months now: a labor market getting softer but not breaking yet. For mortgage rates, the labor data has always been critical because I believe once we get labor data breaking, the bond market will do a lot of early heavy lifting for the Fed, and they won’t mind mortgage rates going lower.

Source: housingwire.com

Apache is functioning normally

Job creation that exceeded expectations in May has reinforced the perception that the Federal Reserve will maintain the same benchmark interest rates at its June meeting and may delay any rate cuts that were planned for this year. This means that mortgage rates are likely to be higher for even longer than previously expected. 

The U.S. economy added 272,000 jobs in May, above the market consensus estimate of 180,000. It was also much higher than the 160,000 jobs delivered the previous month (the April data was revised downward by 15,000) and the 12-month average increase of 232,000, per data released Friday by the U.S. Bureau of Labor Statistics.

In May, job gains were most notable in industries such as health care (+68,000), government (+43,000), and leisure and hospitality (+42,000). The data shows that the average hourly earnings for private-sector employees grew by 0.4% month over month to $34.91 and were up 4.1% from a year ago. 

Meanwhile, the unemployment rate was 4% (6.6 million unemployed people) in May, compared to 3.7% (6.1 million unemployed people) in the same month last year. That’s the highest level for the jobless rate since January 2022. 

Following the jobs report, the 10-year U.S. Treasury, which historically correlates to mortgage rates, was at 4.42% on Friday morning, up 13 basis since market open. At HousingWire‘s Mortgage Rates Center, the 30-year fixed for conforming loans was at 7.2%.

The CME FedWatch Tool, which measures the likelihood that the Fed will change the federal target rate at upcoming meetings, on Friday showed a 99.4% chance of rates remaining unchanged at the next meeting, compared to 96.2% yesterday. The chances of a rate cut in September went down from 68.7% to 54.4% in the same period.

“Although this report is not uniformly strong, on net, it is showing a job market that is still quite tight, which likely means that the Federal Reserve will continue to hold at its current level of rates, as inflation is unlikely to drop back to target given this pace of wage growth,” Mike Fratantoni, chief economist for the Mortgage Bankers Association (MBA), said in a statement. 

The MBA forecasts the Fed’s first rate cut in September of this year. Benchmark rates are now between 5.25% and 5.50%.

Lawrence Yun, president of the National Association of Realtors (NAR), said that yearly wage growth of 4.1% is respectable and better than the 3.4% consumer price inflation. But Americans have not shown recognition of an improving economy “due to the fact that the cumulative rise in consumer prices is still higher than the cumulative wage gain of the past four years.” 

“Payroll data is considered much more reliable than household survey data. That is why Wall Street is expecting a further delay in the Fed’s interest rate cut. The mortgage rate looks to be stuck at near 7% average for at least another month,” Yun said in a statement.

Danielle Hale, chief economist at Realtor.com, said this month’s uptick in job creation was “smaller than previous hiring sprees in March 2024 and December 2023.” Overall, the job market “has slowed from previous highs, but appears to be normalizing in a healthy way and should help bolster confidence that monetary policy is having its intended effect.” 

But inflation data is needed to understand the Fed’s next step. 

“Bond traders are anticipating slower growth and lower inflation, which has caused 10-year yields to slide in the last week to lows not seen since late March,” Hale wrote. “If this perspective is confirmed in next week’s data, we could see mortgage rates remain below 7%, a threshold they’ve hovered above and below for the past four weeks, but if the data deviate from this trend, mortgage rates are likely to climb.”  

In an interview with HousingWire earlier this week, Fannie Mae chief economist Doug Duncan said that his team expected new payroll jobs in May to be aligned with April. But he noted that if the figure exceeded 200,000 jobs, “it’s going to take longer for the Fed to act.”

“We have in our forecast [the Fed] cutting 25 basis points for each of the September and December meetings. But if they don’t get three strong months trending the major data in the direction they want, we will take the September number out. The risks, right at the moment, are balanced toward less cuts.” 

Source: housingwire.com

Apache is functioning normally

Average mortgage rates ebbed this week — a welcome change, but not enough to give home buyers much relief.

The average rate on the 30-year fixed-rate mortgage fell to 6.89% in the week ending June 6, according to rates provided to NerdWallet by Zillow. It was a decrease of 13 basis points from the previous week. (A basis point is one one-hundredth of a percentage point.)

The drop brings the 30-year fixed rate to about where it was two weeks ago and slightly under May’s monthly average of 7.01%.

Home prices may cool off

National home sale prices rose 5.3% year over year in April and were up 1.1% from the prior month, CoreLogic, a global property analytics company, reported this week.

Any price increase is tough on home buyers, but the recent gains are softer than the year-over-year price jumps in the last few years. CoreLogic projects home price growth to slow to 3.4% by next spring.

The price softening reflects buyers’ response to high mortgage rates and anticipation that rates may eventually fall, CoreLogic chief economist Selma Hepp said in a June 4 press release.

“Also, the price cooling is more pronounced in markets where there has been an influx of inventory and/or new construction, as well as those where additional homeownership costs (such as insurance, taxes and HOA fees) have risen relatively faster,” she said.

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More homes for sale

About 605,000 single-family homes are on the market — 39% more than last year at this time, Mike Simonsen, founder and president of Altos Research, a real estate analytics firm, said in a June 3 video.

“Most of the country has over 30% more homes on the market now,” he said. “But a few states — Texas, California, Florida, Georgia, Arizona — are driving the bulk of the inventory increase for the country. So inventory is up everywhere, just some places more than others.”

Simonsen predicts that rising inventory will continue as long as rates stay high. Inventory will fall if rates go down and more buyers enter the market.

Fed rate cut unlikely next week

Lower inflation could lead to lower interest rates. The two big things to watch for next week are the releases of the U.S. Bureau of Labor Statistics’ consumer price index, which measures inflation, and the Federal Reserve’s Federal Open Market Committee’s monetary policy statement. Both will happen on June 12.

The Fed does not plan to cut the federal funds rate — a rate that influences mortgage rates — until inflation is “moving sustainably toward 2%.”

Market watchers don’t expect a rate cut next week. As of June 6, the chance of the Fed keeping the federal funds rate unchanged was more than 99%, according to the CME FedWatch Tool.

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Source: nerdwallet.com