Mortgage Update - February 19th, 2024
Hello all! It was a snap back to reality with the winter weather this weekend. A combination of colder weather and a brutal week for mortgage rates have us yearning for sunnier days. Let’s breakdown the wild week in mortgage world!
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Mortgage Rates Get Smoked by Inflation Reports 🚬
Last week’s inflation reports were the knockout punch for rates after the uppercut we received from the jobs report a couple weeks ago. Mortgage rates have now reached their highest levels for 2024 due to the hotter than expected CPI and PPI inflation reports that were released. It appears that inflation is now headed in the wrong direction.
Remember, the primary reason that the Fed had been increasing rates for the past year and a half was to bring inflation down and cool the economy. We had been enjoying a steady decline in mortgage rates to start the year with the anticipation that inflation had been tamed and the Fed would start lowering rates in 2024. However, that sentiment is quickly changing with the hotter inflation and strong employment numbers that we have witnessed within the past couple of weeks. The realization that rates may have to stay higher for longer is becoming a reality.
Key Takeaway : Rates jumped last week due to the hotter than expected inflation reports. Markets reacted with interest rates spiking to the highest levels of the year with the expectation that the Fed will keep rates higher for longer.
Market No Longer Expecting Rate Cuts In March or May
After the strong job numbers and the hot inflation reports, the markets are suddenly being forced to plan for fewer and later rate cuts. The market is now pricing in a 93.5% chance that the Fed does not cut rates in March and a 64.3% chance that they do not cut rates in May. The market now predicts the first rate cut will come in June.
We also went from anticipating 6 to 7 rate cuts in 2024 to now expecting a maximum of 4 rate cuts for the entire year.
Clearly, the timing is not ideal as we approach the Spring market buying season. We can expect rates to stay at the current elevated levels until we start seeing economic indicators that reflect a weakening economy.
Key Takeaway : Market expectations have shifted quickly within the past couple of weeks. The market knows that the Fed cannot cut rates when inflation is increasing, and the job market is hot. As a result, the market is expecting the Fed to keep rates higher for longer, which is the reason we saw rates spike this week. Rates in the high 6’s and low 7’s might be the new norm for the foreseeable future.
Fed Meeting Minutes This Wednesday
The Fed meeting minutes will be released this Wednesday, which should give us another indication on the timing for their expected rate cuts. This could be a big market mover for us in the industry. We are expecting the Fed to reiterate the need to remain patient and warn against cutting rates too soon given the strength of the strong U.S. economy. If the Fed does not provide any specific details or timeline for rate cuts, we could see rates push even higher. However, if the Fed states that they have a plan in place and rate cuts are coming, we could see the market rally and move rates lower.
Key Takeaway : We also have a total of 5 Fed speaker events this week. The market will closely monitor remarks from the Fed. Expect the interest rate market to move depending on the Fed’s commentary.