Mortgage Update - June 10th, 2024
Hello everyone! Hope you all enjoyed the beautiful weather this weekend! Last week was wild in the mortgage world, and this week promises to be even more eventful.
Let's dive in!
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Europe & Canada Cut Rates: Is the U.S. Next?! ✂️
For those who know me well, it's no secret that I am a runner at heart. It's a grueling sport that has contributed to my mental health and toughness. Running builds mental resilience and discipline, teaching you to push through any challenges you may face.
Throughout my life, I often draw parallels between life and running a race. When I heard the news this past week of Europe and Canada making the first moves to cut interest rates, I was immediately reminded of my nostalgic days of racing. Just like in a race, Europe and Canada have taken the initiative to cut interest rates first. These lead runners understand the importance of gaining an early advantage. By cutting rates, they are aiming to stimulate their economies, encourage investment, and support consumer spending. This proactive approach mirrors the strategy of a strong lead runner who sets a brisk pace, creating a favorable position for themselves.
I, on the other hand, always loved playing the role of the anchor runner. The anchor runner (United States) often waits to see the progress of the lead runners before making their move. By observing Europe and Canada, the U.S. can gauge the effectiveness of the rate cuts and the resulting economic impact. This position allows the U.S. to strategically decide the most opportune time to cut its own interest rates while minimizing risk.
Europe and Canada have made their move. Are we next?
Key Takeaway: Europe and Canada have started the global rate cutting cycle this past week. We can expect other countries, including the U.S., to follow their lead soon.
"Blockbuster" Jobs Report Cause Rates to Spike
Rates were looking tasty throughout the week, with the average mortgage rate dropping to the high 6% range for most loan types. However, that changed on Friday when the May jobs report was released. Rates spiked immediately after the payroll numbers showed 272,000 jobs were created, far exceeding the estimate of 180,000.
The Fed has consistently stated that their decision to cut interest rates will be based on data. They want to see inflation near their 2% target and a softening economy. The strong jobs report makes it difficult for the Fed to justify cutting rates this month. How can they cut rates when the job market appears to be booming? ... Or is it? 🤔
Upon closer review, Nick and I discovered that the recent increase in employment is primarily due to part-time jobs. The surge in part-time employment is creating the illusion of a strong job market. Over the past year, 1.2 million full-time jobs have actually been lost and replaced by 1.5 million part-time jobs. So while the job market seems hot on the surface, in reality, millions of Americans are working multiple jobs just to make ends meet.
Key Takeaway: A bit disconcerting to know the market is being manipulated by questionable data. One can only hope that the Fed can look past the apparent "blockbuster" jobs report and come to the realization that the average American is struggling. If we continue to receive reports of a "strong" economy, the Fed will have no choice but to keep rates higher for longer.
It's Fed Week!
A huge week is ahead with both the CPI Inflation data and the Fed press conference scheduled for Wednesday. The apparent strong employment report on Friday puts even more pressure on the CPI inflation data. If inflation spikes again, expect all hell to break loose and rates to increase. Conversely, if inflation drops, we may see the market rally and mortgage rates decrease.
One thing is certain: it's highly unlikely that a rate cut will be announced during this Fed meeting. However, we'll be eagerly awaiting the updated "dot plot" from the Federal Reserve. The "dot plot" displays each Fed member's projections for the Fed Funds Rate for the end of the year and the next few years. It'll be interesting to see their projections after the mixed bag of results we've received recently. I don't envy them; it seems no one knows for sure which direction this economy is headed. 😬