In the Words of the Songstress Paula Abdul
I take two steps forward, I take three steps back
We come together 'cause opposites attract
And you know it ain't fiction, just a natural fact
We come together 'cause opposites attract.
Over the last two weeks, the mortgage rate market has taken two steps forward and then three steps back with all kinds of good news, bad news and news that is having huge impacts on the market, but isn’t getting the attention it deserves to understand, ain’t that a natural fact!
Baby, ain't it somethin' how we lasted this long?
You and me provin' everyone wrong
Don't think we'll ever get our differences patched We come together 'cause opposites attract
Ain’t it something how these higher rates have lasted so long, the market is provin everyone wrong and I don’t know when we’ll get our markets patched? We will get there cause opposites attract!
Here’s what happens three steps back one step forward means
JOBS
If there was ever a week when things could have gotten crazy, it was last week. Last week we had 4 jobs reports. GOOD NEWS BAD NEWS the first three reports had the bond yields move up and test the highs of the year and Friday’s BLS Jobs report we clawed back most of those gains.
Bottom line
Labor data is slowing, not breaking. The economy is making up jobs from Covid not creating jobs, wage growth is steady. The BLS (Bureau of Labor Statistics) Report internals showed slowing, negative revisions to previous reports and losses to 5 sectors with only Leasure gaining. This report brought us back off the highs to end the week.
INFLATION
This week started with the mortgage rate market continuing the gains from Friday’s Jobs report, Wednesday we had a 10-year bond auction that was well received in advance of the CPI and PPI inflation reports. We also had a 30-year bond auction that didn’t do all that well, but it was expected. Inflation ticked up a bit (also expected) and came in a little below expectation, SO RALLY TIME? NO, WHY NOT?
Bottom line
On Wednesday Moody’s Credit Rating Agency downgraded 10 small TO mid-sized banks citing growing financial risks and strains that could erode their profitability. Then placed another 6 banks under review for possible downgrades. Some of these are among the nations largest. BUT wait there’s more, another 11 banks got shifted to negative outlook from stable.
How does this hurt mortgage rates?
Banks sell off assets to increase liquidity, Bonds and mortgages are first to go. So, every time we saw a peak and rates are looking to run (meaning get better) banks sell into that rally, flooding the market and pushing rates up again.
What does this mean for you and your clients
We will continue to see rates extremely volatile. The Fed now sees inflation moving close to their target, Jobs are weakening, so they are now causing damage to the banking system with their rate increases and should pause. The medicine is starting to kill the patient. Housing remains very strong, inventories are at lows, home values are continuing to rise. Buyers and sellers need to focus on the prize. Housing is Shelter not a stock that they are going to hold and flip for a quick buck. Rates will come down, when that happens that shelter cost will become less expensive.
If you have any questions or comments, please feel free to call me 401-952-4048
John
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