As expected, it was a boring week for mortgage rates.
The average 30-year rate on Friday ended up right where we started on Monday.
The Fed’s preferred measure of inflation (PCE) came in as expected.
Then Monday (yesterday) happened.
Unfortunately for those of us who want lower rates, the market received some (more) strong economic news within two important manufacturing sector reports.
Both reports showed higher-than-expected prices and going-forward optimism for the sector.
One of those reports – the ISM Manufacturing Index – crossed into positive territory for the first time in 17 months.
That’s great news for the economy at large, but it’s not great news for bond traders who’ve been betting on lower rates this year.
Couple those reports with traders kicking off a new month / new quarter with fresh positions, and you get a quick uptick of almost .25% in the average 30-year mortgage rate.
How’s Brian feeling about mortgage rates?
Not as optimistic anymore… 🧐 (no changes from last week)
- 3-month outlook (May 2024) – The Fed narrative pivot has added fuel to the economy. The stock market is evidence of that. The new inflation numbers are as well. The 7% range (give or take) will likely be our home for a while.
- 6-month outlook (August 2024) – I still expect the job market to show some cracks in Q1/Q2 – we’re seeing an increase in layoffs being announced. People experience layoffs are having a harder time finding new jobs, as evidenced by the rising continuing jobless claims numbers. We saw retail sales and consumer spending fall a little already – I expect that trend will continue, BUT if the job market remains strong that could be a pipe dream. Housing costs (the biggest contributor to inflation right now) will stay flat or fall with more apartment units coming online which will help inflation concerns and rates can come back down to the mid to high 6% range.
- ***12-month outlook (February 2024) – Barring any major distress in the banking world (very possible with the commercial lending situation), it’s now hard to see a path below 6% in the next 12 months. The mid-6% range seems most likely at the moment.
***The wildcard is the US government. If they don’t do some massive budget cuts to get spending under control soon I could see the demand for US Treasury debt falling off a cliff and that could drive all rates higher. Or maybe the 30-year fixed mortgage will be seen as a safer bet and the yield between the two will no longer correlate as it has in the past? 🤷♂️
Other Relevant Macro News
- $20 fast food minimum wage went into effect yesterday, here’s how it could affect California.
The Week Ahead
- There is a heap of fresh job market data coming out this week, with the heavyweight of them all – the US jobs report from the BLS – dropping on Friday. The last two jobs reports included some big surprises that threw rates for a loop, so there’s potential for interest rate drama as the week comes to a close.
