A Look into the Markets
This past week, home loan rates hovered near the lowest levels in over a month as the Federal Reserve raised rates once again. Let’s walk through the Fed Meeting and the other big events impacting the markets.
“Well give me all you got, don’t hold back (Yeah) Well I should probably warn you I’ll be just fine (Yeah)” Happy by Pharrell Williams.
Fed Funds Rate Hike
“Some additional policy firming may be appropriate” – FOMC Monetary Policy Statement on 3/22/2023.
This past Wednesday, the Federal Reserve raised the Fed Funds Rate by .25%, the 9th rate hike in just over one year. This lifted The Fed Funds Rate to a range of 4.75% to 5.00%. There was some speculation the Fed may pause hiking rates at this meeting amidst the fallout of the SVB and Signature Bank failures.
The good news was the quote above along with the Fed’s updated Economic Projections are suggesting one more rate hike in May, so rate hikes could be nearing the end.
Credit Tightening
“Likely to see tighter credit conditions that weigh on economic activity.” FOMC Statement.
This may be the main reason rate hikes are nearing their end. The SVB failure, uncertainty around potential bank runs and overall liquidity concerns will likely lead to banks making it tougher for small business and commercial loans. As Fed Chair Powell said in his press conference on Wednesday, “Credit tightening post-bank failure is akin to rate hikes.”
Lower Rates Equal Housing Relief
A backward-looking housing report may reveal better times ahead for housing. Existing-Home Sales for February rose 14.5% from January, ending a 12-month streak of declining sales.
This good reading came on the heels of improved mortgage rates in January and February. With home loan rates now within a whisker of those levels and spring in the air, better days for housing lie ahead.
Bottom line:The end of Fed rate hikes is near and long-term rates, like mortgages, may have likely already seen their peak. With mortgage rates now near the levels seen in early February, when home sales jumped, it will be no surprise to see this trend continue through spring.
Looking Ahead
Next week will be chock full of headline risk as Fed officials are back speaking and we monitor the banking sector for more potential issues. And from the economic front, the Fed’s favored gauge of inflation, the Core PCE, will also be reported. If this report comes in showing hot inflation, rates could suffer. The opposite is true.
Mortgage Market Guide Candlestick Chart
Mortgage-backed security (MBS) prices determine home loan rates. The chart below is a one-year view of the Fannie Mae 30-year 5.5% coupon, where currently closed loans are being packaged. As prices increase, rates move lower and vice versa.
MBS prices have moved sharply higher over the last several days, providing a nice improvement in rates. For rates to improve further, we need to see MBS push above $101, where they started at the beginning of February. A move above this ceiling would lead to another move lower in rates.
Chart: Fannie Mae Mortgage Bond (Friday March 24, 2023)
Economic Calendar for the Week of March 20 – 24
