Mortgage Market Guide Monday-6/06/2022


A Look Into the Markets


Home loan rates increased slightly from the previous week as we are just a couple of weeks before the next Fed meeting. Let's walk through what happened and discuss what to look for in the week ahead.

"It's been a hard day's night. And I've been working like a dog" - A Hard Day's Night by The Beatles

"As I will explain, this very tight labor market has implications for inflation and the Fed's plans for reducing inflation." Fed Governor, Christopher Waller.

The Labor Market is Starting to Show Signs of Weakness

Promoting maximum employment is the second part of the Fed's dual mandate. The other part is maintaining price stability or inflation. The Fed has been saying the labor market is extremely tight and they want to see it cool off some. By cooling the labor market a bit, the Fed expects consumer demand to slow and prices to come down. As you can see this is a difficult situation to manage and why the fears of recession have risen sharply of late.

In the last couple of weeks, we have seen signs that the labor market is starting to cool. Many tech firms like Snapchat and Netflix said they over-hired and have cut jobs. The Initial Jobless Claims report, a leading indicator of the health of the labor market, has been showing weekly increases in people seeking unemployment benefits. Lastly, on Thursday, the ADP Report, a reading on private job creation, came in at the lowest levels in 2 years.

We shall see what the Fed says about the labor market on June 15th, when they release their Monetary Policy statement...and we are going to find out what they are going to do about it. Currently, the financial markets are expecting the Fed Funds Rate to rise by 1.75% or so from the current .75% level.

Fed Backtracks Underway

Up until recently, the Fed has been speaking very hawkish about their need to increase rates "expeditiously". This jawboning measure has had an impact on the economy and many rates, like mortgages which have already increased expeditiously.

Add this to Core inflation being tamer the past couple of months and the recent weaker labor market news – and its giving rise to the recent Fed speak to be less hawkish or tough on future rate hikes.

We shall find out what the Fed will say on June 15th, but we are continually reminded of how they said they would be "nimble" and react to the incoming data.

They may need to be nimble as they do not want to over hike rates and attempt to shrink the balance sheet if the economy is slowing, otherwise, the Fed's action could tip the US into a recession.

Bottoming out Process is Not Pretty

Home loan rates have moved sharply in both directions in the last 2 months as mortgage-backed security prices attempt to find a price bottom/rate peak.

The good news? Currently, MBS prices are exactly at the same levels they were in mid-April. So, while rates moved higher one month ago, they are attempting to settle at the best levels in 45 days.

Bottoming out processes in financial markets are never pretty and we should expect more volatility ahead. is starting to appear like we may have made a peak in rates over the last 30 days. The incoming data, along with fiscal and Fed policy will determine so.

Bottom line: If you or someone you know are considering a mortgage, now is a great time. Rates have improved slightly but any improvement from here may be modest as inflation remains very high.

Looking ahead

Next week's economic calendar is light, but it does include the high impact Consumer Price Index. Should this inflation reading come in soft, it could help rates further and may help the Fed to continue talking less tough about future rate hikes. Speaking of the Fed, next week will begin the "quiet period" where no Fed members are speaking or offering thoughts on Monetary Policy...which should help avoid added market volatility.


Mortgage Market Guide Candlestick Chart


Mortgage-backed security (MBS) prices are what determine home loan rates. The chart below is a one-year view of the Fannie Mae 30-year 4.00% coupon, where currently closed loans are being packaged. As prices go higher, rates move lower, and vice versa.

You can see the right side of the chart, the rounding pattern. This highlights the wide and volatile sideways movement we have experienced in MBS prices and rates.


Chart: Fannie Mae 30-Year 4.0% Coupon (Friday, June 3, 2022)

Economic Calendar for the Week of June 6 - 10


The material contained in this newsletter has been prepared by an independent third-party provider. The content is provided for use by real estate, financial services and other professionals only and is not intended for consumer distribution. The material provided is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, there is no guarantee it is without errors.

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