Mortgage Market Guide Mondays- 4/25/2022


A Look Into the Markets


This past week, home loan rates touched the highest level in a decade as global bond yields were on the rise. Let's discuss some potentially positive signals for those looking for a rate peak as well as what to watch for next week.

"So, you got to let me know, Should I stay or should I go" Should I Stay or Should I Go ... The Clash

"Be greedy when others are fearful" – legendary investor, Warren Buffet.

The rate of change or the speed at which home loan rates have moved higher is historic. It has also elevated uncertainty and fear that rates will continue to skyrocket higher.

This past week, a New York Fed survey of renters believed mortgage rates will reach three years. A dire forecast for rates that could only be achieved IF the economy is strong enough to sustain or absorb that sort of increase. Seeing that the housing market has stalled, to a degree, with home loan rates at 5.00%, it's probably highly unlikely we see rates move that high. This survey can be viewed as a potential contrarian indicator meaning...when so many people believe something will happen, the opposite generally happens.

Another potential contrarian indicator has emerged. U.S. bond outflows are surging. U.S. investors have sold or cashed in their mutual fund bond holdings at record levels in 2022. When retail investors or everyday people are all "fearful" and doing the same thing, like selling bonds, it often represents a sign the market is likely to turn, which in this case could mean a peak in rates could be upon us. Think about the psychology of everyone in the stock market with no fear – this is exactly the time when the stock market can turn lower. Hence, Buffet's other quote " Be fearful when others are greedy."

Gas tank, Food or Stranger Things

Netflix reported its first subscriber loss in more than a decade, when Wall Street was expecting the firm was to add users. The major reason for the stunning decline in users was soaring food and energy costs. The additional burden to put gas in the tank or food on the table has forced many to give up the service. The breaking news from Netflix is giving us early signs that consumers are feeling the pinch.

This brings into question, can the Fed hike rates aggressively as they have been saying? The Fed is in a unique position, because even if they raise rates, that will not help lower oil or energy prices, which is the main cause of inflation at this time.

Federal Reserve Getting Its Housing Wish

Last year, in front of Congress, Fed Chair Jerome Powell was pressured to stop buying mortgage-backed securities (MBS), to remove the "froth" out of the housing market. After the sharp increase in rates since November, we are starting to see signs of "froth" coming out of housing.

Redfin reported that 13% of online home listings lowered their price. This as Black Knight reported that affordability, as measured by mortgage payment versus monthly income, hit a 15-year low.

For affordability to improve, we need to see home price gains slow and for rates to remain at or beneath current levels.

Bottom line: Interest rates remain on the rise and the words of central bankers around the globe this week have added to the uncertainty and volatility. If you are considering a mortgage, now is an ideal time to lock as the path of least resistance for rates remains higher even though a peak could be near.

Looking ahead

Next week we get the Fed's favored gauge of consumer inflation...the Core Personal Expenditure (PCE) Index. If this reading on a month over month basis comes in cooler than expectations, we could see some rate relief. If not, then the opposite is true. We will also get a reading on the growth of our economy or Gross Domestic Product in the 1st Quarter of this year. We experienced a big slowdown from 2021 thanks to the Omicron variant in January, supply chain disruptions and the Russia/Ukraine war. How the economy grows factors into what the Fed will do going forward.


Mortgage Market Guide Candlestick Chart


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

You can see on the right side of the chart that MBS are nearing support at price lows/rate peaks last seen in 2018. In looking for a peak in rates, those price bottoms would be an ideal spot. If the bond falls beneath that support, we will see yet another increase in home loan rates.


Chart: Fannie Mae 30-Year 4.0% Coupon (Friday, April 22, 2022)

Economic Calendar for the Week of April 25 - 29


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