Mike's Weekly Rate Commentary | Home Loan Mortgage

Today’s Mortgage Rates in Oct 2024



Mortgage Mike
Mortgage Mike
October 2, 2024 | 20 Minute Read

Oct 02, 2024

While long-term rates are likely to fall, there’s significant risk in floating into Friday’s report. If you’re closing soon, the safer option would be to lock in your rate now to avoid potential near-term rate increases.

Inflation Cooling More Than Expected 🧊📉🏡

Last Friday’s Personal Consumption Expenditures (PCE) report brought good news on the inflation front. Consumer inflation grew by just 0.1% in September, bringing the annualized rate down to 2.2%. Stripping out volatile food and energy prices, core inflation also rose 0.1% month-over-month, with the annualized figure ticking up from 2.6% to 2.7%. However, when looking at the five-month annualized pace, Core inflation is running at 2.16%, which is close to the Fed’s 2% target. If we remove expenses like car insurance and housing, there’s virtually no inflation left in the economy—great news for the Fed. This sets the stage for mortgage rates to continue their downward trend in the months ahead.

Dockworkers Strike: Potential Inflation Spike ⛴️🚨

Tens of thousands of dockworkers have gone on strike, halting container traffic along the East and Gulf coasts from Maine to Texas. This marks the first shutdown in nearly 50 years, with significant implications. These ports account for over $4 billion per day in incoming products, ranging from cars to household goods. Such a major supply chain disruption threatens to drive consumer inflation higher, as supply shortages push prices up. Unfortunately, inflation is the arch-enemy of the mortgage bond market, meaning this situation could lead to higher mortgage rates. Let’s hope for a swift resolution to prevent further rate hikes.

Upcoming BLS Jobs Report: What’s at Stake 📊📈

This Friday’s Bureau of Labor Statistics (BLS) report could be pivotal in determining the near-term direction for mortgage interest rates. Recent labor data has shown a slightly stronger job market than expected, and the current estimate of 145,000 job gains for September may be too low. If job growth exceeds expectations, it could temporarily push mortgage rates higher.

 

Sept 24, 2024

While we could see rates fall in the weeks to come, there is little incentive to float in the near term.

Fed’s Cut Rates… But Why Are Mortgage Rates Still Climbing? 😤🏡

In a move that is frustrating many potential homebuyers, mortgage rate pricing has actually deteriorated since the Federal Reserve made a massive 50 basis point rate cut last Wednesday. While mortgage interest rates generally move in the same direction as the Fed, the two are not directly correlated. However, the Fed rate cut will help reduce interest expenses on variable rate home equity loans, car loans, and credit cards, which will bring immediate relief to consumers.

With the Fed increasing its expectations for additional rate cuts in 2024, we are seeing expectations for mortgage rates continue to fall in the months to come. This is likely to help mortgage rates continue their longer term slide lower.

Inflation Numbers Are Coming in Cool❄️

The big news of the week will hit on Friday, when the Fed’s favorite gauge of consumer inflation will be released. With the market expecting the Core rate of inflation to increase about .2% in the prior month, this is near what the Fed would like to see on a month over month basis. This is great news for Americans who have been dealing with elevated inflation after record supply chain issues created by Covid shutdowns.

The Fed is showing signs of fear that inflation may be falling faster than expectations. This means they are likely to shift their focus from inflation to ensuring the labor market remains strong. This will help increase odds that the Fed will achieve its goal of a soft landing. If that does happen, it will be a near miracle and something few economists believed could happen. 

Retirement Accounts Are Smiling 😊📈

It’s a good time to check retirement account balances, as the US stock market continues to see fresh all time highs. As the US economy continues to show strength, we seem to be in a Goldie Lox scenario where employment remains strong, inflation under control, and investment accounts rising.

Over time, additional Fed rate cuts will help reduce corporate borrowing costs, which will help increase profits and encourage corporations to borrow money to fuel additional growth. This could fuel additional gains to our longer-term retirement accounts.

 

Sept 16, 2024

Mortgage rates should continue to trend lower in the longer term. We continue to suggest floating for loans with longer closing dates.

Inflation is Cooling Off – Finally! 🧊

Last week’s Consumer Price Index (CPI) report showed that consumer inflation is now down to just 2.5%. This is a significant improvement from when price increases clocked in at 9% during the peak of the inflationary cycle. With inflation rates coming down across the globe, central banks are nearing a point where they can claim victory against the battle of rising prices, and allow interest rates to fall to more normalized levels. Also bringing relief to American consumers was Brent Crude oil again falling beneath $70 a barrel. While this is a strong signal that inflation is in fact coming down, it will also bring additional savings at the gas pumps in the months to come.  

Fed Cuts Incoming? ✂️ The Wait is Over

For the first time in 4 years, the Federal Reserve is set to cut interest rates this Wednesday. There is still no clear opinion as to whether we will see a 25 basis point cut or a 50. There are still signs showing that while the US economy is slowing, we are not yet in a clear path towards a recession. For that reason, a 25 basis point cut is what most are expecting at this point.

However, because current Fed policy is far more restrictive than it should be for the current level of economic impact, I feel odds slightly favor a 50 point cut. While this cut is not expected to bring immediate relief to consumers who are currently struggling to keep up with current interest costs, it is an initial move that will continue to improve borrowing costs in the months, if not years, to come.  

Behind the Numbers: What’s Really Driving Inflation? 🔍

A deeper look at last week’s CPI report shows that while inflation is still slightly above what the Fed would like to see, when you exclude automobile insurance and lodging alway from home, we have virtually zero real consumer inflation. Since car insurance inflation has risen sharply due to recent acts of nature, there is little that a higher Fed Funds rate can do to slow insurance premiums.  Also, higher rates have created a housing market with inadequate supply of existing homes for sale to meet buyer demand. This is not expected to change until mortgage rates fall to a point where people will consider giving up their 3% rate. Hopefully, the fed is understanding this dynamic and understands that aggressive rate cuts are justified, and are the only pathway to accomplishing their goal of a soft landing. 

 

Sept 09, 2024

Bond yields have attempted to break beneath a critical floor. However, the attempt was quickly rejected, and rates were pushed back up a little higher. We feel there is a good chance that longer term we will continue to see rates improved. If you need to close in the next few days, now is a great time to lock. If you have a longer horizon, you could benefit by continuing to float.

Yield Curve Flip: Is the Recession Alarm Ringing?🚨📈

After being inverted since June 2022, the 10-Year Treasury Note yield traded higher than the 2-Year. This is a significant move since most recessions since World War II followed a similar pattern where an inverted yield curve flipped to normal just before the recession hits. The inversion correction followed the Labor Department released a report showing that new job openings fell sharply from the month prior, and by more than the market anticipated. This news added fuel to the belief that our job market is starting to weaken, which could trigger the Fed to be more aggressive in their rate cuts.

Mixed Signals from the Jobs Front: What’s Going On?🧐📊

Friday’s Bureau of Labor Statistics (BLS) report provided mixed messages on the strength of the US labor market. While the number of new jobs created came in below expectations at 142,000, the prior two months’ reports were also revised lower by a combined 88,000 jobs. However, the unemployment rate fell from 4.3% down to 4.2%. Also showing strength, average hourly earnings rose .4%, which was higher than the .3% the market anticipated, taking the annualized rate from 3.6% up to 3.8%. The conflicting reports did little to provide assurance that the Fed will be cutting by 50 basis points.

Inflation Watch: CPI Report is Coming Up🔍🔥

Next week, we will get another reading on consumer inflation, with the Consumer Price Index (CPI) report set to be released on Thursday. Although this is not the Fed’s preferred measure of inflation, it will be the last reading we receive prior to the Federal Reserve’s interest rate announcement on September 18th, where the debate remains not whether the Fed cuts rates, but by how much rates are cut. At this point, odds slightly favor a 50-basis point cut. However, if the Fed only cuts by 25, the bond market could react negatively, which would add upward pressure to rates.

 

Sept 03, 2024

After rates moved a bit higher last week, we are at a point where we should see rates soften a bit. Just be careful going into Friday’s labor report. We could see volatility more rates in one direction or the other depending upon the results.

🏠The Great Waiting Game: Millennials & Gen Z on the Sidelines

Pent up demand for young people who feel they have been priced out of homeownership due to high interest rates and record home prices continues to grow. In fact, right now we have the highest number of young Americans living with their parents since the 1940’s. The concerning thing is that even a 2% drop in rates from their recent peak has not spurred the buying frenzy that many expected. It seems that most buyers remain sidelined just waiting for rates to fall further. Of course, the risk to this is that home values have continued to climb higher, making waiting even more costly than buying at a higher interest rate with the plan to refi as rates fall.

💰Solar Power, Zero Down: The HOPER Program is Here

A new program to help more homebuyers with a down payment to be able to purchase a home is spreading wildly through the real estate market in key states, including Utah. It has limited availability and is only offered through certain mortgage companies. It is called the HOPER Program, which provides up to a $13,000 payment towards the purchase of a home to homebuyers who are willing to participate in an educational process that is geared towards teaching financial literacy and to reduce mortgage defaults. The key restriction is that a solar system must be added to the home, which is 100% financed into the mortgage. At that point, the buyer owns their power, without a separate loan or lease agreement. If you would like to learn more, or find a mortgage lender who offers the program, just respond to this email. 

🎢Fed’s Tightrope Walk: Soft Landing or Economic Rollercoaster?

While most economists continue to believe that the Fed will pull off a “soft landing,” many still see significant risks that could lead to a prolonged economic slowdown in 2025. Economic reports are showing mixed signals, with some supporting the need for rapid rate cuts, and others pointing towards a continued thriving economy at today’s high rates. Friday’s Personal Income Expenditures report, for example, showed that inflation grew at a .2% pace in the month of August. This is still hotter than the Fed would like to see, which adds concerns to a Fed who would love to be able to cut rates. The next major milestone will come on Friday when the Bureau of Labor Statistics releases their estimates of new job creations. If that report is strong, we can bet on the Fed cutting by only ¼%. However, a weak report could lead to a ½% cut when the Fed meets on the 18th.

 

Aug 21, 2024

Rates have improved the past few days. While we are on a downward trend, it could be prudent to float on longer term transactions while watching the market closely in case there is news reported that rocks the markets.

Retail Therapy or Red Alert? 🛒

Retail sales in July pulled a fast one on the market, clocking in at a 1% jump—more than triple the expected 0.3%. But before you sound the inflation alarm, here’s the catch: June’s numbers were quietly revised downward, and back-to-school shopping gave July an artificial boost. When you zoom out and look at the 12-month run rate, we’re seeing a much tamer 2.7% increase. In other words, the retail world might not be as red-hot as it seems.

Jackson Hole: Where the Financial Elite Meet ✈️

If you were thinking about taking a private jet to Jackson Hole this week, the private airport may be full, as the beautiful town of Jackson is filled with some of the most influential financial policy makers, academics, and media experts. It’s the week where they come together to discuss economic conditions, financial development, policy issues, and how they will impact the decision of our central banks. The headline speech will be on Friday, when Fed Chairman, Jerome Powell, takes the stage to share his thoughts and insights surrounding the Fed and its policies moving forward. Since the Fed is expected to start cutting rates in September, this year’s meeting is much less concerning than the previous meeting in 2023.

Job Report Oops! The Labor Market Overhype 💼

Turns out the job market wasn’t as booming as we thought. The Bureau of Labor Statistics just admitted that they overshot job growth numbers by a whopping 818,000 from April 2023 to March 2024. That’s nearly a third of the reported gains that never happened. This overestimation has had a ripple effect, pushing mortgage rates higher than they needed to be. If the BLS had gotten it right the first time, we could’ve seen lower rates and a more relaxed Fed. Here’s to hoping future numbers are a little closer to reality.

 

Aug 13, 2024

Rates are currently on a slow downward path. Wednesday’s CPI report could change this. If you feel like taking a risk, float into the CPI report. However, if you are not comfortable taking risks, now is a good time to lock.

🚗The Fed’s Tug-of-War: Gas Pedal or Brake?

The Federal Reserve’s balance sheet runoff plan (Quantitative Tightening – QT) is now garnering attention, as economists debate whether the Fed will continue to allow their holdings of US Treasuries and mortgage-backed securities to fall off their balance sheet, or if they will change their policy to reinvest 100% of the proceeds back into the bond market.

If the Fed is cutting rates to stimulate the US economy to help avoid a recession, it would not make sense for the Fed to continue to allow assets to roll off their balance sheet. This would be the equivalent to driving with one foot on the brake and one on the gas pedal. However, if the Fed it cutting to help bring interest rates to a more normal level, then QT could continue. Placing an end to the roll-off QT plan would be great news for mortgage interest rates, as this creates additional liquidity in the bond markets.

📊CPI Watch: Will Inflation Chill or Keep Us Sweating?

This Wednesday’s Consumer Price Index (CPI) report will provide an update on the pace of consumer inflation in the month of July. With the Fed being “data dependent,” markets trade heavily based on each significant inflation report. We have now had a few months of reports showing that the pace of inflation is slowing. If we can again support this trend with a reasonable CPI report, expectations of a Fed rate cut in September will strengthen, which could help mortgage rates take another step lower. With the general market consensus expecting to see a .2% increase in both the Headline and Core rates, it may take a reading of .1% or lower to spark continued hopes of a deeper rate cut beyond the .25% most are now expecting. With motor vehicle insurance already climbing at a 19.5% pace, this could be one area where we see a better-than-expected report.

🔮 Goldman Sachs’ Reality Check: Recession Odds on the Rise

Goldman Sachs has increased their odds of a recession to a 41% probability. While still not a high probability, it is a significant move from the 29% chance they had assigned back in April of this year. Our economy is digressing at a faster pace than most believed just a few months ago. If this trend continues, we can expect to see the Fed cut rates at a faster pace than planned, and for mortgage interest rates to fall more rapidly than anticipated.

 

Aug 05, 2024

Given the tailwinds of a weakening US economy and the likelihood of impending Fed rate cuts, the downward trend in mortgage rates is likely to continue. Our strategy will be to float on longer-term locks while monitoring daily market movements for short-term decisions. Despite the strong drop at the end of last week, short-term volatility is expected. We may lose ground today but are likely to recover soon.

Job Report Comes In Shockingly Low📊📉

Friday’s Bureau of Labor Statistics (BLS) report showed that only 114,000 new jobs were created in July, falling short of the 175,000 anticipated by the market. Additionally, the unemployment rate rose from 4.1% to 4.3%, surpassing the Fed’s projections for 2024. This unexpected rise in unemployment is alarming for the Fed and will likely alter the tone of future statements from Fed members.

Just a few weeks ago, several members were advocating for additional rate hikes, highlighting the difficulty the Fed and economists face in predicting economic changes accurately.

The Fed’s Tone Has SHIFTED

The Fed met last week and decided to maintain interest rates at current levels, which was before the disappointing BLS report. This has led to questions about whether the Fed has delayed rate cuts for too long. Historically, the Fed’s timing on rate cuts and hikes has been less than perfect. Recent news suggests a 100% chance of a Fed rate cut in September, with the possibility of a 0.5% rate cut now on the table, a shift from expectations just days ago.

Stock Market Repercussions 📈 💹

US stock markets have taken a hit in recent weeks as recession fears and potential declines in corporate profits loom. Continued weakness in the labor market could extend this downtrend. However, this scenario benefits mortgage interest rates, which tend to fall as economic conditions worsen. City Creek Mortgage is currently quoting rates in the 5% range for well-qualified conventional borrowers, which could encourage potential homebuyers to enter the market and spur refinance activity. This is positive news for the real estate and mortgage industries, which have struggled over the past six quarters.

 

July 30, 2024

While mortgage rates are on a clear downward trend, they are currently at the bottom of the trading channel, which makes the risk of going into the Fed announcement and BLS report more risky. Hopefully, tomorrow’s Fed press conference gives mortgage rates the strength to break lower. If you choose to float, be aware of the risks that are inherently involved with Fed announcements as well as labor market reports.

Fed Watch 🔍: Rate Cut Hints & Market Moves

The Federal Reserve begins its two day FOMC meeting today, which will conclude tomorrow at 12:00 pm MDT with an announcement on interest rates, along with a press conference from Fed Chairman, Jerome Powell. While the Fed is not expected to cut rates at this meeting, it is widely expected that Chairman Powell will indicate that a rate cut is likely to happen in September. It is clear that the Fed is becoming more worried about a weakening labor market than the fear of inflation once again spiking. As long as this belief is confirmed, we could see optimism for lower rates surge.

Job Numbers Jamboree 💼: What’s the Forecast? 📊

This is Jobs Week, with ADP providing their estimate of private payroll growth in the month of July Wednesday, and with the Bureau of Labor Statistics (BLS) set to release their estimate on Friday. The most closely watched of the two, the BLS report, is expected to show that there were 175,000 new jobs creates, and for the unemployment rate to remain at 4.1%. With the BLS becoming known for releasing stronger than expected reports, only to post significant downward revisions in the months to come, we could once again see a strong number in this report. That would not be good for the near term direction of mortgage rates.

Inflation Update 📈: The Core PCE Check-In 💹

Last Friday’s Personal Consumption Expenditures (PCE) report showed that Core inflation rose by .2% in the month of June. This was higher than the .1% anticipated by the markets, so there was little reaction to mortgage interest rates. For inflation to reach the Fed’s target rate of 2%, we need to have a 12 month average rate of 1.67%. Although we are heading in the right direction, we need to see more dramatic reductions in the months to come.

 

July 23, 2024

I don’t see much hope for improvement prior to Friday’s PCE release. Realize that there is risk of an upward surprise that could push rates higher. However, most experts are advising floating into Friday’s report.

Jobless Claims: The Fed’s Secret Weapon? 🛠️

Last Thursday’s jobless claims data shows a continued weakening in the labor market, with 243,000 new workers filing for benefits in the prior week. Although this is not supportive of an expanding US economy, it is exactly what the Federal Reserve needs to see to feel confident that inflation is on a path to get down to 2%. It has been the strength of the labor market that has led the Fed to hold rates in the 5.25% – 5.5% range, despite Core inflation falling from its recent peak of 6.8% in June of 2022 down to the current level of 2.6%.

While they talked about inflation levels remaining elevated, the reality is that the labor market was so strong that it presented a real fear of inflation once again spiking. Hopefully, we are nearing a balance point where the labor market is no longer a threat, so the Fed can focus on transitioning to a cutting cycle in September.

China’s $53.3 Billion Power Play💸

In what could be a retaliatory move, China dumped a record $53.3 billion worth of US Treasuries and agency bonds (such as mortgage-backed securities) in the first quarter of this year. As they dump supply on the market, it sucks money out of the market that could have otherwise been used to purchase more debt from the US Treasury, which pushes interest rates higher. They could be using tools to remind that US of the power they have over control our currency prices, as well as the impact they can have on interest rates. Trade wars are not good for inflation, or mortgage rates. We will have to see how this plays out in the months and years to come.

PCE Report: The Fed’s Crystal Ball 🔮📊

The near-term direction of mortgage rates will be heavily influenced by Friday’s Personal Consumption Expenditures (PCE) report, which happens to be the Fed’s favorite gauge of inflation. Based on current estimates, this is widely expected to be a favorable reading, which could bring the annualized rate of Core inflation down to the 2.4% – 2.5% range. With the Fed’s target rate of inflation being 2%, we could be within ½% of achieving their goal.

Since the Fed Funds rate is still at the high rate in their cycle, there is little justification for not cutting in the near-term. Given that current inflation rates have dropped significantly from the high peak, it’s certainly time to consider cutting now.