Today’s Mortgage Rates in February 2023

Feb 9, 2023

Mortgage bonds remain trading in a tight range. We can expect to see rate volatility be elevated between now and Tuesday’s CPI report. Since we are now at the top of a trading range, we will switch to a locking bias.

1. Here Comes the Sun ☀️☀️

Solar sales are on the way to mortgage brokers and real estate agents. If you fit into one of these two categories, you will be able to offer solar to your clients at costs that is well below what traditional companies charge.

Even if you don’t want to sell, you could be earning income for making the referral to our team here at City Creek, who has been tasked to be among the first in Utah to bring this opportunity. The solar industry has been dominated by door-to-door sales teams who do not have the trust or relationships established with the homeowners they sell to. By already having both the trust and relationship, adding this to the overall product offerings is a natural fit.

2. Are High Rates Here to Stay?

Initial jobless claims for last week show continued strength in the labor market. The number of filings for first time benefits were 196,000, which is no where near what the Federal Reserve was hoping to see at this point in the rate hike cycle.

To achieve the Fed’s target rate of unemployment, we need to see about 325,000 new claims each week. The Fed won’t consider changing their policy and cutting rates until the labor market is no longer a threat to a resurgence of inflation. We are left with the reality that rates will be higher than planned and stay high for longer than most economists have predicted.

3. CPI, Throw Us a Bone! 🦴🦴

The next hope for mortgage rates to take a step lower is next Tuesday’s Consumer Price Index (CPI) report showing inflationary growth rates for the month of January. There are some indicators that are indicating a bit of pricing pressure building, such as the used car market.

However, we may see that shelter costs have softened from their all-time high rates, which would help bring down the core rate of inflation. This is among the most important reports we received each month and will likely dictate the direction of near-term mortgage rates.

Feb 3, 2023

We are carefully floating and will switch to locking if it breaks beneath the floor.

That Feeling When Your 180% Wrong…

The unrelenting strength of the US labor market flexed hard today, with the Bureau of Labor Statistics (BLS) reporting there were 517,000 new jobs created in the month of January. Yes, you heard that right. This number is 2.8 times the 185,000 pace the market was anticipating.

To understand the significance of this report, you have to consider that higher interest rates generally work as a tool to weaken the labor market. Given that the Fed Funds rate has moved up 4.5% since March, the labor market is defying all traditional economic beliefs that have been in place for many decades. At this point, the Fed may choose to push rates higher and hold them longer. Ugh….

Unemployment Fell as Well

In a second surprise, the Unemployment Rate fell from 3.5% down to 3.4%. Given that most economists were expecting to see this rate rise up to 3.6%, this is another major shock to the markets. The only real good news the Fed will find in this report is that the labor market grew by more than 800,000 workers. This is very good news, as labor shortages have been a significant driver of inflation, as companies were able to raise prices to slow the pace of sales to a level they were able to support. When businesses do not have the staff to meet consumer demand, prices are pushed higher.

Humbling Investors

The concern now will be how the Fed will respond to this morning’s report. The fear is that members will revert back to making intentional statements to the public to add more fear to investors who have been overly optimistic about the prospects of the Fed having to reverse course and start to cut rates midway through 2023.

The optimistic pool of investors has pushed stocks higher in recent weeks and driven bond yields down. Although this has been good for mortgage interest rates, it has not been helpful for the Fed’s attempts to slow the labor market.

As we warned in yesterday’s update, the rates we had were likely as good as we will see them for a while. Mortgage bonds have fallen hard in early morning trading and are now at risk of breaking beneath the floor that has prevented rates from moving higher the past three weeks. However, this floor has been a strong support level for us so we are carefully floating and will switch to locking if it breaks beneath it.

Feb 2, 2023

Given the risks associated with the battle over the 200-day moving average, we will switch to a locking bias.

3 THINGS TO KNOW

We got the 1/4% rate hike we expected
Following the announcement, Fed President Jerome Powell acknowledged that inflationary pressures have eased. However, more tightening is needed to ensure that levels return to the Fed’s target rate of 2%.

Two more ¼% rate hikes are anticipated before the Fed ends this rate hiking cycle. The Fed has a terrible history of going too far in both directions when adjusting interest rates. It is very likely that the Fed will either push rates too high or hold rates high for too long. They acknowledge this risk, but feel the threat of under-tightening is far greater than the opposite.

Focus on what’s in front of you… not behind you
Initial jobless claims showed 183,000 new claims filed last week. This is insanely low and shows that the labor market remains resilient to the most dramatic rate hike cycle in many decades. Most economists anticipated that the labor market would show more weakness by now. The strength in the labor market is providing hope to those who believe we can still achieve a soft landing.

I believe for this to happen, the Fed needs to stop hiking and be more aware of leading economic indicators and less focused on the average of the last 12 months of inflationary growth. We are seeing many deflation indicators, showing the Fed may have already achieved its goals. At this point, it will take time for the numbers to reflect the change.

Maybe this is as good as it gets
Mortgage bonds have improved and are now challenging their 200-day moving average. This is the strongest floor we have, and could signal a bounce higher in the near future. Unless tomorrow’s BLS report shows significant weakness in the labor market, this will likely be the lowest mortgage rate level we will see in the near term. But, if rates are able to break beneath this floor, we will see a nice improvement follow.