CHM Blog

As the pandemic continues, jobs, interest rates, inflation, and materials costs all in the mix

While no one has a crystal ball, Realtor.com's Senior Economist George Ratiu recently talked about changes in the economy as it applies to the real estate markets, starting with jobless claims. He also mentions how the mortgage rate decline boosted sales of existing homes and may even increase the number of homes for sale this summer, with information based on Realtor.com's inventory release.

“The recovery continues in fits and starts,” he says. He goes on to say how the Bureau of Labor Statistics reported that the pandemic-caused recession, in reality, lasted only two months — the shortest on record. But even now, a year afterward, we are still dealing with the aftermath. This past week’s jobless claims rose unexpectedly to 400,000+. Evidently the mismatch of skills, geography, and compensation keeps job openings unfilled, while workers take opportunities to dabble in new fields.

As for the real estate market, sometimes a drop in rates is indicative of low investor confidence in what is happening around the world — like the burgeoning of the pandemic’s Delta variant— just when things seemed to be on the upswing. The Federal Reserve’s lukewarm approach to inflation also isn’t helping. But all this is still good news for home buyers, helping to overcome four months of declines in existing homes especially in the Midwest and Northeast. Median home prices reached a record high, causing more homeowners to consider selling their homes.

“This year’s fall season is likely to be busier than usual as seasonal patterns shift in the pandemic’s wake,” says Ratiu. Homebuilders, however, have not seen enough of an improvement in materials costs trickle down to them in order to restore confidence. Permits and completions declined, while starts increased from the prior month.

In the meantime, Ratiu cites the impending report of the Emerging Markets Index in collaboration with The Wall Street Journal, which is expected to show how smaller markets now dominate the list. They are characterized by strong economies, entrepreneurial diversity, good quality of life, and a growing share of non-local home shoppers, many of whom can now take their “hybrid” work anywhere. Locations include Billings, MT, Coeur d’Alene, ID, Fort Wayne, IN, Rapid City SD, and Raleigh, NC.

How Rates Move:

Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage-Backed Securities (MBS) which are traded in real time, all day in the bond market.  This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events.  When MBS pricing goes up, mortgage rates or pricing generally goes down.  When they fall, mortgage pricing goes up.  Tracking these securities real-time is critical.  For more information about the rate market, contact me directly.  I’m among few mortgage professionals who have access to live trading screens during market hours.

Rates Currently Trending: Neutral

Mortgage rates are moving sideways to slightly beter today. The MBS market improved by +26 bps last week. This may have been enough to lower mortgage rates or fees. The market experienced moderate volatility last week.

This Week's Rate Forecast: Neutral

1) The Fed: Wednesday will see their latest Interest Rate Decision and Policy Statement followed by a live presser with Fed Chair Powell. This is not one of the meetings where the economic projections (dot plot charts) are released. The markets do not expect any action out of the FOMC, however bonds will be very sensitive to any discussion (or progression in discussions) around the timing of "tapering" their massive $120B of Treasuries and MBS each month.

2) Inflation: The Fed's preferred key measure of inflation, PCE, will hit on Friday. This is expected to once again be very high with the headline “PCE tipping above 4.0%.”

3) GDP: We’ll get our first look at the 2nd QTR GDP data on Thursday, which is expected to be in the 8.5% range.

This Week's Potential Volatility: Neutral

This week the market will be waiting for news out of the federal reserve on Wednesday and then reports on Friday. Volatility will likely increase in the latter half of the week.

Bottom Line:

If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.

Richard Sardella has been actively managing and providing services in the mortgage industry for over 27 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.

All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.

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