Video

January 26, 2024

Airs live on YouTube

January 26, 2024

Why Aren’t Mortgage Rates Dropping Faster?

Market Update

Coming Soon

This week, we treaded water with interest rates, staying below 7% again for a 30 year fixed conventional mortgage, according to Mortgage News Daily.

‍

The big report this week was released today. It was the Personal Consumption Expenditure (PCE), and it is the Fed's favorite measure of inflation.

‍

It came in as expected. The Fed is focused on getting that core PCE - which strips out food and energy - down to their target inflation rate of 2%. Core PCE is now under 3% and still headed in the right direction.

‍

The great news is that, looking at the last 6 months, the 6 month run rate is below their target at 1.85%. If you look at the last 8 month run rate, it is almost right at their target of 2%.

‍

So, if inflation appears to be under control, why aren't mortgage rates dropping faster? Part of the puzzle lies in the government having an excess of funds to sell on Wall Street for all of its initiatives. With insufficient buyers to absorb all that supply, interest rates are going to remain a little bit elevated.

‍

Once this supply diminishes - and it will - we can expect quicker decline in interest rates. It might be time for the government to ease up on spending a little bit, and that will bring down interest rates.

‍

Speaking of spending, the initial 4th quarter 2023 GDP (Gross Domestic Product) was a robust 3.3%. Two thirds of GDP is made up of consumer spending.

‍

Consumers kept spending over the December holiday. Credit card debt definitely went up, and the savings rate went down. But consumers are still opening their wallet and spending money. We'll see if that can continue.

‍

The government wanted a soft landing without a recession, so we'll have to wait to see if they can achieve that. Some people are still predicting a recession. We'll have to wait and see what happens.

‍

Next week is a big week with the Fed meeting and jobs reports. The Fed meets on January 30th and 31st. These can always be market movers. We don't anticipate any changes to the Fed funds rate next week. We think they're going to go status quo, leave it the way it is, and potentially wait until March to change.

‍

As a reminder, if you or your clients are considering purchasing a home around $500,000, keep in mind that FHA rates are actually closer to 6% than 7% like conventional loans.

‍

The media always talks about the standard 30 year fixed conventional rates, but FHA has made a big comeback with buyers. FHA typically has lower rates, and last May, they lowered monthly mortgage insurance to make FHA more affordable for homebuyers!