August 21, 2023 – Rate Commentary

• August 21, 2023
• realestate
• Business & Markets, Fed, Interest Rates, Politics & Economy, Rates, Real Estate, Real Estate Finance, Recession, World News, Your Real Estate Life

WRAP UP
UMBS 6.0: 99.08 (-34bps)
10yr yield: 4.34

When the bleeding stops, rates will hold these higher levels, not move lower again. Until that happens, we will continue to see rates move higher as markets adjust to this “new normal” of a strong economy and labor market with declining inflation. Consumer credit is driving the economy, and unless/until that bubble bursts, there is no reason to see rates drop much. LOCK.

Rates continuing to move higher on this morning’s rate sheets, and reprice risk on the day is moderate. There is no end in sight to watching rates rise, and no reason at all to be floating. The consequence to being in a perpetual state of locking is that at some point we will lock the worst rates in decades, but we won’t know it until it happens. However, the alternative would be to float waiting for the “correction”, and that has proven to be a strategy that leads to tragedy. Until there is fear again, rates are not dropping. Fear for a recession, fear for the labor market, or maybe fear that this credit bubble will pop. Make no mistake, inflation is no longer the driver here… meaning that markets are less concerned with seeing inflation drop now as they are with the other economic data showing strength. The Fed will have no reason to consider lowering rates in 2024 until we see signs that the economy is faltering and the labor market is weakening, and until talk of the Fed lowering rates heats up, we won’t see mortgage rates drop significantly.

All eyes this week will be on Jackson Hole, where the Jackson Hole Economic Symposium starts on Thursday. However, it’s Friday at 10:05am Eastern (I guess they need that extra 5 minutes to get coffee and take a potty break) that traders will circle on the calendar, when Fed Chair Jerome Powell speaks on the outlook of the economy. There’s nothing else on the economic calendar other than the usual weekly jobless claims and a durable goods order report on Thursday, and a consumer sentiment index reading on Friday, all taking a back seat to Powell.

For loans closing in less than 15 days, continue to lock. Until we see an end to this current trend, there is no reason to float these loans. Each day simply brings higher rates and worse pricing than the last, and there is no reason to expect this to end yet.

For loans closing in 15-30 days, the advice is also to go ahead and lock. With each passing day, these rates become more entrenched. Bonds are losing ground, and it’s easy to pick any or all of these reasons: ballooning Treasury supply, a still-hawkish Fed and an economy that has yet to show the strain of more than 5 percentage points of rate hikes.

For loans closing in 30+ days, consider locking. I’m becoming less and less hopeful that next month’s labor and inflation data will help bring rates down a bit, and am instead thinking even if that happens rates will have moved so much higher that we’ll be back to where we are now as a best case scenario. I’d strongly consider locking at this point, and just throwing in the towel.

Technicals:

We’re now moving to watching the UMBS 6.0 coupon (MBS or mortgage backed securities) at 98.98, down about -44bps this morning which will cause a jump in rates. The 6.0 is now the more relevant coupon, but the 5.5 is moving about the same and you could monitor either at this point to see where rates are trending.

The 10yr Treasury yield at 4.32, the highest since November 2007 but still lower than where I think we will see it in the coming weeks.