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Weekly Mortgage Rates
February 25, 2025
Rates are improving
The stage seems to be set, we broke through some of the resistance that has kept us stuck in a small range. There are many data points that support rates continuing to trend lower. Let's review!
Economic growth is slowing
The new year data on the economy shows we are starting off the year sluggish with slowing production and less consumer spending.
Friday the Michigan consumer sentiment report for January was revised sharply lower showing more consumers had a negative view of where the economy is headed.
Today another consumer sentiment reading with consumer confidence pointed to the same worsening consumer sentiment, with a drastic drop to 98.3 from 104.0 last month.
Adding to the slowing viewpoint on Friday Services PMI contracted showing a slowdown in business activity. Discount retailers are slowing down as well with Walmart projecting lower earnings and Home Depot also reporting the same this morning.
With slower growth comes layoffs. Several companies have been out announcing layoffs Starbucks, Boeing, Meta, and Amazon to name a few. Not to mention the largest employer of all - the Federal government's layoff announcements that now total 200k and counting (although with severance packages those may not hit the unemployment rankings for several months). The weekly unemployment readings on Thursdays will be a data point we will watch closely to see how employment is holding up in real time.
Investor sentiment is changing
Uncertainty and shifts in the economic data are causing traders to become more cautious. The sell off Friday in stocks was the result of this shifting view and concerns over geopolitical news. Many financial gurus calling for caution. All of this causes investors to move money into bonds for 'risk-off' trading further helping with the demand for bonds which pushes up the price and this lowers rates.
Changes in bond supply will help rates
The Fed minutes last week showed they were contemplating ending the quantitative tightening program we have been in since 2022 to help with impending liquidity issues with regards the debt ceiling.
We haven't talked about this in a while. To recap- when the Fed began raising the Fed rate, they also stopped buying bonds. Now if you want to talk about how the Fed can control mortgage rates- this is it. By buying treasury and mortgage bonds they were directly able to impact the rate by increasing the demand. (this is how we got 2% mortgage rates) In fact, the Fed was the largest buyer of mortgage bonds during this time.
Without the Fed's artificial demand, rates have increased. If they pause the quantitative tightening phase that means less supply of bonds hitting the market. Lower supply will impact all longer-term debt in both treasuries and mortgage bonds helping rates.
On the heels of this news more help with bond supply concerns as Treasury Secretary Bessent reconfirmed that he won't be adding to the long-term bond supply and will continue with shorter term bonds which will also support long term rates.
And is the market finally buying into D.O.G.E. lowering the deficits? It might be playing a small part as well. With the president focused on lowering rates versus keeping stocks high as was the focus in his last administration. He did promise "some pain".
What's ahead
Currently at the best level in the past 2 months. We make no predictions here and only report on the current market sentiment and direction, which is pointing to some things that could help rates more than hurt at the moment.
Friday PCE is going to be a test for rates, market expectations are for a slight trend lower in the annual core from 2.8% to 2.7%. As long as it doesn't surprise higher, we are optimistic about holding these recent gains and perhaps adding a little more improvement.
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