Weekly Mortgage Rate Update- 07-16-2024
June CPI showed inflation contracted for the first time since 2020 due to decreasing shelter expenses and less consumer discretionary spending, it came at -0.1% for the month. This caused the annual CPI rate to drop to 3.0%. Core CPI (excludes food and energy) rose 0.1% for the month and sits at 3.30% annually, both readings are lower than expectations.
The other notable event of the week was Powell’s testimony before congress. The Fed Chair stressed that there are “two-sided risks for policy: moving too soon or moving too late”.
The lower inflation reading took the market expectations of a September rate cut to 91%, all but guaranteeing a .25% cut on the Fed rate.
Normally, we would have expected a bigger move lower for mortgage rates on all the recent news showing a slowing economy and a slower inflation rate. However now we have another factor that is getting weight in markets and that is the “Trump Trade” A phrase I am seeing a lot in the bond news world right now. The last thing I would like to do is talk about politics, but it is becoming a main factor in our rate outlook.
Historically rates drop a little before a presidential election due to the uncertainty of which party will win because this affects the economic policies that bond traders look at. When its a close race, rates tend to drop as investors put money into the safety of bonds. But the odds of another Trump term have increased since the debate. With the uncertainty play out of the picture for now, bond traders are looking at what a Trump presidency will do to the inflation outlook.
“Calvin Tse, head of macro strategy at BNP Paribas, thinks it is clear enough: The Trump trade is a US rates curve steepener. Trump’s policies are largely inflationary (tariffs, looser fiscal), while at the same time, he will probably appoint a more dovish-leaning Fed chair. After the debate last week the curve steepened both on Friday and Monday — likely as a reflection of Trump’s probabilities of winning having gone up.” https://www.ft.com/content/f7ac076b-b3e9-43d3-b4b2-690f718381cd
A curve steepener is a complicated topic, the high-level overview on this is long term rates rise while short term rates fall. Remember the Fed only controls the Fed fund rate that drives shorter term bonds. Longer term bonds (like mortgages) are driven by market conditions and inflation outlooks. This means short term rates could fall and mortgage rates not follow suit.
Jamie Dimon came out last week and commented about the inflation outlook “There has been some progress bringing inflation down, but there are still multiple inflationary forces in front of us: large fiscal deficits, infrastructure needs, restructuring of trade and remilitarization of the world,”… “Therefore, inflation and interest rates may stay higher than the market expects.”
We made a run at and failed to hold onto better pricing since last week, but the trendline is strong and rates are expected to hold for now.
|
Loan Type |
Conventional 30 year |
Conventional 15 year |
FHA 30 year |
VA 30 Year |
|
Interest rate |
6.625% |
5.875% |
6.125% |
6.125% |
|
APR |
6.78%* |
6.13%* |
6.86%** |
6.26%*** |
LICENSED BY THE CALIFORNIA DEPARTMENT OF REAL ESTATE LICENSE A division of TYKY (DRE #01919683) (NMLS LICENSE #257773)
RATES ARE CURRENT AS OF 07-16-2024. SUBJECT TO BORROWER APPROVAL, FICO SCORE, LTV AND PROPERTY TYPE
*APR IS BASED ON ESTIMATED FINANCE CHARGES OF $6935
**APR IS BASED ON ESTIMATED FINANCE CHARGS OF $10,969 THIS INCLUDES FHA MORTGAGE INSURA
NCE PREMIUM
***APR BASED ON ESTIMATED FINANCE CHARGES OF $8343
* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.