Mortgage News Weekly 4/26/21

In this Issue…

A Look Into the Markets

Mortgage Market Guide Candlestick Chart

Economic Calendar for the Week of May 3– 7

A Look Into the Markets

“Let the good times roll” – “Good Times Roll” by The Cars”

This past week, home loan rates edged higher from recent lows, and the 10-year yield ticked back up to 1.68%, off the lower rates seen recently.

It was all about the policy response from the Fed, and the Administration, and the subsequent market response. Let’s break it down.

“No, it’s not time yet.” – Fed Chair Jerome Powell

The Federal Reserve met this week and essentially said they are “not even thinking about thinking about” raising rates or tapering their bond purchase program.

They said inflation will rise in the coming months, but the increase will be “transitory” or temporary. Ironically, the Fed used the same terminology to describe persistently low inflation for the previous decade.

Let us hope the Fed is right this time and that any rise in inflation is only “transitory,” as any meaningful and sustained inflation would be bad for the economy, the financial markets, and rates.

American Family Plan Unveiled

This past Wednesday night, President Biden announced some details of the American Families Plan. For those keeping track, this $1.8T plan, coupled with American Rescue Plan and American Jobs Plan, brings the total spent to a whopping $6T.

Some of the components include free day-care, free college expense, expanded tax cuts, and direct support for those in need.

How does the US pay for this? Some will be paid by taxes, and the rest will be debt financed with the Treasury Department selling more Treasury notes and bonds into the bond market.

What does this mean for mortgage and housing?

The new bond supply created by the Treasury must get purchased and absorbed into the bond market. That process can weigh on bond prices and create higher yields or rates. Additionally, this enormous amount of spending elevates inflation fears.

Consequently, rates ticked up Thursday morning in response.

The U.S. Economy Is Humming

Recent economic reports and corporate earnings have been strong. The vaccinations and state re-openings have bolstered consumer confidence and consumer spending and lowered the unemployment rate.

Housing remains scorching hot with record demand. It is estimated that the Gross Domestic Product (GDP) for 2021 could be as high as 8%, a historically very high figure.

If everything is so positive in the economy, do we need such an enormous policy response from the Fed and Administration?

That’s the big question, and we will continue to see the market’s response in the weeks and months ahead.

Bottom line: Rates have ticked up a little from the recent lows despite continued Fed bond buying as mentioned above. Those thinking about locking in today’s rates should do so.

Looking Ahead

It’s Jobs Week. Likely the most important economic report of the month will be next Friday’s Jobs Report. The numbers continue to improve as economies reopen. It is estimated that the unemployment rate will be in the mid-4-percents by year-end.

Now that the Administration laid out its Jobs and Families Plans, we will have to watch Congress debate and negotiate both the spending and tax sides of the plans. That process, which is generally not fun to watch, could help bonds/rates as uncertainty elevates. Remember, bonds and rates like bad news and uncertainty.

For the moment, these are good times and the continued policy response by the Fed should help fuel housing for the foreseeable future, so let it roll.

Mortgage Market Guide Candlestick Chart

Mortgage-backed security (MBS) prices are what determine home loan rates. The chart below is the Fannie Mae 30-year 2% coupon, where current closed loans are being packaged. As prices rise, rates decline and vice versa.

On the right side of the chart, you can see prices declining, thereby pushing home loan rates higher.

If MBSs fall beneath the yellow line (50-day moving average), prices will likely fall further and push rates higher still.

Next week’s big economic news may determine the next directional move for rates.

Chart: Fannie Mae 30-Year 2% Coupon (Friday, April 30, 2021)

Economic Calendar for the Week of May 3 – 7

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