Three Things to Know About Mortgage Rates And Why Everyone Has Eyes on Jerome Powell

By Ryan Casey Stephens,  FPQP®
Special Contributor

If we’re going to see a real estate recovery this year, we need to radically improve affordability. The good news is it’s only the second full week of the year, and things are already off to a solid start. Mortgage rates have fallen nearly half a percent since New Year’s Day. That alone may bring more buyers off the sideline than any other factor, but will it persist? What’s driving the decrease? Let’s dig in and find out in this week’s Three Things To Know.

The Return of The King

We heard very little from the Fed over the holiday break, and let’s face it — that was a welcome change. This week, however, Papa Powell, the Crown Prince of Money Printing, is taking to the mic in what will be a closely watched speech. There’s no Fed meeting or rate hike this month, so his comments are the most solid clues we’ll be able to find regarding the Fed’s targets this year. 

The Fed’s current overnight rate range is 4.25 – 4.5 percent, and many experts expect it to reach as high as 5.5 percent by the end of this year (yes, that could mean another percent of rate hikes in 2023). Most of those surveyed anticipate another rate hike to the 4.5 – 4.75 percent range next month. 

First Thing to Know:

The Fed’s rate hikes are intended to curb inflation by slowing the economy. If that succeeds, it should help mortgage rates relax to lower levels. Fed Chair Jerome Powell’s words this week may give us clues on his strategy for the year.

Weak Rent Appreciation Saving The Day

Thursday of this week brings us the latest CPI inflation report, and we have positive expectations. Core inflation should drop from 6 percent to 5.8 percent, and that would likely help mortgage bonds rally. As I pointed out in last week’s edition, shelter costs make up a hefty chunk of this report. Rent appreciation has slowed dramatically nationwide, creating disinflation we can finally rely on. 

Second Thing to Know:

When mortgage bonds rally on news of lower inflation, mortgage rates decrease. Lower inflation equals lower interest rates. Shelter costs, chiefly, are helping us see lower inflation figures each month. 

Everyone’s Praying For a ‘5’

Housing Wire’s Lead Analyst Logan Mohtashami reported Monday that the average 30-year fixed mortgage rate fell to 6.14 percent and cited Mortgage News Daily for the data. Mortgage bonds have experienced consecutive positive trading days since December 30 with expectations of another positive week. Logan’s optimism shows in his hint that we might see that 30-year figure begin with a ‘5’ as early as this week. 

Third Thing to Know:

Rates are a roller coaster, and we may see them increase again intermittently, but an average 30-year rate below 6 percent hasn’t happened since September of last year. 

Ryan Casey Stephens FPQP® is a mortgage banker with Watermark Capital. You can reach him at [email protected].