Mortgage Rate Watch
Mortgage Rates Inch to March Highs
Rates marched higher to the highest levels in March today, but most lenders are only microscopically worse off than Friday afternoon.  In the slightly bigger picture rates have moved up roughly a quarter of a percent in just over a week and that's a relatively quick move. The last time rates rose a quarter of a point in short order was at the beginning of February.  The entire jump happened in a single day following the release of much stronger jobs data.  It was also followed by additional momentum thanks to inflation data in the following week. The current move is also data driven with two inflation reports coming in hotter than expected last week.  The average lender is now very close to their highest levels in several months, which seems fitting considering the arrival of the next Fed announcement on Wednesday. We already know the Fed will not be cutting rates.  We don't know how they'll adjust their rate outlook for the rest of the year.  The last update (on December 13th) was very friendly.  This update should be less so.  If the Fed's shift in "friendliness" matches market expectations, we may not get too much volatility, but considering the circumstances, volatility is a distinct risk.  
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On The Road To Rate Cuts, Markets Asking "Are We There Yet?" (Spoiler Alert: No)
Back in late 2023, we got in the car with the Federal Reserve with the promise of a trip to our favorite place: the land of lower interest rates. In 2024, we keep asking "are we there yet?" The more we ask, the farther we seem to be from the destination. This trip began with all the best intentions. Softer inflation and cooler economic data led the Fed to expect an opportunity to cut rates several times in 2024.  The Fed communicated as much in mid-December.  Markets took things a step further with futures contracts pricing in 6 cuts by the end of the year.  "6 rate cuts" was a refrain that echoed throughout the mortgage and housing industries.  Suddenly, too many people were risking disappointment by not understanding the HIGHLY conditional logic behind the 6 cut mantra. It wasn't necessarily a mistake for the market to get so far ahead of the Fed's official outlook.  After all, the Fed has a history of cutting rates MUCH faster than its projections suggest.  But the decision would ultimately be dependent on continued progress on inflation, and more economic cooling. With the release of this week's inflation data, we now have two consecutive months that raise serious objections to the notion that the Fed will be able to cut any time soon.   This is a chart of the core Consumer Price Index (CPI) in year over year terms.  This is the inflation metric that the Fed wants to see at 2% and they've been clear in saying they can cut rates if they're confident that we'll get there.  It shows clear, substantial progress toward that goal:
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Mortgage Rates Back Above 7%
Even though Tuesday's consumer-oriented inflation report (CPI) had the biggest potential to cause drama for rates, it was today's wholesale inflation report that did the most damage. The Producer Price Index (PPI) showed wholesale inflation running hotter than expected by quite a wide margin overall (0.6% month-over-month versus a median forecast of 0.3%).  Even after stripping out more volatile food and energy prices (i.e. "core" inflation), PPI was up 0.3% versus forecasts of 0.2%.   These might seem like small numbers, but keep in mind that the Fed's inflation target is 2.0% annually at the core level.  Core readings of 0.4% in CPI and 0.3% in PPI pencil out to 4.8% and 3.6% respectively.  Inflation is the biggest concern for interest rates, so it's no surprise to see rates moving higher.  Today's increase brings the average to tier, conventional, 30yr fixed rate back above 7% for the first time in a week.
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Mortgage Rates Move Higher For 3rd Straight Day
Mortgage rates are nowhere near their highs from a few short weeks ago, let alone the much higher highs from late 2023, but they are at the highest levels this week after rising for the past 3 days. Monday's increase was small, forgettable, and random.  Tuesday's rates were driven higher by the market's reaction to the inflation data that came out this morning.  Markets were arguably still reacting to the implications of that data today, but less forcefully.  In fact, many lenders are essentially right in line with yesterday's latest levels. More importantly, the overall increase of the past 3 days is rather small compared to past examples of the market reacting to unexpectedly high inflation readings.  This could be a sign that investors increasingly expect economic data to shift in a rate-friendly manner.  At the risk of stating the obvious, data would actually need to make that shift in order for broad-based rate improvements. Inflation and labor market data is the most important in that regard, but tomorrow's Retail Sales report has frequently had an impact when it has come in far from the median forecast.  The Producer Price Index has also had an impact a few times recently and it will be released at the same time as Retail Sales (8:30am ET).
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Mortgage Rates Rise After Inflation Data, But it Could Have Been Worse
Today brought the release of one of the most consequential economic reports that comes out on any given month: the Consumer Price Index (CPI).  CPI measures inflation and inflation is a big deal for interest rates.  Higher inflation means higher rates and vice versa.  That correlation held true today with CPI coming in higher than expected and mortgage rates moving higher, but the details are more nuanced. The last time CPI came out (February 13), the most important line item (core month over month CPI) was at the same level as today's report.  The impact on 30yr mortgage rates at the time was a big jump of 0.17% for the average lender.  Today's increase was only 0.05%, and it didn't even bring rates up to levels seen BEFORE last month's big jump. That all adds up to a very nice silver lining for an otherwise downbeat day.  It suggests the market is starting to see more convincing signs that inflation and the economy stand a better chance deliver rate-friendly news in the near future as opposed to news that would cause a big resurgence. But why was today's outcome so much better?  There were some mitigating factors in today's CPI that weren't present last time.  Most importantly, the largest and most stubborn component of that core month over month number managed to drop back into its prevailing range (last month's reading represented a spike to the highest level in nearly a year--something that caused investors to worry about new upward momentum in inflation).
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