Our crazy rate roller coaster is slowing offering a steady downward trend in 30-year fixed mortgage rates since their 2023 peak averaging 7.25% on July 6th. As we roll into the second half, here’s what to watch for, insights into next week’s Fed announcement, and why experts predict the worst could be behind us, at least for now.
Where’s the Promised 5% Range
The picture above is A LOT, but it highlights how volatile the market has been capturing daily pricing for Mortgage Backed Securities (MBS) since February of this year; a crazy ride with a full point in rate spread inside of 6 months. Stability is building and mortgage rates are trending down.
Economic Stability Briefly Unhinged
As shown above, the wheels came off shortly after February 2nd when economic indicators of strong job gains overestimated the potential for inflation driving increased tightening on the part of the Fed. Add a banking crisis and a brief impasse on our national debt ceiling, and market uncertainty left us with higher rates for longer than expected.
Clusters of Green Candlesticks
A steady rise in MBS prices is our signal of rates improving. Mortgage rates and MBS prices have an inverse relationship as the pictorial representation drives home. When MBS prices go up, mortgage rates come down.
The candlestick view of the MBS market shown above captures the pricing dynamics of mortgage-backed securities. The body of the candlestick represents the price range between the opening and closing of the market each day. Green bars represent days where prices closed higher than they opened, red bars signal MBS prices closed lower than they opened. The wicks-the little skinny part-show the highest and lowest points of the day.
Watch the Trend
If you’re seeking to predict the elusive 5%, look for the trends in the MBS market and follow the economic indicators below. Last week was a beautiful stream of green candlesticks. This week is a mix so far. We are about halfway back to our February average low of 6.25% and could begin to pick up momentum with cooling inflation and the most recent bank crisis behind us.
The Fed Announcement
The amount of green in the MBS chart with an anticipated Fed increase of a quarter point next week signals the markets are looking beyond the Fed monetary policy and reading the economic indicators:
- Inflation is down from 9.1% in June 2022 to 3.0% in June 2023
- Jobs data has cooled with only a mild uptick in unemployment from 4% in March 2022 to 3.7% in June 2023
- Home prices have steadied to a 4% YoY gain projected to finish at 4.5% YoY.
Investor sentiment is up as of this week, but it is a watch-and-see moment in the economy. The July 26th Fed announcement doesn’t directly affect mortgage rates, but it will impact the banking industry and we have seen just how thin many smaller banks are stretched with the spike in their lending rate since March of 2022.
Here’s to more green bars and a return to rates at least in the low 6s.
written by Sheila Landis | edited by Steve Landis for The Landis Group
