Good Tuesday AM form your Hometown Lender,

Not much on the data front today.

Tomorrow brings a 10-yr treasury auction and the minutes from the last Fed meeting. The market could move on those release but for today, for now, things seem calm.

An interesting piece from Bloomberg…

Mortgage rates have gone in a virtual straight line up since that Fed decision in mid-September. Ahead of the rate decision, there was no guarantee that the formal cut to Fed overnight rates would lead to a reduction in the rates that consumers pay to borrow for things like homes.

It feels almost cliche to say it at this point, but markets are forward looking. In fact, it was the anticipation of lower inflation, and lower rates that caused the big drop in mortgage costs from late 2023 to now. In other words, we already had gotten a big cut in mortgage costs, even before the Fed actually acted.

Markets are forward looking.

They’re based on the projected path of future policy. Since the Fed decision we’ve seen generally robust economic activity, most notably that huge jobs report last Friday. All things equal, such data makes future rate cuts less likely. I wrote about this yesterday, but again, there’s already a small, but growing, possibility in the market that they don’t cut at all in November.

If mortgage rates are going to continue the downward trend that we started about a year ago, we’ll have to see persistent, sustained, further disinflation, beyond what we already got. And we probably need to see more concern about the state of the labor market. When the Fed cut rates by 50 basis points in September, it was about sending a message that further labor market weakness would not be desired. And so, the move was to cut off that left tail. If labor market strength continues to come in better than expected, then there’s no reason for the Fed to act as aggressively as it might have anticipated a few weeks ago.

Obviously in addition to watching rates themselves, real estate is something to watch.

Something you heard back during the days of peak inflation is that some players in the industry would rather see a hard landing — prompting aggressive rate cuts — than a continued good economy implying robust end demand for the space.

Stay safe and make today great!