Good Tuesday AM from your Hometown Lender,
Rates should be improving for lots of reasons, not the least being this morning’s low inflation report, but they are not.
The market is looking for a reason to buy equities and are not showing any concern or interest in bonds. Rising stock prices are much sexier and can be more profitable. The 10-yr has hit 4.50% today and has taken out the highs back to late February. The good news is the bleeding should just about be over. Locking right now is a bit like closing the barn door after the horses have gone.
On Inflation…
It came in softer than expected for a third month, but that did nothing to change markets’ expectations for future Fed rate cuts. One argument can be made that increased prices from tariffs haven’t yet hit store shelves en masse, with many companies still working through a massive stockpile of built-up inventory. However, with tariffs being paused or lowered amid trade talks, many products may narrowly miss having to increase prices at all.
Markets are now pricing in the updated forecast that the Fed will only cut twice this year, although there is still some support that there will be three cuts. It would take some clear signs that the labor market is tanking in order to turn this around. As long as expectations remain the same, this is now a neutral player when it comes to mortgage rates, with the expected cuts already priced in.
Tariffs have caused some volatility but are no longer causing whipsaw moves.
Despite the idea that the reduction in tariffs and the talk about trade wars would help keep inflation in check (which should help mortgage rates), the concerns about a pending recession are quickly falling. A weaker economy would have helped rates, so signs of a stable economy without huge tariffs to worry about will pressure mortgage rates to at least stay at current levels.
Rates are likely to stay on the higher side of the range we’ve seen since February. January saw rates hit highs for the year, then fall in February to level off in March. Rates spiked in April, however not matching the January worst levels, and were volatile in April but are settling down now in a range that is higher than March but still better than January.
And.. I found this interesting note from Redfin…
In 2005, the median U.S. homeowner lived and owned their primary home for 6.5 years. In 2024, the median U.S. homeowner lived and owned their primary home for 11.8 years. That means the typical U.S. home today has been owned by the same person for nearly twice as long as in 2005—resulting in less turnover in the housing market. That affects the entire ecosystem. For some millennials and Gen Xers, it could mean staying longer in their starter homes as they struggle to find a move-up property in their desired location. And for first-time buyers, especially Gen Z, the lack of turnover means fewer entry-level homes coming up for sale.
