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Saturday’s: 9AM 1590 AM/97.9 FM KVTA
Sunday’s: 7AM K-EARTH 101 FM
Christmas came early for rate sheets today, with the best pricing we’ve seen in months. Base conventional conforming rates breaking below 7% (national rate avg using Mortgage News Daily as a reference point) after yesterday’s Fed meeting delivered. Reprice risk today is moderate, bonds started out really strong but lost ground early on strong retail sales data. I’m going to go ahead and suggest cautiously floating to start the day, but strongly consider locking loans closing in the next few weeks as we may be seeing the “bottom” for now. I don’t have a crystal ball, and I could be wrong here… but I’ll explain myself further in the paragraphs below.
Yesterday’s Fed meeting delivered the hail mary I was not expecting but said we were hoping for. That’s why they call it a hail mary, amiright? Anyway, after strong labor data and par inflation data, it looked like the Fed wouldn’t have the ammunition to forecast lower rates in 2024. However, the dot plot at yesterday’s meeting was much more favorable to rates than September’s. Fed members now forecasting that they’ve hit the peak Fed funds rate and would cut at least three times in 2024. This is much better than September’s forecast of one more hike in 2023 and then only a single cut in 2024. Markets perceived this as a pivot, and we saw a very strong positive reaction. Generally if the Fed concedes an inch, the market thinks it will get a yard, and that is the case here.
Mortgage rates now firmly pricing in a March Fed rate cut, with futures pricing in a 70% probability of a cut by then. That is a bit less than double what we saw after the CPI inflation data on Tuesday, when probability of a March cut dropped all the way down to about 40%.
IMPORTANT: Mortgage rates will move lower as expectations of more Fed rate cuts happen, but right now could be at the end of this rally now that markets are basically fully pricing in a March cut. Watch my LIVE on Facebook or YouTube if you want to learn more and go deeper.
Loans closing in less than 15 days should cautiously float to start but then I strongly suggest locking. I don’t have a crystal ball, and I can’t tell you that rate sheets absolutely won’t improve from here. However, we got a surprise victory yesterday and it shows up on today’s rate sheets… and I’d take it. You never know you hit the bottom until you’re back on your way up, and I think this could be the bottom for the near term. Loans closing by year’s end should take this gift and have a happy holiday.
Loans closing in 15-30 days should cautiously float to start, but consider locking by days end. We don’t see the next potentially big rate moving data until January 5th’s jobs data, and then the CPI data on January 11th. That will be too late for loans in this window, which may not want to even float into the labor data (we won’t know till we get closer). Like I say above, I can’t guarantee that rate sheets won’t improve from here, but this pricing is worth taking.
Loans closing in 30+ days should cautiously float. These loans don’t need to worry about locking yet, because even if rates creep up a bit they will likely fall again in January.
Technicals:
The UMBS 6.0 coupon is at 101.50, +9bps and the 5.5 coupon is 100.47 or +33bps. That coupon is getting a lot more activity, and we will move to watching it now.
The 10yr Treasury yield at 3.96, and although a week ago I talked about how the Fed meeting was our only shot at seeing a 3.xx 10yr yield, I didn’t think that it was going to happen yesterday after the misses on jobs data and inflation. Now we have to see if it holds, or if it pops back up over 4.
