![Mortgage Investors Group in [Dynamic1]](../assets/images/mortgage-investors-group.svg)
Market Comment
Mortgage bond prices finished the week lower which put upward pressure on rates. Minneapolis Federal Reserve President Kashkari said the central bank may not cut rates until December. The data was mixed. Retail sales rose 0.1% vs 0.2%. Industrial production rose 0.9% vs 0.3%. Capacity use was 78.7% vs 78.6%. Business inventories rose 0.3% as expected. NAHB housing was 43 vs 45. Housing starts were 1.277M vs 1.37M. Weekly jobless claims were 238K vs 235K. The Philadelphia Fed index was 1.3 vs 5. Existing home sales were 4.11M vs 4.1M. LEI fell 0.5% vs down 0.3%. Mortgage interest rates finished the week worse by approximately 1/4 of a discount point.
Looking Ahead
| Economic Indicator | Release Date & Time | Consensus Estimate | Analysis |
|---|---|---|---|
| FHFA House Price Index | Tuesday, June 25, 10:00 am, et | Up 0.2% | Moderately Important. A measure of single-family house prices. Weakness may lead to lower rates. |
| Consumer Confidence | Tuesday, June 25, 10:00 am, et | 100 | Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates. |
| Durable Goods Orders | Wednesday, June 26, 8:30 am, et | Up 0.3% | Important. An indication of the demand for “big ticket” items. Weakness may lead to lower rates. |
| Q1 GDP | Thursday, June 27, 8:30 am, et | Up 1.3% | Very important. The aggregate measure of US economic production. Weakness may lead to lower rates. |
| Personal Income and Outlays | Friday, June 28, 8:30 am, et | Up 0.4%, Up 0.3% | Important. A measure of consumers’ ability to spend. Weakness may lead to lower mortgage rates. |
| PCE Core Inflation | Friday, June 28, 8:30 am, et | Up 0.3% | Important. A measure of price increases for all domestic personal consumption. Weaker figure may help rates improve. |
| U of Michigan Consumer Sentiment | Friday, June 28, 10:00 am, et | 65.6 | Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates. |
Rates and Inflation
Inflation, real or perceived, erodes the value of fixed income investments such as mortgage-backed securities (MBSs.) These are the debt instruments that dictate mortgage interest rates. Elevated inflation levels have resulted in higher mortgage interest rates the past few years. Mortgage interest rates remain lower than they would naturally be because the Federal Reserve still holds $2.3T of MBSs as of mid-June. The June 12th Fed statement indicated, “the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities.” The Fed has been cautious in their selling to keep rates as stable as possible. However, unwinding such a large position is not easy. The Fed’s stated plan is “to reduce securities holdings in a predictable manner, primarily by adjusting the reinvested amounts of principal payments received from securities held in the System Open Market Account (SOMA). The FOMC established caps on the monthly pace of runoff; specifically, since September 2022, three months after balance sheet reduction began, those caps have been $60 billion for Treasury securities and $35 billion for agency debt and agency MBS. Note that the latter cap has not been binding, as higher primary mortgage rates have largely eliminated refinancing incentives for the mortgages underlying SOMA agency MBS holdings, resulting in very slow prepayments.”
