Interest Rate Hike Already Showing Up in Mortgage Data
Wednesday, March 23, 2022
Volatility revisited: the market giveth, the market taketh away. We’re riding a two-week winning streak on the major indexes, with yesterday’s nice updraft giving some back in this morning’s pre-market: the Dow is -150 points at this hour, the Nasdaq is -130 and the S&P 500 is -25 points.
With the Fed raising interest rates off their two-year bottom last week, we’re already seeing residual effects in various places in the economy. For instance, while the overall housing market remains hot, we’re seeing a sudden jump in mortgage rates — and this is having a negative impact on mortgage applications. These have dropped -12% from a year ago, while refinancing demand is -14%. This also may account for the heavy activity in the homebuying market over the past few months — everyone knew higher interest rates were coming, and people got in while the getting was good.
Now, the 30-year fixed mortgage rate on a home worth under $650K has notched up 23 basis points (bps) to 4.50%. This is historically still a good mortgage rate, but remember — we’re on pace for at least half a dozen more interest rate increases this year, with a handful more expected in 2023. And Fed Chair Powell yesterday suggested a 50 bps increase at the Fed’s May meeting was worth considering. So we’re cranking up rates, which will have a pronounced effect on the mortgage market.
This is not to say the Fed shouldn’t be raising rates — it’s the single-most efficient tool with which to fight inflation. And while it won’t necessarily bring overall mortgage prices down, it will likely have a clear effect on cooling housing prices. And this, in turn, will show up in inflation data over time — to the downside, which is good.
New Home Sales for the month of February are out after the opening bell this morning. Expectations for seasonally adjusted, annualized units for last month is around 805K, up from the 801K we saw for January. These figures are off the cyclical high 873K in March of last year — and well off the 1.4 million or so we saw during the peak of the housing bubble in the mid-00s —but may be representing a near-term peak, especially if the housing market proceeds at the behest of interest rates going forward.
Finally, President Biden is flying to Brussels, Belgium this morning to meet with NATO leaders regarding new strategies toward compelling Russia to cease its war of aggression in Ukraine. Discussions will likely revolve around whether to assist the war-torn ally of the West with new weapons supplies, and methods for the U.S. to replace Russian natural gas in Europe. Also, there is the question of how NATO will address China’s support of Russia, and what can be done to compel this important trading partner across the globe to retract support of Russia’s hostilities.
Questions or comments about this article and/or its author? Click here>>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Invesco QQQ (QQQ): ETF Research Reports
SPDR S&P 500 ETF (SPY): ETF Research Reports
SPDR Dow Jones Industrial Average ETF (DIA): ETF Research Reports
To read this article on Zacks.com click here.
Zacks Investment Research
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
