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Here’s what we’ve got for you today:

1. August: The month of over-reactions 🚀

2. Pending Home Sales Rise in June 🏡

By the way, this article on Fed Coffee Corner: July Meeting is the most clicked link in this newsletter, you should check it out if you are interested.

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Nuwave Rates Today 📈

August: the month of over-reactions 🚀

If the last two days told us anything it is this: Get ready for a volatile two months.

In the wake of Wednesday’s Fed meeting, we saw one of the worst trading days for mortgage-backed securities this year. The market moved nearly 75 bps negatively on Thursday (most days see 10-15bp moves).

Then on Friday, we saw the market return 30+ bps positively…

These are massive swings.

What is going on here?

If you remember from our Fed Coffee Corner - in JPow’s speech he said that the Fed was going to be extremely “data-dependent” as they decide between raising rates again in September or holding rates where they are.

The Fed wants to see the economy, and thus inflation, slowing.

On Thursday, Q2 Real GDP numbers were released and came in higher than expectations - this rattled the market.

The rationale is this - “If GDP is coming in higher than expectations, that means the economy is doing better than we think. That would mean inflation is going to run hotter than expected, thus requiring the Fed to raise rates in September.”

You can see how this line of thinking can quickly snowball and result in the massively negative swing we saw Thursday.

But if you look at the report, the GDP figures came in only .2 higher than expectations, it seems to be an extreme over-reaction to one piece of data…

Then Friday, we saw the Personal Income and Outlay’s report which showed that although consumer spending increased slightly (.2), the pace of growth is slowing greatly.

This news swung the market back in a positive direction.

Again…a small piece of data caused the entire bond market to overreact in the other direction.

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If last week told us anything, it’s that we should expect more volatile swings before the September meeting. As we detailed last week, there are a few key days to market where the biggest swings will occur:

1. July Jobs Report - Aug 4th

2. July CPI Print - Aug 10th

3. August Jobs Report - Sep 1st

4. August CPI Print - Sep 13th

If you are an agent, put these dates into your calendar.

For preapproved clients, your Loan Officer should be reevaluating each approval after these dates, because the rates and payments will absolutely change.

The last two days in the market was the canary in the coal mine. We are seeing how traders are going to react until the September meeting…and it’s not great for buyers.

Pending Home Sales Rise in June 🏡

Pending Home Sales rose .3% in June, the first rise in home sales in over four months.

While I can agree there is a lack of supply, I think he may have slightly rose-colored glasses on. I do not think we are out of the woods yet.

Until we see mortgage rates actually begin to fall, we will not see incredible demand in the market. Homeowners simply cannot afford the payments today.

Until interest rates come back down under 6.5% at least. Most buyers are even waiting until they see rates in the 5% range again. It is simply too much for them to manage.

The Cul-de-Sac

Mark your GCal 📆

1. July Jobs Report - Aug 4th

2. July CPI Print - Aug 10th

3. August Jobs Report - Sep 1st

4. August CPI Print - Sep 13th

Thanks for reading - that is all we have for today 😎

Please forward this to your friends and colleagues if you found it valuable.

— Michael F DiLucchio