Morning! This is MF Lending - the fool-proof way to serve up mortgage and real estate market knowledge without any of the guesswork. So you’ll look like the smartest agent in the room (and you are!)

Here’s what we’ve got for you today:

1. What is going on with rates?! - Feb rate changes🪩

2. Inventory will increase this spring - Compass CEO 🧭📽️

By the way, this article on Biggest single-day jump since October ‘22 is the most clicked link in this newsletter, you should check it out if you are interested.

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Rates Today 📈

What is going on with rates?! 🪩

Interest rates have been absolutely SLAMMED in the last ten days and since the higher-than-expected CPI data on Feb 12th, we have seen nothing but red in the market.

Feb 1 saw rates at their lowest levels, landing most buyers around 6.5%…today, Feb 22 - rates are 7.00%. 🤯

So, what the hell happened?

If you remember from our Fed: Coffee Corner ☕ - Jerome Powell was very clear in his statements -

• TLDR - the Fed believed inflation was coming down, but they wanted more data to support that belief before they began their interest rate cuts

Mortgage companies were feeling great about this news, preparing for the rate cuts and beginning to offer lower rates. This is when mortgage rates came down to around 6.5%.

Then came the major economic data:

• Feb 2nd - Non-farm Payrolls SMASH forecasts (353k vs 180k f’cast)

• Feb 5th - Manufacturing PMI - higher than expectation

• Feb 13th - Headline & CORE CPI - both higher than expectation

All the data is telling us that inflation is not coming down as fast as we thought. If the Fed was to start cutting now, it may exasperate the problem.

CPI is higher, the job market is getting stronger, and the unemployment rate is going down - all signs point to a strong economy. All signs tell us that the fight with inflation is not over.

There has not been a single major report in February with positive news for the market. That is why you are seeing rates 0.5% higher than a few weeks ago.

According to CME Group, it has become a near-certainty that the Fed will not start rate cuts in March (95.5% chance) and there is now even a 73% chance that the Fed won’t be cutting in the May meeting either.

As of right now, CME does not predict the first cut until the June Fed meeting.

We know that mortgage companies will be ahead of the Fed, so if these predictions are correct, we may see the cuts reflected in mortgage rates by the end of April/early May at the earliest.

Where do things go from here?

I think we are reaching the peak of rates this week. I think that most, if not all, of the negative economic news has worked it’s way through the market. Unless there are more drastically negative data, I think the shock is behind us.

I would expect the rest of February and March to see rates consistently around 6.75% - 7.125%. I predict rates will hover around this level until we get closer to the May meeting.

If for some unlikely reason, we start to see great economic data, a rate cut may still be on the table for May - but I find it unlikely at this point.

For your buyers, expect more leverage in their hands. With rates back up to around 7% - I think we will start to see fewer multiple offers scenarios and bring heavy seller concessions back to the market.

As more homes hit the market in the Spring (see comments from Compass CEO below) more sellers will be vying for buyers attention.

This can be encouraging for many buyers, but expect some prospects to back off with the much higher rates.

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What are you seeing in your market? Let me know in the comments 🪩

Inventory will increase this spring - Compass CEO 🧭📽️

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— Michael F DiLucchio