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Today - we have our FED Lunch & Learn! 🎉 Here are the sparknotes from JPow’s speech today (5/3):

1. FED raised rates by 25bps to 5.25%

2. FED no longer “anticipates” further rate hikes needed but will watch incoming data as it “may be appropriate”

3. JPow claims “banking system is sound and resilient” - in the midst of the largest collapse since 2008

4. FED also claims we have a tight labor market - when recent data shows otherwise (check out our edition tomorrow for more on this)

5. FED still sees inflation as too high

You can also watch this press conference on YouTube

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Nuwave Rates Today 📉

What Does This Mean for Mortgage Rates?

The FED has now raised rates by 500bps (5%) in the last 12 months.

By the end of the May meeting, the bond market was up 50bps - remember as the bond market rises, rates fall.

Wait, I thought rates went up?

The FED funds rate does not impact mortgage rates as directly as many believe. It is not a perfect science.

The reason that rates have now dropped following this meeting is - mortgage companies believe that interest rates will remain higher for longer.

Powell made it very clear how bearish the FED is about interest rate cuts this year - basically saying it is never going to happen in 2023. At best, we will see a pause.

Therefore, mortgage companies’ appetite for mortgages above 6% rises.

Why?

Mortgage companies know that clients are not going to be able to refinance their loans any time soon. They will aggressively lend so that, when the time finally comes, they can refinance the loans once again.

Additionally, if the FED does, in fact, pause rate hikes in June, it is easier for mortgage companies’ secondary market departments to accurately price mortgage loans and securitize them on Wall St.

That is why you are seeing rates actually drop even with this FED hike.

Mortgage companies are better at future projections and anticipating movements than the FED is…much better.

Way too early June Projections

Prior to the meeting today, many experts believed a FED pause was coming in June - some overly bullish participants even believed they could cut rates this year. This meeting snuffed those dreams.

The FED indicated they may not need to raise rates after the May meeting in March. Today, they not only said they will be “data dependent” but they are also not sure if a pause will come.

Early projections (above) still indicate a strong likelihood that rate hikes will be paused in June - but again 0% chance rates are being cut.

What should you anticipate for clients?

I would set expectations with clients that they will continue to see interest rates at or above 6.25% - 6.75% throughout the month.

If they want to look to limit their monthly payments they could:

1. Buy discount points - highly recommend this option

2. Have a higher down payment

3. Look to purchase a slightly cheaper house for the time being

There is no anticipation that rates will come down any time soon. We will continue to see the rates today as a new normal for homebuyers.

The Cul-de-Sac

That’s all we have for today. Hope you enjoyed your lunch 😎