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Here’s what we’ve got for you today:

1. Jobs report pushes rates higher 🍃

2. ApartmentList June Rental Report 🔎

3. Debt Ceiling Deal Done ✅

In case you missed it, here is everything we covered in May: Monthly Roll-Up, you should check it out if you are interested.

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Nuwave Rates Today 📈

Just when we thought we were out of the weeds…the jobs report was released 🍃

Rates plummeted throughout last week after the reports of Washington figuring out the debt ceiling issue.

Then, on Friday - the jobs report was released, halting the market.

US employment rose by 339,000 jobs, maintaining an average monthly gain of 341,000 jobs over the past 12 months beating expectations.

Despite this growth, the unemployment rate increased to 3.7% from 3.4% in April as more people entered the workforce. The labor participation rate rose to 62.3%.

Why does this affect mortgage rates?

Remember - the FED’s goal in the rate hikes is to slow economic activity in the US, thus bringing inflation down.

If we continue to get strong job numbers, low unemployment, and strong economic reports, it indicates to the FED that we have not raised rates enough to slow down inflation.

On Friday, after this report was released, the bond market moved down nearly 50bps (indicating a rise in mortgage rates). This is the market preemptively pricing in another rate hike in the June meeting (Jun 14th).

TL/DR - Good reports are bad for interest rates in this market, if you want interest rates to come down, you want to see unemployment rise and job growth to slow.

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The other negative factor in the jobs report was the wage growth. Wages rose .3% in May bringing the annual rise of 4.3%.

This means real wage growth (when considering the inflation rate) is actually falling.

What does this mean for June?

There was hope that the Fed might pause rate hikes at its June meeting, but that was before the jobs report. It could mean that the Fed intends to raise rates once again by 25bps…

The best case scenario for mortgage rates would be good news in the CPI print released June 13th.

If it shows inflation is slowing significantly, we will see a pause - if not, we will see a hike.

Keep an eye on MF Lending - we will be reporting these numbers for you as they come in.

ApartmentList June Rental Report 🔎

ApartmentList June Rent Report was released last week. Not only are we seeing shelter costs decelerate but, in TN, we are even seeing those rents begin to fall.

This is good news for inflation as shelter makes up over 40% of the CPI number.

As this trend continues, we should see consistent, downward pressure on inflation and, hopefully, mortgage rates as we move through the summer.

For more context & numbers on your local market - you can find it here:

Debt Ceiling Deal Done ✅

Here are the highlights from the Debt Ceiling bill that flew through Congress -

• Debt limit extended to Jan 1, 2025 - this solves the issue through the 2024 Presidential election but means this will be one of the first issues the president and Congress will need to tackle post-election.

• Capped military ($886B) and non-military spending ($704B)

• Rescind $28B of unspent Covid-relief funds

• Eliminate $1.4B of IRS funding

• Overhaul the National Environmental Policy Act to streamline permitting for projects

Both parties claim this as a win. Thankfully, we did not reach a potential default, but it seems to me that we are merely kicking the can down the road.

Impact on interest rates?

Taking the risk of default off the table drastically improved interest rates last week.

The screenshot below shows how volatile the bond market has been, creating a V-shape immediately after the debt ceiling negotiations were completed. Then, dropping suddenly after the jobs report (as detailed above).

In an effort to harp on the same point - work with lenders you trust and watch this market closely. These swings are extremely significant and can affect your clients’ interest rates by nearly .5% as well as discount points they need to pay at closing. Working with the right lender can literally save your clients thousands of dollars.

The Cul-de-Sac

Mark your GCal

1. Jun 13th - May CPI Print

2. Jun 14th - FED Meeting

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