Fed Week, Fed Speak, Markets Freak!
This was a wild week for rates as they continued to get whiplashed by competing narratives. In the end, mortgage rates ended the week slightly higher relative to last week. There’s plenty to discuss so let’s hop to it!
Starting with housing news, Case Shiller reported their Home Price Index for November and it showed home prices rose .9% in November and 18.8% year over year. The top performing metros were:
Phoenix | 32.2%
Tampa Bay | 29.0%
Miami | 26.6%
Las Vegas | 25.7%
Dallas | 25.0%
Denver came in at 20.1% year over year appreciation. Despite the shockingly high numbers this report actually points to appreciation slowing. A couple things worth noting, for starters this report is for November so it’s not exactly real time and it does sync up with what we saw late last year with the market taking a bit of a breath. It’ll be interesting to see in a few months from now whether appreciation is still slowing or whether the renewed energy of 2022 quickens that pace. Only time will tell there.
All right, on to the main course! The Fed met this week and the meeting was very telling. Originally it was thought the Fed would wait until May to hike the Fed funds rate for the first time. That time table has now moved up to March. The Fed is eager to start hiking rates so that they can start slowing the pace of inflation. A Fed rate hike would be bad for Credit Card rates, Car Loan rates, Personal Loan rates and 2nd Mortgage rates. Those would all become more expensive. A Fed rate hike would be good for Savings Deposit rates and 1st Mortgage rates. Mortgage rates hate inflation as you’re used to me blathering on about so any signs of inflation slowing would actually be good for Mortgage Backed Securities. So where was the competing narratives I mentioned at the beginning? Well Fed rate hikes may be good for mortgage rates but what’s not good is if the Fed lets their balance sheet run off. In English, the Fed has been buying billions of dollars of these assets and when they reached the end of their term, they’d reinvest that money. In the Fed statement this week they mentioned wanting to stop reinvesting that money. This would equal more supply and if the demand isn’t there rates would increase. The Fed didn’t lay out a specific plan… just an idea, so it’ll be interesting to see how they address this going forward.
Lastly, today we received the Fed’s favorite measure of inflation, Personal Consumption Expenditures (PCE). This is inflation as us consumers feel it. The headline figures increased .4% in December to 5.8% year over year increase. The Core rate (which removes the volatile food and energy pieces) rose .5% for December to 4.9% year over year. These are the hottest readings in 40 years!
Next week is another busy week with ADP and Bureau of Labor Statistics Jobs Reports on the docket.
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