It’s Mike Lynch with Ameri first financial it’s time for Monday morning mortgage update for the week of August, the 22nd happy Monday morning. Hope everybody had a great weekend. Gail and I actually got up into the Hills and got out of the. Rode our mountain bikes and just had a great weekend getaway.
So let’s talk about what last happened last week and what’s gonna happen this week. Last week we actually saw rates get worse. The mortgage backed securities market moved down 45 basis points and the rates ended the week a higher than they did when they started. So what was the cause of this?
The main thing or the theme of the day? If you will, is a slowing. And there was some reports that came out last week that showed this, the fed acknowledged that the economy is slowing down. They don’t do this very often. Jobless claims were up on Thursday housing, a lot of housing news last week that showed the housing market slowing.
We all know this, we see it. It’s correcting. Even though it’s still strong, it’s not as strong as it was. And then retail sales, what people are buying was pretty flat. Actually, it was really, really. So that caused us to have some negative outlook on the future of the economy. And typically when we see a slowing economy, however, we see.
Interest rates get better. Why was the shift? Because inflation is still a big issue. It’s a big, big issue. And inflation is the worst thing we can have for mortgage rates. We’ve talked about that many times. So what are we looking at this week? Three things inflation, number one, surprise. The fed and then manufacturing number.
So let’s talk about inflation, a big report coming out Friday, the PCE. It is the federal reserve. Key measure the main thing they look at when they look at inflation, they have a target number of 2% and the PCE is double that basically what that means is the fed said, look, we want to keep inflation at 2%.
They ignored it last year and it’s outta control. They’re raising the fed fund rate, every single meeting to try to fight that it takes time. It doesn’t happen overnight. And so we’ll look at this PCE to see. Anything really has happened. We know the CPI and the PPI that came out week and a half ago had high numbers.
They weren’t as high as they’d been. So big numbers that we be looking at on on Friday. And remember the bond market is very sensitive to inflation. Why? Well, let’s say that you have a million dollars in bonds and you have a 4% yield on those bonds or 4% rate. Right. And inflation is 1%. One minus four is a 3% rate of return.
Now, if inflation goes up to three. And you still have those bonds and now you get a 1% rate of return. So they raise the yield bond, bonds, corporate federal government raises those yields and those bond on those bonds, which is basically an interest rate. And that’s why interest rates, climate inflation claims.
Okay. So it also inflation was high, is expected to be high in Europe. We’re gonna look at those numbers this week to see if, if that’s the case, we’ve seen high numbers in the. Even though it’s our bonds. It’s global. We are global people invest in our bonds. So again, we’ll be paying attention to that.
Second thing is the fed fed doesn’t have a meeting this week, but they kind of do they’re meeting in Jackson hole, Wyoming all the economists, the federal reserve chairman and, and all the members are meeting in Jackson hole. Really talk about the economy. There’s gonna be a lot of news media, a lot of attention to it.
Everybody’s gonna be talking and so we’ll really pay attention to see. They are gonna continue to be aggressive in raising rates, moving forward. You know, they’ve been raising rates, the federal reserves and raising those rates. And then some people thought, well, they’d raise ’em and then they dived a lot of people think they’re gonna raise and then level off when’s this gonna happen?
When are they gonna level off? Is do they think that raising that fed fund rate is really fighting inflation, which ultimately is going to slower economy, which ultimately will bring mortgage rates down. So a lot of. A lot of media’s gonna be pay attention to what they think’s gonna happen. And then the third thing is manufacturing.
So our business is building stuff. Are they making stuff? Are they making more products so they can sell it? Are they slow down a lot of manufacturing numbers cutting out this week? And if we start to see a slow down again, that’s another sign that the economy is slowing down. Ultimately we want inflation to come down, but we’ll really be looking at those.
And interesting raw materials that we get in this country to make a lot of stuff come from Europe and they’re having some big supply chain issues and issues delivering those raw materials. So that’s actually driving prices up, which is in a form inflation a key aluminum manufacturing, Kentucky just shut their doors last week because of high energy.
So these marginal, these little tiny re data sets that come out that really show inflation isn’t under control. It’s, it’s widespread, it’s global, it’s affecting our economy. You know, that, that goes back to our number. One thing here is inflation and inflation really is driving mortgage rates.
And until we get it under control, these rates are gonna go up. So what are we looking at this. It’s gonna be not a friendly week for rates. We’re locking the market’s already down. In fact, if we want to go to the charts, let’s look at mortgage back securities. This is a graph of mortgage back securities.
And any time we see the green, anytime we see these numbers move up, that’s good for, for interest rates. Okay. Anytime we see the graph go down, that’s bad for rates. That means money’s flowing out of the bond market and you can see what happened last. And really what happened today we already had a rate lock warning today to, to lock an interest rate if, if, if a client was floating it, and there’s a lot of movement to the downside here you know we really expect.
Or have the potential of these rates to get worse. So we’re starting the wheat locking. We’re not paying with playing with anybody’s money. If you know somebody that needs some insight on mortgage rates, you can forward this to them. If they need advice, you can have ’em call me. If you know somebody again, that could benefit from this video, please send it to ’em.
You have any comments I’d love to hear. ’em have a fantastic productive week and we’ll talk to you soon.