Morning Report: Fannie forecasts little changes to mortgage rates through 2023

Vital Statistics:

S&P futures4,70915.2
Oil (WTI)76.020.08
10 year government bond yield 1.58%
30 year fixed rate mortgage 3.26%

Stocks are higher this morning on M&A news. Bonds and MBS are down small.

The upcoming week contains the Thanksgiving holiday, so volumes should be relatively light. Market are closed on Thursday, and Friday is an early close in the bond market. The big day for data will be Wednesday, when we get GDP, personal incomes and spending, and new home sales.

The Wall Street Journal is reporting that Jerome Powell will be re-nominated to run the Fed. Lael Brainard will be the Vice Chairman. The difference between the two is probably not of any issue to the markets – the big issue is inflation and whether the Fed has the stomach to raise rates. The left wanted Brainard who would supposedly be tougher on the banks and climate change. I wonder what the correlation is between the overnight reverse repo rate and the temperature of Gaia.

Existing home sales rose 0.8% in October, according to NAR. The median home price rose 13.1% to $353,900. Inventory remains tight, with only 2.4 months’ worth at the current sales pace. “Home sales remain resilient, despite low inventory and increasing affordability challenges,” said Lawrence Yun, NAR’s chief economist. “Inflationary pressures, such as fast-rising rents and increasing consumer prices, may have some prospective buyers seeking the protection of a fixed, consistent mortgage payment.”

Investors comprised 17% of all sales, and the first time homebuyer accounted for 29% of all transactions.

The Chicago Fed National Activity Index improved in October, after declining in September. This means the economy grew above trend during the month.

Fannie Mae is predicting that mortgage rates will rise to 3.5% by the end of 2023, which is not too far from where they are now.

“The Fed has taken pains to broadcast its tapering and rate hiking plans to avoid a repeat of the 2013 temper tantrum, when market expectations suddenly shifted regarding the long-run real rate, and for now both financial market and survey measures of long-term inflationary expectations remain mostly anchored,” Fannie Mae forecasters said. “Therefore, our baseline forecast is that these effects are largely ‘baked in,’ leading to only a modest drift upward in mortgage rates over the next few years.”

Note that the MBA sees rates heading much higher in the second half of 2022. Fannie Mae is forecasting that the Consumer Price Index could hit 7% or 8% in the back half of 2022 as all of the home price appreciation from the past 18 months begins to filter through to the CPI.

Author: Brent Nyitray

In the physical sciences, knowledge is cumulative. In the financial markets, it is cyclical

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