Here’s a quick rundown of the last week:<\/strong><\/p>\n A national banking crisis<\/a> while the Federal Reserve<\/strong> raises rates and reduces its balance sheet sounds like a lousy cocktail for economics, but that is precisely what we are dealing with today. As I write this article, I see news that even Warren Buffet <\/a>has been asked to chime in on how to deal with this crisis. <\/p>\n So, we can now add a new variable into the equation for 2023: What does a banking crisis mean for mortgage rates?<\/p>\n In my 2023 forecast,<\/a> I said that if the economy stays firm, the 10-year yield range should be between 3.21% and 4.25%<\/strong>, equating to mortgage rates of 5.75% to 7.25%<\/strong>. <\/strong>If the economy gets weaker and we see a rise in jobless claims, the 10-year yield should go as low as 2.73%, <\/strong>translating to 5.25%<\/strong> mortgage rates. <\/strong>This assumes the spreads are wide as the mortgage-back securities market is still very stressed.<\/p>\n The economic data was OK last week. If we didn\u2019t have the banking crisis, we would probably just focus on how firm the economic data was last week. GDP growth was estimated at 3.2%, jobless claims fell last week, housing starts beat estimates and purchase application data showed some growth. Retail sales were slightly below estimates, but we had positive revisions, and industrial production was unchanged. <\/p>\n Last week’s 10-year yield took us to the critical line in the sand.<\/p>\n Mortgage rates fell and ended the week at 6.55%, however, we see a lot of stress in the financial markets. Many people wondered why mortgage rates weren\u2019t lower on Friday; the answer is that the banking crisis has stressed the mortgage-backed securities market more than when bond yields fell to these levels last time.<\/p>\n So this is going to be an epic week because we have incorporated a new variable into 2023 that wasn\u2019t in the equation at the start of the year and the Fed meets on Tuesday and Wednesday. <\/p>\n I want to see how the 10-year yield acts this week. Can we get follow-through bond buying, which would take a direct shot at the low-level range of 3.21%? <\/strong>That would be a big deal to me because it\u2019s happening with the labor market still doing OK. <\/p>\n We don\u2019t know what news can happen at any second to change the landscape of the economic discussion until the financial markets calm down.<\/p>\n With the potential of news getting worse in the short term, we need to be mindful that we can see some crazy market pricing in mortgage rates and moves in the 10-year yield. So, every day counts now during a banking crisis, as the world markets are trying to restore some order.<\/p>\n Looking at the Altos Research<\/a><\/strong> data from last week, the big question is whether we are finally starting to see the seasonal increase in spring inventory. On this front we have some good news and some bad news. <\/p>\n First, we saw a slightly increased number of active listings, which made me jump for joy! Last March is when we saw the seasonal bottom before inventory took off, so I am hoping we get the same growth in the data this week, making it back-to-back years that we bottomed out in March. Although that’s not normal, it’s better than what we saw in 2021 when we didn’t get hit bottom until April.<\/p>\n The seasonal increase in inventory means more sellers can also be buyers of homes and fewer bidding wars in certain parts of the country.<\/p>\n Now the bad new: new listing data fell so much this week that I am putting an asterisk on this week’s data until we see if this is a trend or just a one-off in the weekly data that can occur from time to time. <\/p>\n Also, we are creating a bigger gap in the year-over-year data. Earlier in the year, we were on par or even slightly higher some weeks than the previous two years. Now we are creating a bigger gap, as you can see below:<\/p>\n For some historical reference, these were the weekly inventory data in previous years:<\/p>\n Now, this new listing number can be one week of data that just reverts to the trend, which would be higher than this level. Or, like last year at the end of June, when rates spiked higher, we saw a noticeable decline in new listings, since households didn\u2019t want to list their homes with rates rising. <\/p>\n This is something that I have talked about before \u2014 some homeowners just don\u2019t want to buy homes with mortgage rates of 7% plus<\/strong> and decide to call it to quits. This is a problem when mortgage rates move higher too quickly, and it gets harder to make that big life-long decision when the cost of housing matters. <\/p>\n Let’s wait two more weeks and see if this new listing trend continues or just reverts higher. I am hoping it\u2019s just a one-week event.<\/p>\n Last week we got better news with another 7% week-to-week gain on purchase apps, and the year-over-year decline also fell. However, as I always stress, the bar is low here, so it doesn\u2019t take much to move the needle on application data when mortgage rates move lower.<\/p>\n When rates spiked from 5.99% to 7.10%, that gave us one month\u2019s negative data week to week, but the last two weeks have been positive. We have had more positive purchase application data than negative since Nov. 9. Since this data looks out 30-90 days, this week’s existing home sales report should see a bounce. <\/p>\n We need to be mindful of the data coming out later in the year with the one-month decline in this index. However, you don\u2019t need to be a rocket scientist or have a Ph.D. in economics here to realize the housing market is moving with where the 10-year yield is going, even with mortgage spreads wide. So with all the drama we have today, let’s see if mortgage rates fall further this week or whether the line in the sand holds.<\/p>\n This week we have existing home sales and new home sales reports coming out, but to be dead honest, economic data doesn\u2019t matter until we get control of this banking crisis situation. While writing this article, news broke that UBS <\/strong>is buying Credit Suisse<\/strong><\/a> with government support and Flagstar<\/strong> will buy Signature Bank<\/strong><\/a> assets. In addition, the Fed announced a In times like this, market drama needs to calm down first before we can focus on the economic data. The Federal Reserve will meet this week on Tuesday and Wednesday, and the Q&A portion of this meeting will be epic. <\/p>\n Remember that back in November Fed Chair Powell said, \u201cI don\u2019t have any sense we have overtightened or moved too fast.\u201d Now, after all the emergency banking lending programs and global coordination to keep the banking system working, does he still believe this statement? I am hoping someone asks him this direct question.\u00a0<\/p>\n Listening to what the Fed says this week is critical. We can focus directly on the housing data, but the noise this week will determine whether the market believes this banking crisis is under control or it’s burning out of control, forcing the Fed and the government here and around the world to do more to calm the markets down.<\/p>\n\n
10-year yield and mortgage rates<\/strong><\/h2>\n
Last week the\u00a0 two-year yield collapsed from a 5% level to under 4%. This bond market is screaming at the Fed to cut rates. However, many Wall Street firms were betting on higher rates and got burned by the banking crisis. So, the market is wild and the Fed might not care what short-term rates are doing now.\u00a0<\/p>\n![](\"https:\/\/lh5.googleusercontent.com\/DY8GrqVtq79t4XTq9DDZvrdxwSj8mpZ27bzgoy-YC9c2EIaVpALr8VyxZJFP1d2BjXqUVz64DvoI9g0KbglWpVsFJQhy1vgeBcqvPxk2Jpr6U5nWnYpPVeV9Cfj9UUMaoiUMoNitEbbTUGzp_J6ubuA\")
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Weekly housing inventory<\/strong><\/h2>\n
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Purchase application data<\/strong><\/h2>\n
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The week ahead<\/strong><\/h2>\n
coordinated central bank action <\/a>to enhance the provision of U.S. dollar liquidity.<\/p>\n
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