Competing Mortgage Headlines: Rates Barely Move vs Rates Surge Lower on Powell

Freddie Mac says "mortgage rates barely move" but Mortgage News Daily says "rates surge lower"

Mortgage News Daily and Freddie Mac offer conflicting reports on the bond market reaction Jerome Powell's speech yesterday.

Mortgage News Daily says Mortgage Rates Surge Lower

Mortgage rates surged lower today, falling at the fastest single-day pace in more than a year. In order to see the average lender offer lower rates, you'd need to go back to October 2nd at least. For many lenders, it would be a few weeks before that. Granted, this merely restores rates to what had been 7-year highs at the time, but you know what they say about journeys of 1000 steps and what not...

Much of the improvement was driven by an ongoing reaction to a speech by Fed Chair Powell from yesterday.

Surge Defined

A surge is 9 basis points.

Freddie Mac says rates fell 13 basis points. But note the dates.

Freddie Mac posts mortgage data weekly, on Thursdays. Thus, the data is stale. After that table was posted Freddie Mac offered a different opinion.

Mortgage Rates Barely Move

Freddie Mac says Mortgage Rates Barely Move.

November 29, 2018

Mortgage rates stabilized the last couple of months as interest rate sensitive sectors such as new auto and home sales softened the outlook for the economy. Homebuyers pounced on the stability in rates as purchase mortgage applications increased, which indicates that despite higher mortgage rates this year there are buyers on the fence waiting for the right time to buy.

Ignore that galling bit of propaganda about homebuyers pouncing on rate stability as if buyers are coming back. They aren't. Let's step back and put this alleged surge into perspective.

Zero Reaction

Fred uses Freddie Mac as its source for this series.

The highest weekly Freddie Mac rate since 2011 was 4.94% on November 8. It's now down to 4.81% but that happened a week before Powell's speech.

The above chart does not necessarily negate the MND analysis as MND surveys a number of lenders that may have reacted to Powell's flea-ridden dog and pony show. But we can check. Mortgage rates closely follow the yield on the 10-year Treasury.

Mortgage Rates vs 10-Year Treasury Yield

Mortgage Rates Peaked One Day After 10-Year Yield Peaked

Flea-Ridden Dog and Pony Show

It's likely that the MND "surge lower" Powell story is incorrect and that Freddie Mac is a better indicator of timing even if not a better indicator of actual rates.

For discussion of Powell's flea-ridden dog and pony show, please see Lovey-Dovey Interpretation of Powell Speech Sends Stocks Flying.

By the way, nearly everyone, including me, attributed the market surge yesterday to Powell. While Powell may have been the catalyst, in retrospect, it's more likely the market was oversold enough to rally on damn near anything he said.

Expect more sharp bear market rallies like that. This process is just beginning.

Mike "Mish" Shedlock

Comments (5)
No. 1-4
pi314
pi314

I thought the 'surge' was a result of an oversold market. And if true, it doesn't bode well for the market going forward.

Six000mileyear
Six000mileyear

The year started with mortgage rates at 3.95% and they are now near 4.95% This increase of 1 percentage point in yield means the monthly mortgage bill is up 12.5%. This is enough to shut buyers (especially 1st time buyers) out of the housing market.

DFWRealEstate
DFWRealEstate

This is why I generally reference the Freddie Mac index anyway. The daily rates quoted on Mortgage News Daily (showing 4.84%) can be a bit high. The rates quoted by MBA are scat/fluffed retail rates. Freddie Mac tends to reflect what solid borrowers can actually get in the market.

I suspect the Freddie Mac index will improve slightly next week, but not enough to make a difference. Home prices are simply too high. To get rates back below 4.5% (where they need to be to stabilize the housing market) you likely need a capitulation of stocks and a sizeable (more than 10%) correction. No evidence of fear as of yet, as greed is still the order of the day.

As Lance Roberts mentioned in his recent post, much of the damage has already been done. The Fed still grossly underestimates the damage they have done, and continue to inflict on the real economy. But like Wall Street, they don't really care. As long as they are not taking the blame for the mess, it continues to pay really well for the well-connected few.

BillinCA
BillinCA

Thanks for clearing that up! I had seen that “surge” claim but was scratching my head to find any data that supported it. Apparently, there is none.