Be okay with me recording the college just do that to make sure that we've got accurate quotes and everything. Yeah, that's great. Okay, thank you Odeta. And, yeah, I mean, let's just we'll just hit right into it. What I was first curious about is, you know, the Fed governors, some of them made speeches last week of quite a few of them actually. And, you know, I think we heard in particular gov Waller. He seemed to indicate a little more caution about the rate at which they would cut the Fed funds rate. You know, if I think everybody's anticipating what happened this year just may not happen as quickly or as fast as you know, as everyone hoped, you know, so when we hear things like that, and it seems like the Treasury reacted right away like it went up late last week, and then it came down to the beginning of this week. And then of course today we have the economic data, I think it was the job or the jobs report and then tomorrow we have the core inflation report event. So all this to say what you know, what do we look for most in terms of the bellwether in how mortgage pricing and mortgage rates are going to react to the Feds actions, the economic data? You know, what, what are you as an economist keeping your eyes on most and your ears perked up for? Yeah,
absolutely. Um, you know, as as you well know, the the mortgage rate is loosely benchmarked to the 10 year treasury bond, which is why it's so notoriously difficult to predict because that 10 year treasury bond is impacted by not just domestic events and the domestic economy but global events. I mean, you know, anything from geopolitical uncertainty, certainly economic uncertainty and Koko pandemic, all of those factors could could move that 10 year treasury bond. What I'm looking for really is is in the incoming data, I'm looking for inflation, deceleration to continue. And of course, I'm keeping a pulse on the economic reports. To show to see if the economy is sort of Is it is it weakening? Is it more than expectation? Is it strengthening more than expectation because all of those factors, I think play into the Feds decision of if and when to cut rates this year. But I would say that my baseline expectation is in line with the Fed. Obviously, there could be a lot of different things that happen between now and the end of the year. But you know, in their in their December projections that the Fed has implied that their monetary tightening cycle has peaked. And that rate cuts may be in store for in 2024. With that said, I think that the Fed has emphasized that the path to rate cuts is highly uncertain, and they're going to take a sort of data driven, cautious approach. And to me that suggests a sort of neutral stance in the near term with any rate cuts potentially deferred to later in the year. You know, the Fed wants to see the long and variable lags of monetary policy so they can make their way through the economy before deciding on any rate cuts. So my sense for mortgage rates is that you know, we'll see sort of a slow and steady decline, maybe with with the bulk of the decline sort of coming in in the second half of the year.
As far as, you know, the economic data, right. You know, I know the jobs report the core inflation report, those tend to, you know, move markets and, in particular, can move to Treasury yields as well. You know, we haven't had a chance to actually review today's report and obviously, we won't know tomorrow and then the I think unemployment data is next week so you know what what if we start to see a drop for example in job openings or see more layoffs because I you know, I've that's all over my LinkedIn feed, right lot of layoffs. Um, you know, what can we expect? How can we expect that to impact, you know, what's happening with the yield and, you know, the 10 year Treasury yield, and then conversely, you know, mortgage rates? Yeah. So
I mean, the stronger than expected and this is sort of generalizing but stronger than expected job growth, I think tends to make the fed a little bit cautious about rate cuts, and probably the yield to go up, because that that's an indication that the economy is sort of stronger than expected. And what the Fed really wants to see is, I mean, they're hoping for a soft landing which means that we'll get a decline in inflation back to target without without sacrificing the labor market. And so far, the layoff rates actually remained quite low. So we've actually seen a path to a soft landing. So far, we've seen job openings come down from recent peaks. While the layoff rate has remained quite low. And so that's indicative of a labor market that's slowing the quote unquote, right way. And so I think if jobs come in hotter than expected, if labor market comes in hotter than expected labor market data that could result in some upward pressure on the Treasury yield, and then certainly if if, you know, economic and labor market data comes in lower than expected that might put some downward pressure on that 10 year treasury and therefore, mortgage rates.
Got it. And sorry, I'm just going through some questions here. Yeah, we're looking for okay, because I've said work some items. Yeah, I guess the other thing is, I am curious. You know, is there a rate threshold where we expect to see mortgage activity either on the purchase side or refi side pickup, notably this year? I mean, because it seems like a lot of people are sitting on the sidelines, right? They're holding on to the 2% or 3% interest rate that they got during you know, 20 or 21. I know, I'm one of them. Two and a quarter 15 year, I'm sticking Oh, my goodness. Yeah. I don't think we'll probably die in this house. So well, your incentives are such. So I guess you know, what that gets me to is, you know, even if rates were to come down. I mean, how much do you think they would have to come down in order for us to see a notable move in people's motivations to try to sell or buy because I think home prices probably still have a ways to go. But before you see a lot of movement, especially for first time buyers are just really getting walloped in terms. of, you know, the costs and everything and inflation. Yeah,
I mean, that's, that's a great question. And I think what we're generally expecting is, you know, we know that about 90% of existing homeowners are locked into rates below 6%. So certainly to unlock a lot of those homeowners a big chunk of those, you would want to see rates go below that 6% But I think even even rates steadily coming down. I mean, we've seen evidence even in the last two months, you know, December rates have come down. They've come down further in January. We've seen purchase activity in mortgage applications start to pick up. I do think that even even modest declines in the mortgage rate, even if we don't meet this sort of threshold to unlock, you know, the bulk of existing homeowners. I still think that that will get the market moving in terms of sort of a magic number I know. The surveys have been done about this. I think the latest that I've seen is from John Byrne's consulting, where they asked, you know, what would be sort of the magic number that would get you to jump into the market and then that rate was about five and a half percent. So I think, you know, that might just be more of a mental threshold for some people. But it's your to your point earlier, it's you can't just look at mortgage rates in isolation, because for that prospective buyer, you know, if rates are 6%, but prices can can adjust down, then maybe they can make that that monthly, you know, payment to paycheck calculation work for them. So, you know, it's not just looking at mortgage rates in isolation. It's also looking at what what's happening to incomes and what's happening to house prices as well.
Got it and speaking of house prices, I mean, are we you know, are we still at a point where you think there's further to go in terms of drop or are they going to because demand, I'm sorry, the demand is outstripping the supply. Right? There's such a low inventory of homes for sale. We're going to see prices stay fairly elevated through the year.
I do expect that we'll see positive house price growth in this year and that's exactly what you said that there continues to be a supply and demand imbalance in the housing market. That demographic backdrop hasn't changed. You still have a lot of millennials on the sidelines waiting to jump into the housing market and not enough inventory to meet that demand. So that will keep some of that upward pressure on house prices. But of course, affordability constraints and some new supply being added on the new home side. Will will sort of make sure will keep maybe like a cap on how high house prices go. So I'm not expecting, you know, the double digit house price growth that we saw over the pandemic, maybe something more in line with historical averages, you know, in sort of the single digit house price growth this year.
Gotcha. And what's your say? I mean, are we on the way to becoming a more stable balanced housing market? Or is it still in the seller's core, you know, is still sellers have the upper hand still?
I think we're this year will will, you know, be will be heading in a normalizing direction. I still don't think we're in a balanced housing market. You know, we'll still be in a situation where supply outpaces demand this year. At least that's what it's looking like at this point. And so I expect maybe normalizing this here, but not not quite normal.
You mean Demand outpaces supply. Yes, I'm sorry. Sorry. Yeah. Good catch. No, no worries, just making sure so
and as soon as supply and demand way too much. All right.
You're an economist I expect that you got you probably say that multiple times a
day. Sure. Do.
You know that? Is there anything else? I haven't asked regarding how the Fed monetary policy has an impact on mortgage rates that you know lenders in particular, right who set their pricing and you know, kind of watch these signs and obviously they have to consider their own capacity and their own ability to handle volume you know, anything else that we didn't touch on in terms of how monetary policy or the you know, just the general economy impacts mortgage pricing and, you know, what lenders in particular should be paying attention to as they set their pricing.
You know, I really I think it's a lot of what we talked about, it's keeping an eye on incoming data reports, particularly related to the labor market. And and, and sort of gauging you know, these fed speeches. We have another one coming up next week, you know, the press conferences and and getting a sense of of where that FOMC mindset is. I think we've covered a lot of that. Yeah.
Wonderful. Well, I think that's all I had. So thank you so much for your time on short notice. I really appreciate that. Absolutely. Thank
you for speaking with me. I hope we chat again soon.
Yeah, absolutely. And this is from res media so I anticipate will probably publish at some point this week or early next, but probably today or tomorrow. Sounds good. Thank you so much. Thank you Odeta. Take care. Right You
