Wells Fargo Home Mortgage Update (4/8/2022)
The minutes from the Federal Reserve’s meetings on March 15-16 show that the Fed is considering reducing its balance sheet by shedding no more than $35 billion of agency MBS a month. The balance sheet runoff would start in May, with a gradual move to the $35 billion cap over three months. A similar move is expected for the Treasury securities on the Fed’s balance sheet, although with a cap of $60 billion per month. During most of the last two years, the Fed purchased $40 billion of agency MBS per month. In November 2021, the Fed began tapering the purchase amounts to hit zero by March. The March minutes were released on Wednesday, April 6. 1
The day before the FOMC minutes were released, Fed Governor Lael Brainard gave a hint of what was to come by saying that the Fed would start to “reduce [the Fed’s] balance sheet at a rapid pace.” A plan to reduce the Fed’s balance sheet wasn’t surprising, but MBS prices dropped sharply as financial markets assessed what a “rapid reduction” might mean, especially when coming from a Fed governor who was considered “dovish” (i.e., easier monetary policy) in her comments in 2021.2,3
The price index on personal consumption expenditures – the Federal Reserve’s preferred measure of inflation – rose 6.4% from February 2021 to February 2022, the fastest pace since the year ending in January 1982, when it rose 6.9%. From 2015-19, the PCE deflator rose at an average annual rate of 1.5%.4
Private residential construction in February was up 16.6% over February 2021, running at a seasonally adjusted annual rate of $850.6 billion. Over 2015-19, residential construction rose at a 7.7% average annual rate.5
Initial claims for unemployment insurance fell by 5,000 to 166,000 for the week ending April 2. The last time the weekly count showed fewer claims was in November 1968. During the first 14 weeks of 2022, initial claims averaged 199,700. In 2019, the weekly average was 218,400 claims. All data are seasonally adjusted.6
The daily yield on 10-year Treasurys reached 2.61% on April 6, its highest daily yield since March 14, 2019. The yield averaged 2.13% in March after averaging 1.93% in February.7
The average rate on 30-year fixed-rate mortgages in Freddie Mac’s survey climbed five basis points to 4.72% in the week ending April 7. That’s 94 basis points higher than the average five weeks earlier (the week ending March 3). It’s the highest weekly average since December 2018. The rate averaged 4.17% in March and 3.76% in February. All rates quoted have fees and points averaging 0.5% to 0.8% of the loan amount.8
PATRICK BISHOP
Private Mortgage Banker
Wells Fargo Home Mortgage
707 Wilshire Blvd. 52nd Floor
Los Angeles, CA 90017
213-688-3691
213-503-1610 (Mobile)
homeloans.wellsfargo.com/patrick-bishop
NMLSR ID 368491
Minutes for March 15-16, 2022, Federal Open Market Committee meeting, released April 6, 2022. www.federalreserve.gov/monetarypolicy/fomccalendars.htm.
“Variation in the Inflation Experiences of Households,” speech by Lael Brainard, April 5, 2022. www.federalreserve.gov/newsevents/speech/brainard20220405a.htm
“Stocks Drop as Investors Fret About Fed’s Plans to Tame Inflation,” The Wall Street Journal, April 5, 2022. www.wsj.com/articles/global-stocks-markets-dow-update-04-05-2022-11649143707.
“Personal Income,” Bureau of Economic Analysis, March 31, 2022. www.bea.gov/data/income-saving/personal-income.
“Construction Spending,” U.S. Census Bureau, April 1, 2022. www.census.gov/construction/c30/c30index.html
News Release, Office of Unemployment Insurance Weekly Claims Report, Department of Labor, April 7, 2022. oui.doleta.gov/unemploy/claims_arch.asp.
“Daily Treasury Yield Curve Rates," U.S. Department of Treasury, April 7, 2022. home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value=2022.
"Primary Mortgage Market Survey, Freddie Mac, April 7, 2022. www.freddiemac.com/pmms/.
The FRB of St Louis Economic Data system (FRED) was used to collect data on the price deflator for Personal Consumption Expenditures and initial claims.
Keeping Current is produced by the Customer Experience, Sales & Service Support team of Wells Fargo Home Mortgage.
This information is for real estate and building professionals only and is not intended for consumer distribution.