Want to keep track of the latest mortgage rate news and activity? We strive to publish weekly updates on how mortgage rates are trending, and how they may be affected by political and economic factors. In today’s update, we look at how the trade wars, inflation and the Fed will possibly impact rate movement. But first, let’s review how mortgage rates move throughout the marketplace.
How Mortgage Rates Move
Conventional and Government (FHA, USDA and VA) mortgage lenders set their rates based on the pricing of Mortgage Backed Securities (MBS), which are traded in real time, all day in the bond market. This means mortgage pricing does not remain stationary throughout the day. In fact, rates can change multiple times in a given day, being affected by a variety of economic or political events.
When MBS pricing increases, mortgage rates or pricing generally goes down. When they fall, mortgage pricing goes up. Tracking these securities real-time is critical. For more information about the rate market, contact me directly. I’m among few mortgage professionals who have access to live trading screens during market hours.
Rates Currently Trending: Neutral
Mortgage rates are trending sideways so far today. Last week the MBS market worsened by -15bps. This caused rates to mostly move sideways. Rate markets showed a good deal of volatility last week.
This Week’s Rate Forecast: Neutral
Three Things: These are the three areas that have the greatest ability to move rates this week: 1) Trade Wars, 2) Domestic and 3) The Fed.
1) Trade Wars: The next round of tariffs is set to go into place on Monday, September 1. Leading up to this date, we have had a lot of recent developments. Last Friday (August 23), China’s Ministry of Finance said that it would levy retaliatory tariffs on another $75BN in US goods with rates anywhere between 5 and 10%, with the tariffs set to be implemented in two batches, one at midnight on September 1 and another at midnight on December 15. Additionally, China said it would resume 25% tariffs on US autos. In response, the US has said that starting on October 1, the existing 25% tariffs on $250BN in Chinese goods would rise to 30%, and the 10% tariffs on $300 billion in Chinese goods set to begin on September 1 will be 15%.
2) Domestic: We have a very big week for economic data that matters and has the gravitas to move the needle on rates. The Core YOY PCE (the Fed’s key inflation gauge) will hit on Friday and is expected to rise from 1.6% to 1.7%. We also have our first revision to the previously released GDP from the second QTR, Durable Goods Orders, Consumer Confidence, Consumer Sentiment, and Chicago PMI.
3) The Fed: When you combine all the speeches from Jackson hole WY last week (including Powells) and you take those speeches at face-value, then the Fed is clearly saying that the markets are wrong in pricing in at least a 100 basis point reduction in their Fed Funds rate by the end of the year. As we fast approach their September meeting, any Fed commentary will get a lot of attention.
Treasury Auctions this Week:
08/27 — 2 year note
08/28 — 5 year note
08/29 — 7 year note
This Week’s Potential Volatility: High
Market and rate volatility continues to be very high. While we don’t expect a great deal of volatility today, we do expect volatility to remain relatively high for the week due to the three things denoted above. Markets will be paying particularly close attention to the trade war.
If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.