In this week’s mortgage market update, we’ll take a look at how mortgage rates are currently trending, how they’re forecast to move, and how volatile the market is expected to be in the near future. But first, let’s take a quick refresher on how mortgage rates move.
How Rates Move
Conventional and government (VA, FHA and USDA) lenders set their rates based on the pricing of Mortgage-Backed Securities (MBS), which are traded in real-time, all day, on the bond market. MBS pricing is directly related to mortgage rates because MBS are essentially “packages” of multiple mortgages. When pricing of MBS goes down, mortgage rates have a tendency to go up. In other words, when the value of mortgages drop, mortgage rates increase to help alleviate potential risk to the lenders. When MBS pricing is rising, the opposite occurs. Mortgage rates drop as the value of these mortgage bundles rise.
Tracking the movements of these securities in real time is critical. Rates or loan fees can move throughout the day, being affected by a number of different factors, including economic and sociopolitical events around the world. For more information on the rate market, contact my team directly at (972) 591-3097. We are among the few mortgage lenders who have access to live trading screens during market hours.
Rates Currently Trending: NEUTRAL
Mortgage rates are trending sideways this morning. Last week the MBS market worsened by -14bps. This may’ve moved mortgage rates slightly higher last week. Mortgage rate volatility has really picked up the last few days.
Forecast for This Week: NEUTRAL
Three Things: These are the three areas that have the greatest ability to impact mortgage rates this week. 1) Jobs, 2) Geopolitical and 3) Across the Pond
1) Jobs: We have a slew of wage and jobs related data this week with the market focus primarily on Friday’s Non-Farm Payrolls and Average Hourly Wages YOY. The stronger these data points are, the worse it is for mortgage rates, the weaker this data is – the better it will be for rates.
- 12/05 – ISM Services – Employment Index
- 12/06 – ADP Private Payrolls, Unit Labor Costs
- 12/07 – Challenger Grey Job Cuts, Initial Jobless Claims
- 12/08 – Non-Farm Payrolls, Unemployment Rate, Participation Rate, Average Hourly Wages.
2) Geopolitical: There will be plenty of drama this week. Now that the Senate has passed their form of the Tax Bill, it must be reconciled with the House version. The final Bill that emerges out of that process could be different than what the markets expect. For example, the corporate tax rate could end up being 22 or 23 percent instead of the 20% rate passed by the Senate. The final Bill that is put forth for the President’s signature will drive markets. Of course, the Michael Flynn/FBI vs Trump saga will get plenty of press and attention by the markets as well.
3) Across the Pond: We have an important week for international events that can impact the bond markets and mortgage rates. Both Canada and Australia have Central Bank meetings and interest rate decisions. Brexit is front and center with Great Britain and Ireland already hammering out border agreements, and Prime Minister May will be meeting with key EU leadership on finalizing the financial penalty for their leaving the EU.
We also get some significant economic releases from the worlds’ largest economies.
- China: Caixin Services PMI, Imports and Exports
- Japan: Consumer Confidence, GDP
- Eurozone: PPI, Retail Sales, Non-Monetary Policy ECB Meeting
This Week’s Potential Volatility: HIGH
As noted above, mortgage rate volatility has picked up the last few days. We have a lot on the table this week that could push rates out of a relatively tight channel. Expect continued increased mortgage rate volatility.
So what’s the bottom line? 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. If you don’t have a mortgage professional yet, and you’re looking for home financing in the state of Texas, please feel free to explore our loan programs and request a free rate quote and home loan consultation.