This week, the mortgage market is seeing fairly neutral movement as far as rate trends. There are three key economic factors that could affect rates, while the talk of trade wars could have an impact on market volatility.
First, let’s take a quick moment to review how rates move.
How Rates Move:
Conventional overnment (FHA and VA) lenders set their rates based on the pricing of Mortgageand G-Backed Securities (MBS) which are traded in real time, all day in the bond market. This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, 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 slightly higher this morning. Last week the MBS market worsened by -17bps. This was enough to move rates higher last week. There was moderate mortgage rate volatility last week.
This Week’s Rate Forecast: Neutral
Three Things: These are the three areas that have the greatest ability to impact mortgage rates this week: 1) Central Banks, 2) Inflation and 3) Jobs.
1) Central Banks: We have interest rate and policy decisions from three of the worlds top five Central Banks. It all starts on Tuesday with the Bank of Japan. There’s been growing speculation that they may finally be ready to increase their interest rate (if not at this meeting, the next one). The BofJ has stepped in twice last week and already once this morning and snapped up all their 10Y bonds that they can to drive the yield back down (which the market keeps driving up). The market widely expects some change in policy over their yield targets.
Next up is our own Federal Reserve. The market is not pricing in a rate hike at this meeting, but that is primarily because this meeting does not have a live press conference associated with it. The markets have been trained that “live” meetings can only be the ones with a live press conference. However, next year Fed Chair Jerome Powell said he wants ALL meetings to be “live” which will keep the market more on their toes. Regardless, the bond market will be looking for commentary on our recent 4.1% GDP print as well as inflation and tariffs. Rounding off the week will be the Bank of England which is expected to raise rates by 25 BPS on Thursday.
2) Inflation: Tuesday’s release of the latest Personal Consumption Expenditures (PCE) along with the corresponding Personal Income and Spending will get a hard look from own Fed and bond traders alike. The consensus is that the Core PCE YOY will dip back below 2.0% to 1.9%. But the headline PCE YOY will remain strained at 2.2%. A beat to the upside (higher readings) is something that is typically very negative for bonds.
3) Jobs: We get a ton of jobs/wages related data this week. But the bond market will be focusing on Big Jobs Friday and will mostly ignore the Non-Farm Payrolls and Unemployment Rate and hone right in on wages. The YOY Average Hourly Earnings is expected to remain at the 2.7% pace but is long overdue for a spike given the economic data over the past quarter. If wages march closer to the 3.00% mark, then look out – MBS will sell off. It will take a severe drop in wages for MBS to have any chance at a rally.
This Week’s Potential Volatility: High
Once again this week, the markets will be paying close attention to the trade war developments. The jobs numbers on Friday could also cause a good deal of rate volatility if it is too far outside of expectations.
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. Looking for a mortgage for your next Texas home purchase or refinance? Connect with us today to get free information and a no-obligation rate quote.
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