In today’s Mortgage Market Update, we’ll review how rates are currently trending and where rates are likely to head throughout this week and into the next.
How Rates Move:
Keep in mind, conventional and government (FHA and VA) 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 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 in real time is critical for any mortgage professional, as it provides up-to-the-minute, accurate information on mortgage pricing.
Rates Currently Trending: NEUTRAL
Mortgage rates are trending slightly higher today. Last week the MBS market improved by +38 bps. This was enough to improve mortgage rates or fees. Mortgage rates experienced moderate to low volatility throughout the week.
This Week’s Rate Forecast: NEUTRAL
Three key points have the greatest ability to impact mortgage rates this week: 1) Central Banks, 2) the “Fear Factor,” and 3) Domestic Data.
Central Banks: The two biggest central banks that drive global bond prices are our own Fed and the European Central Bank with China’s a close third. The ECB will have its policy statement and rate decision Thursday morning, followed by a live press conference with their President, Mario Draghi. They have already begun slowing their purchases from last year’s pace. The market will be keen to learn about any adjustments to that pace as well as their outlook (good economic numbers out of the Eurozone lately) and inflation expectations.
The “Fear Factor”: Geopolitical fear has kept MBS trading at elevated levels for the past month. This is likely to continue as the market is concerned over two major elections (Great Britain and Germany), as well as developments in Qatar and here at home in the United States. Furthermore, former FBI chief James Comey is scheduled to testify Thursday, an event that could have a big impact on rates.
Domestic Data: Once again taking a backseat but still important is our domestic economic data. This morning’s ISM Services (56.9 vs est. of 57.0) is very strong and shows more than 2/3 of our economy is doing very well. However, the remainder of the week involves very limited releases that only have low to mid-level impact.
This Week’s Potential Volatility: AVERAGE
We have yearly highs in both the stock markets and bond markets at the same time. If the market were based upon economic fundamentals, then those would be moving in opposite directions. But they are not, because the market is suspending economic and inflationary fundamentals and has been doing so for the past three weeks. That will continue this week as well. We will continue to enjoy favorable pricing levels for MBS (lower rates) that otherwise would not exist. Thursday is key, with the combination of the ECB, Great Britain and the Comey testimony. Any of these events could have a major impact on rates. We get all three on the same day, so be alert on Thursday. An upper limit for MBS prices was set on Friday, but we will still see some great rates this week.
Comments are closed.