Welcome to another Mortgage Market Update. In this week’s post, we’ll review the latest trends and movements in the mortgage rate market, evaluate factors that could impact next week’s rate forecast, and determine how much rates could shift in the near future. But first, let’s refresh you on how rates move.

Conventional and government (FHA, VA, USDA) mortgage lenders set their rate tables based on the pricing of Mortgage-Backed Securities (MBS), which are traded in real time, all day on the bond market. When loan fees–aka mortgage pricing–is dependent on the MBS, they typically change throughout the day, along with the MBS pricing. When MBS pricing moves down, mortgage rates typically go up. The opposite occurs when MBS pricing is on the rise, i.e. mortgage pricing usually drops. MBS pricing can be affected by several things, including economic events.

Tracking these events and MBS pricing is critical for determining the most accurate market rates and predicting the best time to lock in a mortgage rate. We are among the few 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 improved by +37bps. This was enough to improve mortgage rates or fees. Mortgage rate volatility was about average last week.

This Week’s Rate Forecast: NEUTRAL

Three Things: There are three things that have the greatest ability to impact mortgage rates this week: 1.) Tax Reform, 2.) Fed and 3.) Geopolitical.

1.) Tax Reform

The House tax-writing committee begins revising the bill on Monday, with tweaks and more substantial changes expected to a number of individual and corporate tax proposals. The changes that the House Ways and Means Committee puts into the revised bill will have a significant impact on MBS and therefore mortgage rates, regarding not only evaluating the impact on microeconomic growth, but also on the probability of it passing.

2.) Fed

The bond market breathed a sigh of relief on the pick of Powell as the next Fed Chair, compared to the more “hawkish” options like Taylor and Warsh. But are those two done? Or will we see them on the board? With the announcement that NY Fed President William Dudley will be resigning/retiring, that leaves only 3 Federal Reserve Board Members slated so far for 2018, which is not enough to operate. Presumably, if a candidate is worthy of consideration for Fed Chair, then they are also worthy of consideration to be a Governor. Will Warsh and Taylor be nominated? If so, that puts a much different board composition than what the markets are used to and may have a significant impact on bonds.

3.) Geopolitical

President Trump’s trip through Asia will get plenty of attention as he talks trade imbalances and North Korea with Japan and China. But there is also a lot of attention on Saudi Arabia as they shot down a missile launched by Yemen. The Saudi’s claim it was really Iran using Yemen as a proxy and are threatening war with Iran. North Korea is also saying that they will be launching a new missile “soon.” And Spain is continuing to crush Catalonia’s independence.

Treasury Auctions this Week:

  • 11/07 3 year note
  • 11/08 10 year note
  • 11/09 30 year bond (most important of the week)

This Week’s Potential Volatility: AVERAGE

Mortgage rates are very likely to trade relatively sideways this week. A lot of things can happen this week that could cause mortgage rate volatility. The most likely of which are changes to the tax reform plan. As changes leak out, we’re likely to see mortgage rates move up or down depending on the changes likely impact on the economy.

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 are looking for a mortgage professional serving the state of Texas, please contact my team today. We offer competitive rates on a variety of mortgage solutions, including low money down FHA loans, conventional fixed rate mortgages, refinancing options and more.