In this week’s Mortgage Market Update, we see how certain geopolitical events are likely to affect mortgage pricing. But first, let’s quickly review how mortgage rates move…
How Rates Move
Conventional and Government (FHA, VA, USDA) lenders ste 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 the pricing of mortgage rates and fees can fluctuate throughout the day. Likewise, pricing in this market can be affected by a variety of economic or political events. To put it simply, when MBS pricing goes up, mortgage rates generally go down. When MBS pricing falls, the opposite happens and mortgage rates go up. Tracking these securities in real time is very important, and we are among the few mortgage professionals who have access to live trading screens during market hours.
Rates Currently Trending: HIGHER
Mortgage rates are trending slightly higher this morning. Last week the MBS market improved by +43 basis points. This was enough to improve mortgage rates or fees. Mortgage rates were relatively volatile yesterday.
This Week’s Rate Forecast: HIGHER
Three Things: These three things have the greatest ability to impact mortgage rates this week: 1.) Geopolitical, 2.) Across the Pond and 3.) Domestic.
1.) Geopolitical: It appears as if (recently downgraded) Tropical Storm Irma has been devastating, but it was not as severe as projected. Still, half of Florida does not have power.
Despite the expectations of some markets, North Korea did not fire another missile on Saturday. The markets were expecting one to go along with a key celebration there. This could mean they had technical difficulties or it could mean that the threat of tougher U.N. sanctions and an oil embargo has had an impact.
2.) Across the Pond: We will hear from the Bank of England on Thursday. While the markets do not expect a rate hike at this time, we will be paying close attention to the vote. The market expects a vote of 7-2 (two members wanting to raise rates). If that hits 6-3 or 5-4, then MBS will sell off. We will also get key inflationary data points from China and Germany.
3.) Domestic Flavor: We have a very light week for economic data, but we do have two very important reports. They are Wednesday’s CPI and Friday’s Retail Sales. The closer that the Core YOY CPI is to 2.0%, the worse it will be for rates. Retail Sales are expected to see a minimal improvement.
Treasury Auctions This Week:
- 09/11 – 3 year note
- 09/12 – 10 year note
- 09/13 – 30 year bond (most important)
This Week’s Potential Volatility: AVERAGE
We could see some mortgage rate volatility as rates move a little higher on the better than expected outcome of Irma and the fact that North Korea didn’t launch any missiles. While we do expect mortgage rates to drift a bit higher today and this week, we don’t expect too high of mortgage rate volatility.
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.
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