Summer has come and gone and with it several interesting trends in the mortgage rate world. In today’s Mortgage Market Update, we look at what caused rates to inch up last week and where rates are likely headed in the coming days. But first, let’s quickly review how mortgage rates change within the market.
How (And Why) Mortgage Rates Move
Conventional and Government (FHA, USDA 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 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 sideways this morning. Last week the MBS market worsened by -132 bps. This was enough to move rates higher last week. We saw high rate volatility throughout the week, especially Friday.
This Week’s Rate Forecast: Neutral
Three Things: These are the three areas that have the greatest ability to impact your mortgage rates this week. 1) Central Bank, 2) Trade War and 3) Geopolitical.
1) Central Bank: We will hear from 3 of the world’s top 5 largest central banks this week. Our own Federal Reserve will take center stage. Wednesday afternoon, we will get their interest rate decision and policy statement. But we also will get their economic projections (“dot plot chart”) and a live press conference with Fed Chair Jerome Powell. The bond market will react to the projected path of interest rates more so than the actual rate cut (if any). We also will get interest rate decisions from the Bank of Japan and the Bank of England.
2) Trade War: The U.S. and China have seen some progress over the past week, and any further movement will get the attention of traders. But Europe is also in focus as the WTO looks like it has ruled in the United States’ favor in regards to their claims against AirBus which clears the way for the U.S. to startup $6 to $10B in tariffs against Europe. Also, the Mexico and Canada deal is trying to get through Congress.
3) Geopolitical: Over the weekend, a major Saudi oil facility was attacked by drones. Iran is being accused of initiating the strike. Both the U.S. and Iran have stepped up the “saber-rattling” over military action. Brexit is fast approaching, and the demonstrations in Hong Kong are also on the radar.
This Week’s Potential Volatility: High
We saw a lot of rate volatility last week as rates moved higher. Look for continued rate volatility for the reasons denoted above — especially Wednesday with the Fed rate decision and Fed Chair Powell’s comments.
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.