In this week’s Mortgage Market Update, we’ll see how mortgage rates are trending, where they’re likely to move and monitor a potential increase in rate volatility. Before we dive into the specifics, here’s a brief review of how interest rates move in the marketplace:

Why Mortgage Rates Change Frequently

Conventional and government mortgage lenders set their interest rates based on the pricing of Mortgage Backed Securities (MBS). These securities are traded in real time, all day in the bond market. Due to the ever-changing nature of the trading activity, mortgage rates aka loan fees move throughout the day.

Mortgage pricing is also affected by a variety of economic and political events. For example, if the markets are expecting a decline in the latest job reports, financial markets can be affected and thus mortgage pricing could go down. When MBS pricing goes up, mortgage rates or pricing generally goes down.  When they fall, mortgage pricing goes up.

It’s important to track these securities in real time. For more information about the rate market, contact us directly.  We are among few mortgage professionals who have access to live trading screens during market hours.

Mortgage Market Update – Week of September 24, 2018

Rates Currently Trending – Neutral

Mortgage rates are trending sideways to slightly higher so far this morning.  Last week the MBS market worsened by -17bps.  This was enough to move rates slightly 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.) Fed, 2.) Inflation and 3.) Trade War

1) Fed: We will get their FOMC Policy Statement and Rate Decision at 2:00 pm ET on Wednesday. The bond market is pricing in a 25 basis point rate increase. However, the real volatility will be driven not by a rate increase but by comments by Fed Chair Powell during his live press conference and by the release of their updated Economic Projections. Markets will focus on the “dot plot chart” which will show what the aggregate projections among all of the Fed members (not just the voting members) as to where interest rates will be at the end of this year and the next two years. Traders take that and “reverse engineer” how many rate hikes there may be assuming a 1/4 point hike each time.

2) Inflation: Friday’s PCE report is the most important domestic economic release of the week. As the Fed’s “official” inflation rate, the Core (Ex-food and energy) YOY reading hit 2% last time around, it is expected to remain at 2%. If it ticks up, it will pressure rates.

3) Trade War: The most recent round of $200B in tariffs on Chinese products and $60B on U.S. products go into effect today on both sides. This, by itself, is not going to move markets. But we’ll be focusing on any new announcements of additional tariffs, scheduled trade talks, movement in NAFTA, etc.

Treasury Auctions this week:

  • 09/24 2 year note
  • 09/25 5 year note
  • 09/27 7 year note

This Week’s Potential Volatility – High

We could see some rate volatility this week. The biggest factor is likely to come from the inflation numbers on Friday. Of course, the Fed meeting also has the ability to move markets and cause volatility.

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’re searching for home financing in Texas, please connect with our team of mortgage professionals to discuss your needs and we will provide you with a no-obligation rate quote. Call (972) 591-3097 to get started!

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