How Rates Move:
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 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 slightly higher this morning. 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
These are the three areas that have the greatest ability to impact mortgage rates this week: 1) Central Banks, 2) Fear Factor and 3) Domestic.
The two biggest central banks that drive global bond prices are our own Fed and the European Central Bank (China 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 of 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.
Geopolitical concerns (fear) have kept MBS trading at elevated levels for the past month, and that 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 U.S. Thursday’s testimony by former FBI chief James Comey could have a big impact on rates.
Once again taking a back seat 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 that more than 2/3 of our economy is doing very well. But for the rest of the week, we have 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.
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.
YOUR WEEKLY MORTGAGE RATE UPDATE IS PROVIDED BY: