Today’s Mortgage Rate Summary:
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 sideways this morning. Last week the MBS market worsened by -50 bps. This was enough to move rates higher last week. There was a great deal of mortgage rate volatility on Friday.
Today’s Rate Forecast: Neutral
Three Things: These are the three areas that have the greatest ability to impact mortgage rates this week: 1) Mid-Term Election, 2) Fed and 3) Geopolitical.
1) Mid Term Election: O.K. who else is going to be glad to see all the political tv commercials go away? Regardless of your own political views, the bond market has a very agnostic way of looking at the outcome. Here are the three possible outcomes and how mortgage-backed securities may react to these outcomes:
- Democrats take both the House and Senate. This would cause MBS to improve (lower rates) as bond traders would see important tax reform, regulatory reforms, etc get reversed which would slow down the economy.
- Republicans keep both the House and Senate. This would cause MBS to sell off (higher rates) as important economic stimulants would remain in place and may even become permanent along with a new 10% tax decrease for the middle class. It also may mean that there would be a trade deal with China as China has been dragging their feet to see how our mid-terms pan out.
- Republicans keep the Senate and lose the House. This would ensure that any impeachment proceedings started in the House would die in the Senate. How MBS would react would be determined by how much of a majority there is in the House. If it is just barely, then there will not be too much reaction. But if it is a large pickup by the Democrats, MBS may improve a little.
2) Fed: Yes, we have a FOMC interest rate decision on Thursday! The bond market is not expecting any rate changes at this meeting as there is no live press conference afterward. Next year, the markets cannot “game” the Fed as all meetings will be live and have a live press conference afterward which will be nice. The markets are expecting the next time that the Fed may increase rates is in December.
3) Geopolitical: Expected party and leadership changes in Germany, Great Britain, France, and others have markets on edge as well as the future of the Euro with Italy.
Treasury Auctions This Week:
- 11/05 3 year note
- 11/06 10 year note
- 11/07 30 year bond
Today’s Potential Rate Volatility: Average
Mortgage rates are likely to trade in a tight channel through today. After the midterms, we could see an increase in rate volatility as the markets digest what the new House and Senate could mean for markets.Bottom Line:
If you are looking for the risks and benefits of locking your interest rate in today, contact your mortgage professional to discuss it with them.