This Week’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 so far today.  Last week the MBS market improved by +29bps.  This was enough to move rates or fees lower last week. We saw high rate volatility at the end of the week.

This Week’s Rate Forecast: Neutral

Three Things: These are the three areas that have the greatest ability to impact rates this week: 1) Geopolitical, 2) Central Bank, and 3) Domestic.

1) Geopolitical: There is a lot going on in the world. With Brexit front and center, British Prime Minister Theresa May will step down on Friday and the markets are very focused on who her replacement will be as it will impact their odds of a “hard Brexit” vs. a “soft Brexit.” The new round of Chinese Tariffs goes into effect on Tuesday. China’s Xi Jinping makes a two-day state visit to Russia while President Trump meets Ireland PM Varadkar and current British PM May. On our shores, Kevin Hassett (Head of the White House Council of Economic Advisors) has resigned and leaves office Monday.

2) Central Bank: The Reserve Bank of Australia meets this week and is widely expected to be the first major central bank to announce a rate CUT from 1.5% down to 1.25%. But the main focus of the markets will be the European Central Bank meeting and policy statement followed by a live press conference with ECB President Mario Draghi. Our own Fed will release their Fed Beige Book which is prepared specifically in advance of the next FOMC meeting. Fed Chair Powell will make opening remarks at the “Monetary Policy Strategy, Tools, and Communications Practices” on Tuesday and Wednesday.

3) Domestic: We have a big week for domestic economic data with big-name reports like ISM Manufacturing and Services, but Friday’s jobs deluge will get the most attention. The bond market will pay the most attention to the Average Hourly Earnings YOY reading which is expected to remain at a 3.2% pace. Anything higher than that will be negative for rates, but anything below 3.0% would be positive for rates.

10:00 am May ISM manufacturing index (expected 53.0 from 52.8, as released came in at 52.1).

April construction spending (expected +0.4%, as reported came in at 0.0).

This Week’s Potential Volatility: Average

We entered a new lower rate channel at the end of last week. Given the trade wars and geopolitical uncertainty, we expect rates to continue in this new channel throughout the week.

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.