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 this morning.  Last week the MBS market improved by +5bps.  This caused rates to move sideways.  While rates ended unchanged for the week, we did see some volatility throughout the 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) Central Banka, 2) Inflation, and 3) Jobs.

1) Central Bank: We will hear from the Central Banks of three of the world’s top 5 economies this week with the Bank of Japan, Bank of England and our own Federal Reserve. The Federal Reserve will get the lions-share of the attention from bond traders this week. The long bond market (which included MBS) is pricing in about an 85% chance of a 25 basis point rate cut which would be the first-rate cut by the Fed in over a decade (2008). So, if that is what the Fed does, then there will be little to no reaction by MBS. However, if they lower their rate by 50 basis points, MBS will rally. But, if they do not lower rates at all, MBS will sell-off.

2) Inflation: Friday’s GDP report showed some very high QoQ PCE data, but that is very old data at this point. The same day that the Fed starts two days of meetings, we will get the June PCE data. The Core YOY PCE data point is what the Fed uses as their official measure of inflation. The market is expecting a reading of 1.7%. A reading of that or below should solidify the Fed cutting rates the next day. However, if that hits 1.9% or above, then the odds of any rate cut will diminish considerably.

3) Jobs: Friday’s jobs report is expecting the Unemployment Rate to remain near historically low levels with a 3.7% reading. But the market focus will be on the YOY Average Hourly Earnings rate, which is being estimated in the 3.2% range.

This Week’s Potential Volatility: High

Many traders are billing this week as the most important week for economic news in a decade. Hard to quantify that, but this is a very important week for rates and we could see a spike in rate volatility. We’ll be paying particularly close attention to the central banks, trade talks, Fed and the mountain of economic data.

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.