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.
RATES CURRENTLY TRENDING: NEUTRAL
Mortgage rates are trending sideways this morning. Last week the MBS market worsened by -1bps. This caused rates to move sideways for the week. We saw a good amount of rate volatility through 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) Coronavirus, 2) The Fed, and 3) Domestic.
1) Coronavirus: This is going to continue to drive the markets as bond traders and economists alike are whittling down their 1st QTR GDP estimates for China down to zero. Over 400 million people in China are in lockdown mode, with parts of Beijing now joining that group. While some factories are scheduled to reopen, millions upon millions of factory workers will continue to be locked in their residences. The “official” number of deaths now tops 900, which is more than the SARS outbreak. The real number of deaths is probably closer to 10K, according to nonstate controlled reports. The impact of prolonged global supply chain disruption is a big concern.
2) The Fed: Fed Chair Jerome Powell will give his semi-annual monetary policy report to the House Financial Services Committee on Tuesday and then the Senate on Wednesday. His written report was already turned in on Friday. The bond market will pay close attention to his live responses to the questions.
3) Domestic: The biggest reports of the week will be Thursday’s Consumer Price Index and Friday’s Retail Sales, although the markets will largely discount any strength and assume that headwinds from the global slowdown (coronavirus) will cause lower readings in the near term.
THIS WEEK’S POTENTIAL VOLATILITY: AVERAGE
While rates have moved sideways for the last week or two, we did see rate volatility from day-to-day. Look for the same this week with much of the focus turning to the coronavirus. The economic data denoted above is important this week. However, markets will likely dismiss any inflationary readings with the effects of the coronavirus hanging over markets.
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.
Source: TBWS
