Ryan's Rate Commentary

  • How Rates Move:

    Conventional overnment (FHA and VA) lenders set their rates based on the pricing of Mortgageand G-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: HIGHER
    Mortgage rates are trending higher this morning. Last week the MBS market worsened by -10bps. This may've been enough to move rates slightly higher last week. There was very little mortgage rate volatility last week

    This Week's Rate Forecast: HIGHER
    Three Things: These are the three areas that have the greatest ability to impact mortgage rates this week. 1) GDP, 2) Central Banks and 3) Geopolitical.

    1) GDP:
    We get our first look at the second quarter GDP data. Estimates have a very wild range for this release ranging from 3.5% all the way up to 5.3%! The higher this number is, the worse it is for pricing. You would need a reading at 3.00% or below for MBS to see any improvement from this report.

    2) Central Bank:
    The European Central Bank will be meeting all week and release their latest policy statement and interest rate decision on Thursday. We will also get a live press conference with ECB President Mario Draghi. The bond market is not pricing in any action at this meeting, so his remarks will carry a lot of weight in the absence of any new policy initiatives. The Bank of Japan has stepped in announced that they will purchase "any amount" of bonds to get their yield back down to 0% but have floated to the markets that they a reading to increase their target rate above zero.

    3) Geopolitical:
    Plenty going on in this category. British PM May's attempt at a "soft" Brexit looks less likely as a new poll shows most very unhappy with her recent "watered down" proposal which also puts her position in jeopardy. Trade wars will continue to dominate the discussion. Since China cannot match our newly proposed $500B worth of Tariffs (they simply don't import that much from the U.S.), the latest concern is that they will simply boycott U.S. products instead of purchasing them with a tariff.

    Treasury Dump:

    • 07/24 2 year note
    • 07/25 5 year note
    • 07/26 7 year note

    This Week's Potential Volatility: HIGH
    Mortgage rates last week showed very little volatility. This week, we're already seeing some volatility as rates tick higher. While we get a lot of housing data this week, rates will focus primarily on the escalation of trade wars

    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.

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