Ryan's Rate Commentary

  • 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: HIGHER
    Mortgage rates are trending higher this morning. Last week the MBS market worsened by -6bps. This caused mortgage rates to move sideways last week. Mortgage rate volatility was relatively low last week.

    This Week's Rate Forecast: HIGHER
    Three Things: These three areas have the greatest ability to impact mortgage rates this week: 1) Fed, 2) Tax reform and 3) Jobs.

    1) Fed:
    Wednesday concludes two days of meetings with the Federal Reserve Open Market Committee (FOMC). This is supposed to be Fed Chair Janet Yellen's last FOMC meeting, the December meeting was her last live press conference after a FOMC meeting - there is no live press conference at this meeting. While the markets are not expecting a rate hike at this meeting, we'll be paying very close attention to their guidance especially in regards to growth, inflation and their take on the growth prospects of tax reform.

    2) Tax reform:
    Actually, the bond market has been very stubborn and slow in pricing in the megalithic impact of tax reform. But that is changing. On Wednesday, February 1st that will shift as workers will now see larger take-home pay in their paychecks as it goes into effect. But more importantly, this week kicks off the massive repatriation flood of billions of dollars of cash that has been trapped overseas for decades. This wave of cash will be used to buy back stock, increase wages, go into capital investment and more. Our economy has not experienced an event like this before, and it will be extremely stimulative to our domestic economy and bonds/mortgage rates don't like that.

    3) Jobs: Big Jobs Friday is on deck, and the bond market will focus on the change in average hourly wages. The YOY number is expected to hit 2.6%, the higher that number is, the more pressure there will be on pricing.

    On The Radar: We have some big name manufacturing reports (Chicago PMI, ISM) as well as President Trump's State of the Union address this week.

    This Week's Potential Volatility: HIGHER
    Last week mortgage rates ended basically unchanged. This week we're already seeing some significant movement and volatility. Look for this to continue with some significant speeches from the Fed and tax reform will begin.

    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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