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 worsened by -25bps.  This was enough to move rates slightly higher last week. There was a modest rate volatility last week.

This Week's Rate Forecast: Neutral

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

1) Central Bank: The Bank of Canada is expected to raise their key interest rate from 1.5% to 1.75%, but it will be the European Central Bank that will get the most attention of bond traders. The market widely expects the ECB to leave their rates unchanged, but we're looking for more color on how they will reinvest maturing QE proceeds and confirmation of the process of ending their massive QE program in December.

2) GDP: We will get our first look at the 3rd QTR GDP data. The guestimates have a huge range of 2.9% to 3.9% by economists and traders alike with the mean around 3.2%. The higher this number is, the worse it will be for mortgage rates.

3) Geopolitical: There are a lot of balls in the air in this category. You have continued strife with Italy's and the EU over their budget, Brexit is still twisting in the wind, and the U.S. is not baking off rhetoric of yet another round of tariffs against China. You also have "Davos-in-the-desert," and the Caravan of illegals from Central America has the U.S. cutting off funding for Mexico, which could put the new NAFTA agreement in question.

Treasury Auctions this week:

  • 10/23 2 year note
  • 10/24 5 year note
  • 10/25 7 year note

Fed:

  • 10/23 Neel Kashkari, Raphael Bostic, Robert Kaplan, and Charles Evans
  • 10/24 James Bullard, Loretta Mester, Fed's Beige Book
  • 10/25 Fed's Balance Sheet

This Week's Potential Volatility: Average

Mortgage rates could see some volatility this week. Markets will be paying close attention to the GDP. The estimates for the GDP are all over the map; it will be interesting to see how the numbers come in and how the rate markets react. Of course, geopolitical events could play a role in creating volatility in the 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.

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