Real estate market awaiting Fed decision

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Published Date 9/20/2017

Today'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.

Rates Currently Trending: Neutral

Mortgage rates are moving sideways so far today. The MBS market improved by +4 bps yesterday. This wasn't enough to improve mortgage rates or fees. The market experienced low volatility yesterday.

Today's Rate Forecast: Neutral

Location: Weekly mortgage applications dropped -9.7% led by a pullback of -11.0% in purchase applications. Refinance applications fell by -9.0%. This is reflective of both Texas and Florida's weather woes which has effectively taken tens of thousands out of the housing market on a temporary basis and made it very difficult to even refinance with loss of job or damage to their home.

Existing Home Sales: The August data missed the mark on the number of units sold (5.35M vs est of 5.46M). However, it's not for lack of demand. The Median Home Price jumped to $253,500 which is up YoY of 5.6% and marks the 66th straight month of YoY gains. Inventory levels fell yet again and are now at only 4.2 months worth of supply.

Fed: The bond market will be paying very close attention to any new hints or even actual policy on their massive balance sheet that has been used to keep a tight lid on interest rates by gobbling up Treasuries and MBS at a pace that a truly open market could never support. Even the most "dovish" Feds have expressed the need to address the issue. They have outlined a plan in the past where they will still buy Treasuries and MBS but at a slower pace while allowing maturing notes and bonds to roll off the balance sheet instead of reinvesting the principal in new purchases. We even have seen timelines from them...but will this meeting be the meeting that they start it or give us an official start date? That is the major focus for bond traders today.

In addition to their policy statement, we will also get their economic projections and famous Dot Plot Chart. The bond market will be reacting very strongly to the Dots in 2017 and 2018.

We also get a live press conference with Fed Chair Janet Yellen at 2:30EST to explain their new policy.

Across the Pond:

Spain (number 14 economy): As we have reported, Catalonia has an October 1 referendum vote scheduled to succeed from Spain. This is very key to the Eurozone and Spain as this region is the wealthiest region of Spain. It appears to have solid support among its residents. So, how does Spain plan to win the election? Simple. You just don't let them have one. This morning over 45K ballots and voting boxes, voting booths, flyers on how to vote and where to vote, etc were all confiscated during a raid by Spanish authorities. They also arrested several elected officials. An excellent example of Democracy for you....not.

Germany (number 4 economy): They will hold their general elections on the 24th and traders are looking at the polling numbers to see if Merkel will get reelected. Meanwhile, their PPI YOY came in higher than expected (2.6% vs est of 2.5%).

Great Britain (number 5 economy): Retail Sales came off much higher than expected with a YOY reading of 2.4% vs est of 1.1% and is yet another strong report from GB and along with Carney's hawkish comments has increased the probability of the BofE moving rates higher soon.

Today's Potential Rate Volatility: High

All eyes are on the Fed today. The market isn't expecting a rate hike, but the market will be paying close attention to Janet Yellen's comments and the Dot Plot Chart. This afternoon we could experience high mortgage rate volatility as the market digests the new information.

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

All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.