Insights and Analysis: Mortgage and Real Estate Capital Markets Update with Jeff Rosato, SVP of Capital Markets at NMB NOW.
Key Takeaways
Mortgage rates remain elevated as geopolitical tensions in the Middle East, volatile energy prices, inflation concerns, and shifting Federal Reserve expectations continue to influence the bond and mortgage markets. The Freddie Mac average 30-year fixed mortgage rate is currently 6.67%, while the 10-year Treasury yield closed last week at 4.70%. However, softer-than-expected inflation data and weaker economic activity have significantly reduced expectations for a Federal Reserve rate hike at the September FOMC meeting. This week, investors will focus on the release of the July FOMC meeting minutes for additional insight into the Fed’s outlook for monetary policy and interest rates. While geopolitical developments and energy prices continue to create volatility, an improving inflation outlook and slowing economic growth could ease some of the pressure on mortgage rates.
Here’s a look at this week’s update on the major bond market indices, scheduled Federal Reserve meetings, upcoming market-moving economic data releases, and general bond market trends.
Bond Market Indices
“With slowing economic growth and an improving inflation outlook, the urgency for the Fed to tighten policy and hike rates has waned. The odds for a .25% hike at the September FOMC meeting are currently at roughly 30% based on the Fed Futures markets, down from about 50% at the beginning of last week.”
Market Overview and Rate Trends
The Freddie Mac average 30-year fixed rate is at 6.67% as of last Thursday and was down slightly by 2 basis points compared to the prior week. That puts the maximum APR this week for 30-year fixed-rate loans at roughly 8.17% (6.67% + 1.50%).
The 10-year Treasury yield closed last week at 4.70%, which was up by 4 basis points for the week.
Mortgage rates have increased dramatically over the last few months, driven by the conflict in Iran and elevated and volatile energy prices. Prior to last week, it looked more likely that the Fed would take action and hike rates by .25% at their September FOMC meeting.
However, data released last week helped lower the odds for a September rate hike dramatically. We saw fresh inflation data, with the Consumer Price Index (CPI) and Producer Price Index (PPI) both coming in softer than expected, with the CPI report actually showing some modest disinflation.
Also last week, there was some weaker economic data released, with Retail Sales for July disappointing to the downside and coming in much lower than expectations.
With slowing economic growth and an improving inflation outlook, the urgency for the Fed to tighten policy and hike rates has waned. The odds for a .25% hike at the September FOMC meeting are currently at roughly 30% based on the Fed Futures markets, down from about 50% at the beginning of last week.
The odds increase to about 45% for a .25% rate hike by the October FOMC meeting.
Inflation, Economic Growth, and Federal Reserve Outlook
The Fed will remain cautious as inflation risks remain elevated due to high oil prices, and the markets will remain driven by geopolitical developments in the Middle East.
With slowing economic growth and an improving inflation outlook, the urgency for the Fed to tighten policy and hike rates has waned. The latest CPI and PPI data provided some encouraging signs on the inflation front, while weaker-than-expected Retail Sales data pointed to some moderation in economic activity.
Volatility will remain in the markets until geopolitical tensions ease and energy prices stabilize.
Economic Calendar and Market Drivers
This week is fairly light in terms of fresh economic data, and the focus will be on the minutes of the July FOMC meeting, which will be released on Wednesday.
It’s expected that the minutes will support the case for policymakers remaining patient on adjusting rates due to softer labor market data and inflation expectations.
The release of the FOMC minutes will give investors additional insight into how Federal Reserve policymakers are evaluating inflation, economic growth, and the potential path for interest rates heading into the September FOMC meeting.
Current Market Conditions
MBS prices are down slightly by about 5–10 basis points compared to where they closed on Friday, and the 10-year Treasury is flat at 4.70%.
Looking Ahead
Mortgage and bond markets will continue to respond to developments in inflation, economic growth, energy prices, geopolitical conditions, and expectations for Federal Reserve policy. With the July FOMC meeting minutes scheduled for release this week, investors will be watching closely for additional clues about the Fed’s approach to future interest rate decisions.
While mortgage rates remain elevated, softer inflation and slowing economic growth have reduced expectations for a September rate hike. As markets continue to navigate shifting economic and geopolitical conditions, homebuyers, homeowners, and real estate professionals should focus on the broader market trends rather than reacting to any single day’s rate movement.
Stay tuned each week for the latest economic data, Federal Reserve developments, bond market trends, and mortgage rate insights shaping the housing market.
