Insights and Analysis: Mortgage and Real Estate Capital Markets Update with Jeff Rosato, SVP of Capital Markets at Nationwide Mortgage Bankers.
Key Takeaways: Bond Market Trends and Fed Outlook This week’s market update explains some recent changes in the bond and mortgage markets, especially related to interest rates. The Federal Reserve, which manages the country’s money and interest rates, recently decided to lower its key rate slightly to help keep inflation (the rise in prices) under control. This means that some loan interest rates may also go down. However, mortgage rates have been going up recently, hitting the highest levels in months. Market conditions are also being influenced by the recent U.S. Presidential election, which has made investors wonder about future economic changes. While there’s been some market turbulence, things are expected to calm down soon as more information becomes available this week, including reports on inflation and retail sales.
I hope everyone enjoyed the weekend! Here’s this week’s update on major bond market indices, scheduled Federal Reserve meetings, upcoming economic data releases, and general bond market trends.
“The Fed remains focused on ensuring a stable economic recovery with easing inflation. However, external factors like the election outcome and future fiscal policy will influence short-term market dynamics and longer-term economic forecasts.”
Recent Lock Volume & Rates
Last week saw a slightly below-average volume for new locks, with 76 new locks totaling $37 million, averaging 15 locks per day. Our trailing four-week daily lock average has declined to 16 per day. As of last Thursday, the Freddie Mac average 30-year fixed rate is at 6.79%, up another 7 basis points from the previous week. This results in a maximum APR of approximately 8.29% (6.79 + 1.50) for 30-year fixed rate loans. Meanwhile, the 10-year Treasury yield closed last week at 4.31%, down by 5 basis points for the week.
Mortgage Rates & Bond Market Volatility
Mortgage rates have increased for the sixth consecutive week, reaching their highest levels since mid-July. Over the past week and a half, the bond market has been especially volatile due to recent inflation data, October’s non-farm payrolls report, the general election, and the latest FOMC meeting and interest rate decision. Uncertainty often fuels market volatility, and we’ve seen a lot of both recently.
Following the Fed’s decision last week to reduce the Fed Funds rate by 0.25% to a range of 4.50 – 4.75%, markets may calm down this week. This rate cut, the second in the current easing cycle, reflects the Fed’s stance that inflation is trending toward the 2% target. Chairman Powell acknowledged some cooling in the labor market, and further easing is expected in upcoming meetings. The Fed will base decisions on the latest economic data, with the next and final FOMC meeting of 2024 scheduled for December 18, where there’s a high probability of another 0.25% cut.
U.S. Presidential Election Impact
The recent U.S. Presidential election outcome has added some uncertainty to the economic outlook. Markets and the Fed must recalibrate expectations for growth, inflation, and fiscal policy. With Trump’s victory, investors now expect somewhat stronger economic growth, higher inflation, and larger deficits. While these factors could influence the Fed’s future policy, Powell noted that the election has not immediately impacted the FOMC’s decisions. The current environment of an accommodative Fed policy paired with potentially inflationary fiscal policies creates a balancing act for the markets. The Fed remains committed to ensuring a stable recovery while monitoring how fiscal changes could affect inflation and growth.
Upcoming Economic Data & Market Outlook
The bond market is closed today for Veteran’s Day, but the week ahead remains busy. Key releases include fresh inflation data (CPI on Wednesday and PPI on Thursday), U.S. Retail Sales data for October on Friday, and several Fed speaking engagements throughout the week. While we anticipate less volatility than in recent weeks, the incoming data and ongoing uncertainties could still lead to notable market swings.
We’ll keep an eye on the market for any shifts—check back next week for our latest updates and insights!
