Capital Market Update for October 21, 2024

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

Despite rising mortgage rates, the strong economy and continued consumer spending are keeping prices elevated, which may delay the Federal Reserve’s ability to lower interest rates. This week, we’ll see reports on home sales and hear from Federal Reserve members, but next week will bring more critical data on jobs, economic growth, and inflation, which could influence future interest rate decisions.

I hope everyone enjoyed the weekend! Here is 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.

“Despite the fact that the Fed has shifted its policy stance and begun to cut rates, the path to lower mortgage rates will most likely be slower than initially expected.”

Lock Volume and Mortgage Rates

Last week was an above-average week for new lock volume! We had 82 new locks for $37M in just four days with the market holiday, averaging 20 locks per day. Our trailing four-week daily lock average is currently 18 per day. The Freddie Mac average 30-year fixed rate is at 6.44% as of last Thursday, which was up by 12 basis points from the prior week. This puts the max APR this week for 30-year fixed-rate loans at roughly 7.94% (6.44% + 1.50%). The 10-year Treasury yield closed last week at 4.09%, remaining flat for the week.

Lock volume was above average last week despite rising mortgage rates. Since the September Nonfarm Payrolls report was released at the beginning of the month, rates have been trending upward. Inflation data released in October came in slightly hotter than expected, and last week’s U.S. Retail Sales data reinforced these trends. Retail sales rose 0.4% month-over-month in September, slightly higher than the expectation of 0.3%. With a strong employment situation, U.S. consumer demand remains high, putting upward pressure on prices and giving the Fed reason to be patient with further interest rate cuts.

Despite the Fed shifting its policy stance and beginning to cut rates, the path to lower mortgage rates will likely be slower than initially anticipated. Just a few weeks ago, futures markets were pricing in about a 50% chance of another 50 basis point rate cut in November. However, that is now seen as virtually impossible. The odds of a 25 basis point cut are currently at 90%, with about a 10% chance of no change. The next rate decision is expected on November 7th.

 

This Week’s Economic Calendar

This week, the economic calendar is relatively light, but we will get Existing Home Sales data on Wednesday and New Home Sales on Thursday. There are also plenty of Fed speaking engagements throughout the week. Things will get more interesting next week with fresh employment data, GDP numbers, and inflation data all being released. This data will be the most recent and important information reviewed by the Fed prior to their next interest rate decision.

As of today, rates remain on the rise. The 10-year Treasury is up sharply by about 10 basis points to 4.17%, and MBS prices are worse by about 0.375 to 0.50 compared to Friday’s close.

 

We’ll continue tracking the market for any changes—be sure to check in next week for the latest insights!

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