Insights and Analysis: Mortgage and Real Estate Capital Markets Update with Jeff Rosato, SVP of Capital Markets at Nationwide Mortgage Bankers
I hope everyone enjoyed the holiday 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.
Market Trends and Analysis
Lock volume was lighter last week compared to recent weeks, which was expected heading into the long holiday weekend. We had 70 new locks for $32M, averaging just 14 locks per day. Recent weeks have seen averages of nearly 25 locks per day, so even with last week’s numbers, our trailing 4-week daily lock average is still 18 per day. August volume ended up 4% higher compared to July, finishing with 405 locks for $181M for the month. The Freddie Mac average 30-year fixed rate is at 6.35% as of last Thursday, down 11 basis points from 6.46% the previous week. This puts the max APR this week for 30-year fixed-rate loans at roughly 7.85% (6.35 + 1.50). The 10-year Treasury yield closed last week at 3.91%, up about 10 basis points for the week, and has remained below 4% for over a month now.
“With a string of weaker economic data, primarily poor employment data, and inflation data trending in the right direction, the market consensus has shifted to the foregone conclusion that the first Fed rate cut will come in September.”
Earlier in August, rates decreased sharply and have lingered just under 6.5%. The bond markets and MBS prices ended last week on a weak note, with light volume on Friday ahead of the holiday weekend. However, looking at the bigger picture, August marked the fourth consecutive month of price gains for MBS and Treasuries, as the market prepares for a rate cut at the September FOMC meeting. Although mortgage rates have stayed relatively flat over the past week, softer economic data and declining inflation suggest rates will continue to gently slope downward through the end of the year. With a string of weaker economic data, primarily poor employment data, and inflation trending in the right direction, the market consensus has shifted to the expectation that the first Fed rate cut will come in September.
Last week, the Fed’s preferred measure of inflation, the PCE index, came in right on expectations. The PCE index was the latest data point showing inflation continuing to trend in the right direction and supports the prevailing market view that the U.S. economy will avoid a recession and that inflation will continue moving toward the Fed’s 2% target with help from a rate cut in September. The market is still pricing in a total of 100-125 basis points of cuts for the year over the next three FOMC meetings, but how much of that will come in September is still uncertain, although a 50 basis point cut is becoming more likely than a 25 basis point cut.
Economic Indicators and Future Outlook
This week’s economic calendar is fairly light, with the focus on employment. The August ADP employment report will be released on Wednesday, followed by the official U.S. Non-farm Payrolls report on Friday. Friday’s report has the most market-moving potential of any data release this week, and market participants will be looking for signs of weakness, though not to the extent that recession fears could creep back in. Today, MBS prices are up about 10 basis points compared to Friday’s close, and the 10-year Treasury is down a few basis points at 3.84%.
Have a great week!
