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 weekend! Here’s this week’s update on major bond market indices, upcoming Federal Reserve meetings, key economic data releases, and general bond market trends.
Market Trends and Analysis
Despite last week’s shortened schedule due to the holiday, we saw above-average lock volume. There were 81 new locks, totaling $37M, with an average of 20 locks per day. The 4-week daily lock average currently sits at 17 per day, with recent days hitting 25+ locks, indicating positive momentum. August volume finished 4% higher than July, closing with 405 locks worth $181M. However, September has started slightly slower compared to the same period in August.
The Freddie Mac average 30-year fixed rate remains at 6.35% as of last Thursday, unchanged from the prior week. This positions the maximum Annual Percentage Rate (APR) for 30-year fixed-rate loans at approximately 7.85% (6.35% + 1.50%). The 10-year Treasury yield closed last week at 3.73%, down by about 18 basis points.
Earlier in August, interest rates dropped significantly and have since hovered just under 6.5%. Mortgage-Backed Securities (MBS) and Treasury prices have increased for four consecutive months, as the bond market anticipates a rate cut at the September FOMC meeting. While mortgage rates have remained stable over the past week, softer economic data and easing inflation suggest rates could gradually decline through the end of the year. With weaker economic reports—especially in employment—the market consensus now expects a Fed rate cut in September.
“This week’s spotlight will be on inflation data, with the Consumer Price Index (CPI) being released on Wednesday and the Producer Price Index (PPI) on Thursday. These reports are the final round of fresh data before the Federal Open Market Committee (FOMC) meeting next week, which will play a critical role in the Fed’s decision on the size of the expected rate cut.”
Last week’s attention was focused on employment data, with the ADP Employment Report on Wednesday and the official U.S. Non-Farm Payrolls report on Friday. Both reports fell short of expectations, and previous months’ data were revised downward. August saw 142,000 jobs added, below the forecast of 161,000, while the unemployment rate dipped to 4.2%. The downward revision of 86,000 jobs over the past two months has raised concerns about a softening labor market, fueling speculation of a 50-basis point rate cut by the Fed in September, rather than the widely anticipated 25-basis point cut. The Fed’s rate decision will be announced next Wednesday, 9/18, with a 40% probability of a 50-basis point cut.
Economic Indicators and Future Outlook
This week’s CPI and PPI data will be critical in determining the Fed’s course of action next week. Although a sharp drop in mortgage rates following the Fed’s decision is unlikely, a rate cut larger than 25 basis points could spur a strong rally in the MBS market.
As of today, MBS prices are flat compared to Friday’s close, with the 10-year Treasury yield holding steady at 3.73%.
Have a great week ahead!
