Insights and Analysis: Mortgage and Real Estate Capital Markets Update with Jeff Rosato, SVP of Capital Markets at Nationwide Mortgage Bankers.
Market Trends and Analysis
Key Takeaways: Bond Market Trends and Fed Outlook
This week’s market update highlights the recent trends in the bond market, including a steady decline in interest rates and growing expectations that the Federal Reserve will cut rates at its upcoming meeting on September 18th.
Mortgage rates have dropped, with the 30-year fixed rate now at 6.20%, and further rate cuts are expected over the next year. Inflation is slowly easing, and the job market is softening, which sets the stage for the Fed to begin lowering rates. While immediate changes to mortgage rates may be small, larger cuts in the future could lead to more significant benefits for borrowers.
Keep reading for a more in-depth look into this week’s update!
I hope everyone had a great weekend! Here’s your weekly update on the major bond market indices, upcoming Federal Reserve meetings, key economic data releases, and general bond market trends.
Market Trends and Analysis
Last week saw slightly above-average new lock volume, with 90 new locks totaling $40M, averaging 18 locks per day. Our trailing 4-week daily lock average is 17 per day, though we’ve recently had days with over 25 locks, indicating a positive trend in volume. So far, September’s volume is significantly down compared to the same time in August, but with the anticipated Fed rate cut, borrowers may be holding off on locking in rates. The Freddie Mac average 30-year fixed rate was 6.20% as of last Thursday, a sharp drop of 15 basis points from the previous week. This puts the max APR for 30-year fixed-rate loans this week at roughly 7.70%. The 10-year Treasury yield closed last week at 3.65%, down about 2 basis points for the week.
Since early August, rates have steadily declined, with four consecutive months of price gains for MBS and Treasuries as the bond market has been anticipating a rate cut at this week’s September FOMC meeting. Market participants fully expect a rate cut this week—the first since the Fed began hiking rates in March 2022. The size of the cut is uncertain, but some polls show a growing expectation for a 50 basis point cut, while less than half expect a 25 basis point cut. The Fed’s rate decision will be announced on Wednesday at 2:00 PM, followed by Chair Powell’s press conference, where investors will look for future Fed guidance.
Last week, attention was on inflation data, with the CPI and PPI coming in slightly above expectations month-over-month but continuing their downward trend year-over-year. This followed weaker-than-expected employment data from the previous week. The softening labor market and declining inflation have laid the groundwork for the Fed to begin easing. A sharp drop in mortgage rates after the Fed’s decision is unlikely, as much of the expectation is already priced into the market. However, if the cut is larger than 25 basis points, we could see a stronger rally in the MBS market. This week’s expected rate cut is just the beginning, as economists predict the Fed will reduce rates by a total of 250 basis points over the next 12-18 months. Even if the process starts slowly this month, more cuts are expected in the future.
“Economists are predicting that the Fed will cut rates in total by 250 basis points over the next 12-18 months! So even if they start with baby steps this month, there will be much more to come!”
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!
