BREXIT, GOVT SHUTDOWN AND CHINA TRADE WEIGH ON MARKETS

Published Date 1/14/2019

THIS WEEK’S MORTGAGE RATE SUMMARY

HOW RATES MOVE:

Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage-Backed Securities (MBS) which are traded in real time, all day in the bond market. This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, mortgage rates or pricing generally goes down. When they fall, mortgage pricing goes up.

RATES CURRENTLY TRENDING: NEUTRAL

Mortgage rates are trending sideways this morning. Last week the MBS market improved by +7bps. This was not enough to move rates lower last week. We saw moderate rate volatility last week.

THIS WEEK’S RATE FORECAST: NEUTRAL

Three Things: These are the three areas that have the greatest ability to impact mortgage rates this week: 1) Brexit, 2) Govt Shutdown and 3) China

  • Brexit: Tuesday will see an important Experts are speculating that the current plan submitted by PM May will be defeated and may even lead to another “no confidence” vote which could see her out as the Prime Minister. If the current plan is defeated, there may be a “plan b” submitted which contains changes that the EU most

likely will not agree to which puts the odds of a “hard” Brexit very high.

  • Government (partial) Shutdown: The first official round of no paychecks just hit with a second round approaching This could mean a reduction in the range of $2B in consumer spending each month that this drags on and will start to weigh on economic growth (there will still be economic growth, but it will be at a reduced level that it would have been).
  • China Trade: After several days of face-to-face negotiations last week which were touted by both sides as positive, the market will be looking for further movement towards an

THIS WEEK’S POTENTIAL VOLATILITY: HIGH

Rates traded sideways all week last week on moderate volatility. We could see an increase in volatility with the above economic releases and Brexit. The Brexit vote is a wild card in the markets this week. If it completely implodes, we could see rates push slightly lower on inflated volatility.

BOTTOM LINE:

If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.

Source: TBWS