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.  Tracking these securities real-time is critical.  For more information about the rate market, contact me directly.  I’m among few mortgage professionals who have access to live trading screens during market hours.

Rates Currently Trending: Neutral

Mortgage rates are trending sideways this morning.  Last week the MBS market improved by +38 bps.  This may've been enough to move rates lower last week. We saw high rate volatility at the end of the week.

This Week's Rate Forecast: Neutral

Three Things: These are the three areas that have the greatest ability to impact rate markets this week: 1) Geopolitical, 2) Coronavirus, and 3) Jobs.

1) Geopolitical: The most important event of the week is the George run-off Senate race as it will determine which party will have control of the Senate, which is a significant factor in policies that can impact taxes, stimulus, and the economy for the next several years. The Electoral votes will also need to be accepted by Congress this week, and there will be some drama with that.

2) Coronavirus: The global impact on the macroeconomy continues to expand negatively. The markets were hoping that the vaccine rollout would point to economies reopening soon, but they are now pricing that out as many people are choosing not to be vaccinated (in some hospitals in the U.S., as much as 50% of the staff refuse to get the shot). The original goal was to have 20M vaccinated by the end of 2020, but only 4.3M have been. Meanwhile, many states are seeing new record highs in the number of cases, and hospitalizations and colleges and k-12 schools are pushing back in-person classes (a key factor in parents going back to work). 300K additional U.S. cases have been released after holiday delays, and Scotland, Germany, and Greece announce new lockdowns.

3) Jobs: We have a big week for jobs and wage data with ISM Manufacturing and Services Employment Components, ADP Private Payrolls, Challenger Job Cuts, Initial Weekly Jobless Claims, Non-Farm Payrolls, Average Hourly Earnings, and the Unemployment Rate.

The Fed: Here is this week's schedule:

• 01/04 Charles Evans, Raphael Bostic, Loretta Mester
• 01/05 John Williams
• 01/06 FOMC Minutes
• 01/07 Patrick Harker, James Bullard

This Week's Potential Volatility: High

Rate markets could see a fair bit of volatility today and through the week. The economic impact of the coronavirus continues to push rates lower and increase volatility. We also get a lot of jobs data this week that can move rates. Of course, the Georgia election and the Senate's ultimate makeup will play a meaningful role in rate volatility for the week.

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.