Daily Rate Lock Advisory

Indexes Affecting Rate Lock

High

Unknown

Retail Sales

August’s Retail Sales report will begin this week’s activities at 8:30 AM ET Tuesday. This report will give us details about consumer spending, which is highly important to the markets because that category makes up over two-thirds of the U.S. economy. If consumer spending is strong, overall economic growth is likely to be stronger, making bonds less attractive to investors. If we see weaker than expected readings in this report, the bond market should respond favorably, pushing mortgage rates lower. Current forecasts show a 0.3% increase in sales. Good news for the bond market and mortgage pricing would be a decline.

Medium

Unknown

Industrial Production

Also Tuesday morning will be the release of the less relevant Industrial Production data for August. It will give us an indication of manufacturing strength by tracking output at U.S. factories, mines and utilities. Analysts are expecting to see production was unchanged from July's level, a sign that manufacturing activity was flat last month. A large increase in production would be negative for bonds and mortgage rates, while a noticeable decline would be favorable for mortgage shoppers.

Medium

Unknown

Treasury Auctions (5,7,10,20,30 year)

Tuesday also has a 20-year Treasury Bond auction taking place that may affect rates during early afternoon trading. If the sale is met with a strong demand from investors, particularly international buyers, bond prices may rise and mortgage rates could revise lower after results are announced at 1:00 PM ET. On the other hand, a lackluster interest in the securities may create selling in the broader bond market that leads to a slight upward revision to mortgage rates.

Low

Unknown

Housing Starts (New Home Construction)

Wednesday's activities will begin with August's Housing Starts report at 8:30 AM ET. This report will probably not have a heavy impact on the bond market or mortgage rates. It helps us measure housing sector strength and future mortgage credit demand by tracking new home groundbreakings. However, this report is usually considered to be of low importance and often has just a minimal impact on rates. It is expected to show new home groundbreakings declined from July, pointing to a bit of weakness in the new home portion of the housing sector. We need to see a significant surprise in this data for it to have a noticeable influence on mortgage rates, especially on a day that it precedes an FOMC meeting.

High

Unknown

Federal Open Market Committee (FOMC) Statement

Next up are the much anticipated FOMC activities Wednesday afternoon. This week’s FOMC meeting is expected to adjourn with an announcement the Fed cut key short-term interest rates for the first time since last December. There is little debate if Chairman Powell and friends will make a move this week, but there is plenty of discussion about the size of the reduction. The general consensus is still a quarter-point cut at this meeting followed by similar moves during at least one of the remaining two meetings this year. Some analysts are calling for a half-point cut this week to support what appears to be a quickly slowing employment sector. Others feel stubbornly high inflation may move higher if a jumbo cut is made right now. The debate means it is a safe assumption that we will see plenty of volatility Wednesday afternoon, regardless of what the Fed votes to do.

High

Negative

General Bond Trends

Something worth mentioning is that we are literally one year from the Fed’s last half-point cut to short-term rates. It was the September 2024 FOMC meeting that they surprised some in the markets with the jumbo rate cut. Unfortunately, the move didn’t have the effect on rates that we had expected. The benchmark 10-year Treasury Note yield was at 3.68% the morning of the meeting and rose after the meeting adjourned instead of dropping. It stood at 3.71% the day after the adjournment before reaching 4.07% the first week of October 2024. And it kept rising from there, standing at 4.38% on November 1st and 4.57% as the year came to a close, even though the Fed made quarter-point cuts during their November and December meetings. The reaction in bonds led to significant increases in mortgage rates along the way, leaving many of us scratching our heads trying to figure out why.

High

Unknown

Federal Reserve Statement

The point to remembering what happened one year ago is that, despite what the media tends to tell us, the Fed lowering key rates does not necessarily translate into lower mortgage pricing for borrowers. This is why we should remain cautious heading into this week’s meeting, particularly if still floating an interest rate. The Fed lowering short-term rates will make some borrowing cheaper for consumers and businesses, but may not give the relief that home shoppers are looking for.

High

Unknown

Misc Fed

The meeting will adjourn at 2:00 PM ET Wednesday, which is also when we will get their post-meeting statement and revised economic projections. Those economic projections also include the Fed’s so-called Dot Plot that tells us where individual Fed members think these short-term rates will be in the future. This is another way the Fed is telling us how they think will happen to key rates in the future.

Medium

Unknown

Leading Economic Indicators (LEI) from the Conference Board

The Conference Board will close this week’s calendar when they release their Leading Economic Indicators (LEI) for August at 10:00 AM ET Thursday. This index attempts to predict economic activity over the next three to six months. Forecasts show them slipping 0.1%, meaning the indicators are pointing toward slightly weaker economic activity in the coming months. The larger the decline, the better the news for mortgage pricing.

Overall, Wednesday is easily the most important day for rates because of the FOMC events, but Tuesday’s Retail Sales report can be a market mover also. The calmest day may end of being Friday. We are expecting to see a great deal of volatility in the markets this week, meaning mortgage rates will not remain flat. If still floating an interest rate and closing in the near future, it would be prudent to keep an eye on the markets.

Rate Lock Advisory

Mortgage Rate Trend

Indexes Affecting Rate Lock

Retail Sales

Industrial Production

Treasury Auctions (5,7,10,20,30 year)

Housing Starts (New Home Construction)

Federal Open Market Committee (FOMC) Statement

General Bond Trends

Federal Reserve Statement

Misc Fed

Leading Economic Indicators (LEI) from the Conference Board

Float / Lock Recommendation