One of the major effects of the coronavirus was the enormous destabilization of the mortgage-backed securities (MBS) market back in mid-March.

MBS pricing and trading activity determine home loan rates, so a big and fast solution was necessary.

Thankfully, the Federal Reserve quickly came to the rescue by purchasing MBS to help stabilize the MBS market – and it worked! Their massive MBS Bond buying program stabilized the market, helped the lending industry in numerous ways, and kept home loan rates in a sideways range throughout April.

Now the Fed, who was buying as much as $50 billion per day in MBS, purchased less than that amount this entire past week.

What does it all mean for homeowners or would-be homeowners today?

With the Fed buying significantly less MBS, there is a limit to how low home loan rates can go in the near-term, making today an incredible opportunity to capture historically low home loan rates.

Besides a sharply smaller Fed MBS buying commitment limiting the improvement to home loan rates, here are three additional reasons why home loan rates might not improve much further in the near-term, making today a great time to secure a home loan:

  1. Capacity at the lender level will limit how low home loan rates can go. Lenders are experiencing record mortgage volume. Whether a company is selling widgets or loans, when they are “flying off the shelf” the last thing a company does is lower price.
  2. MBS are now carrying an increased risk of default due to the current elevated unemployment rate. Investors in MBS will demand a premium for this risk, again putting a limit to lower rates.
  3. MBS hate good news. This week, stabilization in the oil market, and the idea that pockets of the U.S. economy will reopen, lend an air of optimism which limits interest rate improvement.

Forecast for the Week

The upcoming week will continue to see more information on the pandemic while certain parts of the country look to reopen pockets of their economy.

It’s Fed week. As mentioned, the Fed played an enormous role in helping the mortgage market. This week the Fed kicks off their two-day meeting on Tuesday and ends Wednesday with the release of the Monetary Policy Statement at 2:00 p.m. ET. The statement release will be followed by a press conference from Fed Chair Powell at 2:30 p.m. ET.

With no change expected in the near-zero Fed Funds Rate anytime soon, it is more about what the statement conveys and what Fed Chair Powell says at his press conference. The financial markets around the globe will be watching this highly anticipated meeting.

There are a few key economic reports to be released, including first-quarter Gross Domestic Product (GDP) numbers, which took an enormous hit in March. April Consumer Confidence, as well as a few key manufacturing reports, will be closely watched and bad readings are expected. Oil prices will also be on the radar screen after a crazy week due to increasing supplies, falling demand, and a lack of storage.

In addition, earnings season will continue as those numbers have been impacted by the coronavirus.

Reports to watch:

  • Housing data will be seen from Tuesday’s S&P Case-Shiller 20-City Index followed by Pending Home Sales on Wednesday.
  • A key Consumer Confidence report will be delivered on Tuesday.
  • The first read on first-quarter Gross Domestic Product will be announced on Wednesday.
  • Manufacturing comes from Thursday’s Chicago PMI and Friday’s ISM Service Index.

Inflation data will come from Thursday’s Core PCE and Employment Cost Index, while Personal Spending and Income numbers will also be released.

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