At Kingdom Capital, we live and breathe Non-QM loans, but we know that understanding the bigger picture is crucial. This market update looks at the broader mortgage landscape because what’s happening in the wider market impacts everyone—from borrowers to brokers to lenders.

Last week, the Federal Reserve held rates steady, we saw a lot of positive economic news, and mortgage rates remained stable. Let's dive into the details and see what to watch for in the week ahead.

The Fed’s Stance: Holding Steady, with a Glimmer of Hope

The Federal Reserve's recent meeting concluded with no change to the federal funds rate, keeping it in the 4.25%-4.5% range. While there was no immediate rate cut, the Fed’s statement hinted at the possibility of a move in the coming months if inflation continues to cool. The Fed is closely monitoring both employment and inflation data, so any surprises in upcoming reports could influence their next decision.

Positive Economic News: GDP Rebounds

Gross Domestic Product (GDP), a key measure of a country’s economic health, saw a strong rebound in the second quarter. The first reading came in at 3.0%, well above the expected 2.6% and a significant turnaround from the first quarter's -0.5% reading.

This positive news is being met with a touch of caution in the markets. The sharp swings in GDP are partially attributed to the impact of tariffs. A surge in imports in the first quarter, driven by companies rushing to beat potential price hikes, negatively impacted GDP. This trend reversed in the second quarter, as companies imported less and exports increased, thereby "adding" to GDP. Most market analysts are likely averaging the two quarters, suggesting a more moderate, albeit positive, underlying trend.

Consumer Confidence Is on the Rise

The Conference Board’s Consumer Confidence Index improved nicely in July, a welcome sign for the economy. As a senior economist noted, "Consumer confidence has stabilized since May... but remains below last year’s heady levels." This is important because consumer spending accounts for nearly 70% of our GDP. When consumers feel good, they spend, which fuels economic growth.

Mortgage Rates Hold Their Ground

As of early August, the 30-year fixed-rate mortgage averaged 6.72%, a slight dip from the previous week's 6.74%. The 10-year Treasury note yield, which often serves as a benchmark for mortgage rates, stayed within its recent 4.20%-4.50% range, hovering around 4.35%.

The Bottom Line

The mortgage market is currently in a holding pattern, caught between persistent inflation concerns and signals of a potential economic slowdown. Rates are likely to remain in this sideways range until more clarity emerges. The enclosed chart visually illustrates this tug-of-war, showing a clear ceiling for rate decreases and a floor for increases. A breakout from this range will provide a crucial signal for everyone in the mortgage and housing industry.

Looking Ahead: The Week of August 4-8

With a lot of recent data digested by the markets, next week is expected to be quieter. Key reports to watch for include:

• ISM Manufacturing Index: A measure of economic activity in the industrial sector.
• Weekly Initial Jobless Claims: A key indicator of the health of the labor market.

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