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Market Analysis 1.12.26: Rates Improved

Good Monday morning from your Hometown Lender,

Rates improved last week anywhere from .125% to .250% on average after last week’s mortgage bond market reaction to President Trump’s surprise Thursday Truth Social post about having FNMA/FHLMC buy up $200 billion in mortgage bonds. So far, all the moves were in speculative reaction to the news, not to any actual MBS bond purchases. Today, bonds are settling down. It is a busy week with a lot of inflation data so we could see more movement ahead of tomorrow’s CPI inflation data as traders speculate what is happening behind the scenes.

A story broke over the weekend about a DOJ launching a grand jury investigation against the Fed (and Fed Chair Jerome Powell in particular) about the renovations of the Fed building and his testimony about it in front of Congress. Right now, it’s not affecting rates. Mr. Powell says it’s a political attack for him not bending to the will of the President to lower rates more quickly. I doubt that Mr. Powell said anything to congress that was patently false, but I also think the cost overruns on the remodel are absurd and offensive and should be investigated. 2.5b (billion) for a government office remodel is insane.

For today, though, rates look likely to hold the improvements from last week but don’t look ready to improve on that until more details come out. As always, though, that could change quickly depending on what Trump posts and how markets react to it.

Market analysis – from a higher level:

Market analysis – quick snapshot (for the skimmers)

  • Rates: Freddie Mac’s weekly survey (1/8) has the 30-yr fixed at 6.16% and 15-yr at 5.46%—we’re still in a low-6s world for well-qualified borrowers. Freddie Mac+1
  • 10-year Treasury: Hovering near the low-4s; recent prints and futures chatter cluster around ~4.19%, keeping rate sheets range-bound. FRED+1
  • Economy: Services expanding (Dec ISM 54.4) while manufacturing is softer (Dec ISM 47.9)—classic “slowing, not stalling.” Institute for Supply Management+1
  • This week’s catalyst: December CPI lands Tuesday, Jan 13, 8:30 a.m. ET—the next big swing factor for bonds and mortgage pricing. Bureau of Labor Statistics+1
  • Political/market noise: Several outlets report a DOJ probe involving Fed Chair Powell; equities dipped and gold firmed, with yields nudging up. Treat as headline risk; policy path is unchanged for now. Financial Times+1

Market analysis – rates & the 10-year (what changed)

  • Freddie PMMS (1/8): 30-yr 6.16% (up 1bp w/w), 15-yr 5.46%; a year ago the 30-yr was 6.93%—material improvement y/y. Freddie Mac
  • 10-yr UST: Latest observable prints sit just over 4.1–4.2%; pre-market commentary has ~4.199%. That’s enough to steady pricing, not enough to break rates materially lower without a softer CPI. FRED+1

Plain English: plan around a low-6% 30-year fixed with normal points/costs. Not the 7s from last year’s scare, not the pandemic 3s—a middle lane you can actually plan around.

Market analysis – why it’s happening (data • Fed • politics)

1) Data: services firm, goods soft

  • Services PMI (Dec): 54.4—10th month of expansion; new orders solid; employment back in expansion. Manufacturing PMI (Dec): 47.9—10th contraction in the last year. Net: growth is uneven but ongoing. Institute for Supply Management+1

2) Fed backdrop: easing bias, still data-dependent

  • The next leg for mortgages hinges more on inflation trend than on any one Fed headline. CPI on Jan 13 is the near-term decider for whether the 10-yr can test lower into the mid-4s or backs up toward recent highs. Bureau of Labor Statistics

3) Politics & market sentiment: headline risk is elevated

  • Multiple outlets reported a criminal investigation involving Chair Powell’s 2024 testimony; stocks and the dollar wobbled, safe-havens bid, yields ticked up. Markets are trading the perception risk more than a policy change—watch for clarifications. Financial Times+1

4) Housing policy you can use with clients

  • 2026 conforming loan limit baseline = $832,750 (higher in high-cost areas up to $1,249,125). FHA limits rose as well. This widens conforming access and can improve pricing/scenarios at the margin. FHFA.gov+2AP News+2

What the market analysis means (buyers • agents • homeowners)

Buyers

  • You’re shopping in a low-6% environment. Payment wins come from structure: seller credits → permanent buydowns first; consider 2/1 or 3/1 only when the time-horizon math actually pencils. Anchor on payment + reserves, not just the headline rate.

Agents / REALTORS®

  • Re-engage the “paused at 7%” crowd. Where deals clear right now:
  • Seller credits → perm buydowns (clean, durable)
  • Targeted temp buydowns for short horizons
  • Keeping buyer reserves intact to reduce fallout
  • Flag the higher 2026 conforming/FHA limits for clients straddling jumbo—eligibility and pricing can improve. FHFA.gov+1

Homeowners

  • ≥7% loans: A move to low-6s can cash-flow if breakeven and time-in-home work.
  • In the 5s: A plain rate-and-term refi rarely pencils; compare cash-out vs. HELOC vs. hold to protect a cheap first lien.

Lock vs. float (framework, not fortune-telling)

  • Close ≤ 30 days: Lean lock-biased into Tuesday’s CPI and headline risk. Bad surprises typically worsen pricing faster than good surprises improve it. Bureau of Labor Statistics
  • Close in 45–90 days: Float with guardrails—put them in writing:
  • “If the 10-yr breaks above ~4.30%, we lock.”
  • “If today’s price worsens by ~0.25% in cost, we lock.”
  • This turns rate-watching into a plan, not a guess.

Stay safe and make today great!