Archive for the ‘Mortgage Rate Watch’ Category

Mortgage rates were slightly higher today, marking the 6th day in a row where they've reversed course versus the previous day.  This is the sort of behavior we see when underlying financial markets are having a hard time making up their mind (or are simply waiting for something before committing to the next big move).

In the case of mortgage rates, the underlying financial market is the bond market.  There are specific bonds that most directly affect mortgage rates, but they are almost always moving in the same direction as other bonds anyway.  That allows us to use something like the 10yr Treasury yield to keep an eye on interest rate momentum.  There we see yields locked in an increasingly narrow range since the beginning of the year.

Mortgage rates recovered today after rising to the highest levels in a week as of yesterday.  The improvement followed a much-weaker-than-expected Retail Sales report--something investors have been waiting on for nearly 2 months due to the government shutdown. 

Retail sales comprise an important part of economic activity, and the economy is one of the biggest considerations for interest rates.  Generally speaking, economic strength pushes rates higher, all other thing being equal.  Thus, the unexpectedly weak retail numbers had the opposite effect. 

How big was the effect?  Not quite as big as most other media outlets would suggest.  

Mortgage rates hadn't changed much over the past few business days, even though they arguably should have moved a bit higher yesterday.  That made today's adjustment slightly more abrupt. 

Why was there an adjustment?

Mortgage rates are based primarily on the trading levels in the bond market.  In turn, the bond market takes cues from a multitude of factors big and small.  Among the biggest considerations for bonds are the various regularly scheduled economic reports.  Among those reports, inflation data is traditionally very important to bonds.  And finally, among inflation data, today's Consumer Price Index is probably the most widely followed. 

Mortgage rates were roughly unchanged yet again today, although the average lender was charging microscopically higher fees compared to yesterday.  The key ingredient in today's market movement (which ultimately translates to mortgage rate movement) was the promise of a deal to avert another government shutdown at the end of the week. 

Late in the day yesterday, congressional leaders on both sides of the aisle signaled a potential deal was in the works.  The fact that Trump didn't immediately dismiss the deal was taken as evidence of its viability.  This resulted in bond markets losing ground today, which normally coincides with higher rates.  It was also the inspiration for a good amount of today's improvement in stocks.

Mortgage rates held their ground fairly well today, despite the fact that underlying bond markets were weaker.  Bond market weakness is associated with higher interest rates, all other things being equal.  To understand this, consider that a bond is essentially a loan.  An investor who buys a bond is buying the right to collect interest payments on a loan.  That investor is effectively "the lender."  Ideally, those investors would compete with one another for the right to collect interest on loans.  If bonds are "weaker," it means those investors don't see as much value in buying those loans.  The price they pay to obtain the loan goes down (aka "weakness").  In turn, the loan's rate of return needs to be bumped up in order to attract investors.  And "bumping up the rate of return on a loan" is tantamount to "higher rates."

Mortgage rates may not be quite as low as they were on January 31st, but they nonetheless managed to end at the lowest levels of this week.  Unlike January 31st, we can still say we're at the lowest levels in more than a year (yesterday was the first official day for that distinction).  

All of this is beside the point.  We're effectively as low as we've been in a long time.  The average lender is once again able to quote conventional 30yr fixed rates below 4.5% for the best-qualified borrowers.

Beyond that, there's at least an equal chance that rates could go lower in the short-to-medium term depending on economic data and the resolution (or lack thereof) of several lingering uncertainties.  

Thursday plays host to vastly more mortgage rate articles than any other day of the week.  This has to do with the regular weekly release of Freddie Mac's mortgage rate survey (which many news organizations use as source material for one article per week on the topic.  Freddie's data is great when it comes to tracking long term trends, but it doesn't account for day to day movements.  For example, today's Freddie survey suggests rates are lower this week, but if we look at this Thursday afternoon vs last, we're not quite back down to those levels for the average lender. The good news is that last Thursday's rates were the lowest in nearly a year. 

Mortgage rates moved lower for the second straight day after rising moderately on Friday and Monday.  This brings the average lender to the second lowest levels in almost exactly 1 year.  The only day with lower rates was January 31st, 2019 (last Thursday). 

Yesterday was important in the sense that it helped make a case for a short-term ceiling in rates.  All bets were off as to where we might see such a ceiling after a round of strong economic data on Friday (stronger data tends to push rates higher).  Today is just as important as it confirms the resilience wasn't a fluke.  Granted, things can change quickly when it comes to financial markets, but it's currently easiest to make a case for sideways momentum for the time being.

Mortgage rates stabilized today, after moving higher somewhat quickly following several strong economic reports on Friday.  If you'd like to revisit the relationship between economic data and rates, we discussed it in greater detail in yesterday's coverage. 

Interestingly enough, today brought the week's most important economic report--ISM Non-Manufacturing.  This is the counterpart to the ISM Manufacturing report that caused problems for rates on Friday.  Today's non-manufacturing version came in weaker than expected, so from an economic data standpoint, it's no surprise to see rates improving.  

Mortgage rates continued moving higher today as Fridays unfortunate series of events seems to have motivated a big bounce.  What events are those?  Namely, we're talking about several important economic reports including the big jobs report and the most closely-watched manufacturing report from ISM.  These were joined by two other supporting actors (Consumer Sentiment and Factory Orders) to round out an entire morning of data that came in much stronger than expected.

But wait... why is strong economic data a bad thing?!