Tag: Interest Rates

By the end of last week, mortgage rates moved up to match their highest levels in 2 months.  After a modest recovery yesterday, today’s rates are little-changed. 

As is often the case when examining day-to-day rate changes, we’re talking about relatively small movements in the bigger picture.  The average mortgage seeker would likely be seeing the same “note rate” on almost any day in more than a month now.  In the most extreme circumstances, the change would be limited to 0.125% (typically the smallest increment separating different rate offerings for most lenders).  When the bond market doesn’t justify an entire eighth of a percent, lenders make adjustments via upfront costs/credits.  In this way, the “effective rate” is changing every day even if the “note rate” is not. 

Mortgage rates ended the week at the highest levels in roughly 2 months as investors moved to the sidelines ahead of next week’s Fed announcement.

In other words, investors sold bonds (among other things) and in the bond market, selling pressure means lower prices and higher rates, all other things being equal. 

Despite the poor finish, things started out well enough.  The Consumer Price Index (CPI), a key inflation report, came out lower than expected on Tuesday.  With inflation being an important consideration for the bond market at the moment, the reaction was obvious.  Unfortunately, it was also short-lived.

Mortgage rates moved higher again today, bringing the average lender to the worst levels since last Thursday.  There are a few exceptions to that due to recent regulatory changes.  Specifically, many lenders made improvements to loans for 2nd homes and investment properties.  That’s the short version.  If you need to background, here’s the long version.

The average loan scenario was unaffected by the regulatory changes and thus was free to react to the day’s bond market weakness.  Bonds responded immediately to a pair of economic reports that came in much stronger than expected this morning.  In general, stronger data pushes bond prices lower and yields (aka “rates”) higher.  

Mortgage rates began the day with promise.  Actually, it was the underlying bond market (which largely dictates mortgage rates) was sending promising signals by apparently building on the bigger improvements seen on Tuesday.  This is exactly what mortgage lenders needed in order to feel comfortable setting rates at even lower levels.

Unfortunately, not long after the day began, bonds started losing ground.  For more than a few lenders, the intraday losses were enough to prompt mid-day reprices (meaning that the initially-offered mortgage rates were replaced by slightly weaker terms.  

A mid-day reprice may or may not be a big deal depending on your perspective.  In most cases, the “note rate” for your mortgage quote will remain the same and only the upfront costs will change.  In even less threatening cases, lenders simply eat the difference as it’s not worth the operational trouble of an official rate change.  Today’s version was on the less threatening end of the spectrum, but nonetheless reinforces the recent sideways momentum in rates and argues against a friendly break toward a lower range.

Mortgage rates started the day modestly lower, but many lenders ended up offering mid-day improvements in response to market conditions.

When it comes to rates, the bond market sets the tone.  Bonds can move for a variety of reasons, but economic data is one of the quintessential inputs.  If the incoming data suggests a hotter economy or higher inflation, rates tend to rise.   The opposite is also true (weaker data = lower rates) as was the case today.

The Bureau of Labor Statistics released the Consumer Price Index for the month of August today. 

Mortgage rates were fairly flat to start the new week.  This leaves the average lender in the high 2% range for top tier conventional 30yr fixed  scenarios (i.e. 20%+ equity, 740+ FICO, owner-occupied, single-family, detached homes).  This is just a bit higher than the all-time lows seen at the beginning of the year when rates were in the mid-2% range.

There’s disagreement about where we go from here.  The easy answer–and probably the more common one–is that rates will gradually move higher as we continue to distance ourselves from the worst days of the pandemic.  But that answer actually implies its own counterpoint: a lot depends on covid!  Specifically, if the delta-driven case count spike doesn’t quietly subside, and more importantly, if cases accelerate into the fall months, rates could remain in this all-time low territory.  Moreover, if covid ends up translating to new, measurable economic damage, rates could even re-challenge previous lows.

Rates are dictated by the bond market and bonds are flashing a warning sign about volatility on the horizon. In other words, rates look like they’re ready to make a bigger move in the near future, for better or worse.

This isn’t readily apparent at first glance–especially when it comes to mortgage rates (which are still very close to all-time lows).  Even when we look at a rate benchmark like 10yr Treasury yields, it seems that volatility has died down recently. 

But the absence of volatility is actually the problem.  Rates had been moving decisively higher early in the year as vaccines and fiscal stimulus fueled hopes of a quicker economic recovery.  More recently, political gridlock and the delta-driven surge in covid cases took 10yr yields back in the other direction. 

Mortgage rates moved lower again today, with many lenders making it back to the levels seen after last Friday’s jobs report.  In week-over-week terms, rates were still decidedly higher at the beginning of the day.  It wasn’t until the afternoon’s 30yr bond auction that the entire bond market improved enough for mortgage lenders to offer mid-day reprices.  A similar pattern played out yesterday.

Why do Treasury auctions matter to mortgage rates?  Treasuries and MBS (mortgage-backed securities–the bonds that most directly affect mortgage rates) are both part of the bond market.  They correlate quite well for a variety of reasons (not the least of which being that Treasuries are the risk-free starting point against which every dollar-denominated bond investment is measured).  As such, when Treasuries have a good day, MBS (and thus, mortgage rates) tend to have at least a decent day.  Today (like yesterday) was no exception.