Tag: Interest Rates

Mortgage rates moved lower today after starting the week by jumping noticeably higher yesterday.  Today’s gains came courtesy of global growth concerns early in the trading session and a strong 10yr Treasury auction during domestic market hours.  This morning’s mortgage rates weren’t too much better than yesterday’s, but several lenders offered mid-day improvements after the Treasury auction.  Lenders who held firm would likely improve tomorrow morning unless overnight market drama undoes today’s gains.

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 was no exception.

Mortgage rates moved slightly higher to begin the holiday-shortened week.  With Labor day being a bank holiday, mortgage lenders were closed yesterday despite much of the world remaining open.  Futures and overseas markets thus had some extra time to distance themselves from Friday’s latest levels.  In today’s case, that distance was in an unfriendly direction for rates.

The damage is minimal in the bigger picture.  On average, lenders are quoting the same rates seen last week, but with slightly higher closing costs today.  Most of the weakness in the underlying bond market is centered on US Treasuries as opposed to the mortgage-backed securities (MBS) that serve as the foundation for mortgage rates.  The Treasury-specific weakness is likely due to the presence of several big Treasury auctions this week in addition to heavy corporate bond issuance (which tends to hurt Treasuries more than MBS).

It was a busy week for economic data with several reports that were pertinent to the housing market. In addition to being the perennial top dog among economic reports, this Friday’s jobs report was especially important due to its role in the Federal Reserve’s decision-making process.

The Fed is widely expected to announce a forthcoming reduction (aka “tapering) of its bond buying program by the end of the year.  If the jobs report had been strong enough, investors thought the Fed might make the announcement a few weeks from now at the September policy meeting.  

Mortgage rates are based primarily on bonds.  Bonds take cues from economic data (among other things).  And tomorrow’s big jobs report is the most consistently important piece of economic data each month as far as the bond market is concerned.  This logically means that there is an increased risk of volatility tomorrow.

Compounding the issue is the fact that the Fed is also paying careful attention to labor market data as they wait for evidence of enough progress to begin tapering their monthly bond purchases.  The Fed’s bond buying program is a key reason that rates are as low as they are.  Although the market is widely expecting a tapering announcement by the end of the year, the timing of the announcement would have a noticeable incremental effect on rates.

Much like yesterday, mortgage rates were unchanged to slightly higher, depending on the lender.  And once again, the differences in pricing strategies depend on timing in conjunction with yesterday’s pricing decisions.  

Lenders who reacted to yesterday afternoon’s bond market losses by raising rates were able to offer flat to slightly lower rates today.  Every other lender was either flat to slightly higher.

As is often the case, we’re talking about incredibly small movements in the bigger picture (because mortgage rates don’t reliably move enough to be worth measuring in day-over-day terms).  Prospective borrowers are likely to see the exact same rate quotes as yesterday.  The only differences would be modestly higher or lower upfront costs.

Mortgage rates were unchanged to slightly higher today, depending on the lender.  The differences in pricing strategies stem from the timing of changes in the bond market. 

Mortgage lenders set their rates based on the prices of mortgage-backed securities (MBS), which change constantly throughout the day.  Despite those changes, there’s often enough stability for lenders to “set it and forget it.”  On days where MBS move more than normal, lenders can change their mortgage rate offerings in the middle of the day.

In today’s case, those changes were just getting to be too big to overlook right at the end of the trading day.  As such, only a handful of lenders opted to make any changes and even then, those changes were fairly small.

Mortgage rates drifted lower again today, with the average lender getting back down to the lowest levels since the first week of August.  In a general sense, today’s friendly rate momentum represented follow-through momentum after Fed Chair Powell soothed the market on Friday morning.

Both stocks and bonds improved as Powell said that he had been considering tapering the Fed’s asset purchase program this year, but the surge in covid cases due to the delta variant complicated the outlook.  The Fed’s asset purchases help rates stay lower than they otherwise might be and rates are expected to rise a bit when the Fed finally pulls the trigger on tapering.

All that having been said, the Fed’s decisions are ultimately dependent on economic data.  Specifically, the labor market needs to show that it can weather the various storm cycles of the pandemic.  To that end, there are several upcoming reports that can offer some clarity with this Friday’s jobs report being the most important.  In other words, even if the Fed doesn’t have anything new to say this week, an exceptionally strong jobs report could easily push rates back up. 

Mortgage rates stabilized today after moving higher at a moderately quick pace over the past 2 days.  To be sure, today’s rates are definitely higher than those seen at the end of last week, despite numerous headlines to the contrary. The headlines in question are based on Freddie Mac’s weekly rate survey which is published on Thursday morning, but tends to capture week-over-week rate movement between Monday and the previous Monday.  That ended up being a very favorable comparison this time around.  The rising rates of the past 2 days conclusively changed the game.

Why are rates rising though?  Rates are dictated by the bond market.  As bond prices fall, yields rise, and higher yields coincide with higher rates (indeed, “yield” is simply market jargon for “rate”).