Mortgage Rates [source: Mortgage News Daily]

Mortgage Rate Watch

Mortgage rates were already close to the highest levels in more than 20 years yesterday--an unpleasant milestone that was easily surpassed after today's Job Openings data came in much higher than expected. Interest rates are always dependent on the economy and inflation--sometimes more than others.  Even without the Federal Reserve, rates would still need to pay attention to these things and stronger econ data would still imply higher rates, all other things being equal. But the Fed's role as short-term rate setter only amplifies the volatility produced by key economic data.  This is especially true in recent months as the Fed reiterates a "data dependent" stance time and again.  It is also especially true for reports the Fed has specifically called out.  Today's report is one of only a handful. Job openings have been declining since March, and that's a good thing for rates, technically, but the decline hasn't been as quick as expected.  Then days like to day cast doubt on the decline.  Openings jumped to 9.61m from 8.92m previously.  They'd need to be under 8m for the Fed to feel that its policies were having the desired impact on the labor market (and thus, on inflation prospects).  Much of the rapid rise in rates over the past two weeks has been in anticipation of this week's economic data.  Traders were bracing for bad news.  Today delivered. And now the market is bracing for more of the same in the remainder of the week.  Risks are biggest on Friday morning when the Employment Situation (the bigger, more timely jobs report) comes out.
The average didn't quite make it back to the multidecade highs seen last week, but the average borrower would see little--if any--difference in today's rate quotes.  This represents a fairly big jump up from Friday (which saw a nice correction down from Thursday's highs). There are a few culprits--some specific, some general.  One specific culprit was the market's reaction to the stop-gap bill that averted the government shutdown. Another specific and more obvious culprit was the stronger-than-expected outcome in today's important manufacturing data.  Until that came out, the bond market (which dictates interest rates) looked poised to hold sideways with only moderate losses. Then there's the general motivation that drones on in the background.  This is the "higher for longer" rate theme that has been hitting the bond market in waves over the past two years.  The most recent wave began 2 weeks ago with the Fed's updated economic projections and rate outlook.  At the risk of redundancy, the Fed see's rates staying "higher for longer."  The bond market is increasingly forced to comply. There are several economic reports this week that are even more important than this morning's manufacturing data.  If these are weaker than expected, rates could come back down.  If they're stronger than expected, it would only reiterate the higher for longer narrative, almost certainly resulting in new multi-decade highs for mortgage rates. [thirtyyearmortgagerates]
It depends quite a bit on the lender in question, but at some point between yesterday morning and this morning, the average lender dropped rates at the fastest single-day pace in months. Before you get excited, there's a catch--two or three of them actually. The first catch is that some lenders split that improvement between yesterday afternoon and this morning.  The more general catch is that these sorts of "biggest drop in a long time" observations are almost always seen after rates have just surged to "the highest levels in a long time."  That's absolutely the case this time around. The third catch isn't too important. It involves a bit of deterioration in the bond market resulting in some lenders bumping rates slightly higher this afternoon.  The average lender is still in much better shape than yesterday morning (and much worse shape than most any other morning going back to June 2001).  Moving on from "catches" to plain old frustrating uncertainty, mortgage rates need new economic data in order to improve.  Specifically, rates would need to see less resilience and growth in the economy.  Frustratingly, the government shutdown (which looks likely if not certain as of this writing) would prevent several of the most important reports from coming out next week. Granted, if those reports had come out strong, they would push rates higher, but as it stands, we don't even have an opportunity for meaningful improvement.
The past few days have seen rates surge to new multi-decade highs with the average lender quoting 7.6+ for top tier conventional 30yr fixed scenarios. Not too much has changed today apart from the direction of the movement and the fact that modest gains weren't brutally dashed as the day progressed. In fact, most lenders updated rates  for the better at some point today as the underlying bond market improved.  The caveat is that the outright levels aren't much lower than yesterday's multi-decade highs. Nonetheless... longest journeys, single steps, and all that... Any time rates skyrocket--whether for a period of hours, days, or months--market watchers are on the lookout for a bounce.  Bounces come in all shapes and sizes.  In all cases, it only ever makes sense to take them one day at a time until a clear trend has been established.  Furthermore, that trend has to have backing from a clear shift in the economic data and Fed policy stance.   The current bounce is best measured in "hours" so far.  We're a long way from being able to say it represents some sort of ceiling for rates, but we can always hope this tiny sapling grows into a mighty tree as long as we remember that hope is no basis for a strategy.   Today was "nice."  If tomorrow is nice, that would also be "nice."  But it's a good time to remain skeptical and defensive until the niceness becomes overwhelming.
It's with no great pleasure (none of any kind, for that matter) that we find ourselves in a position to report, yet again, that mortgage rates have sailed decisively to another new multi-decade high.  Today's installment is fairly unpleasant given that the average lender actually began the day in slightly stronger territory only to be forced to increase rates at least once over the course of the day. As is the case any time rates start lower and are revised higher, the culprit is the underlying bond market.  Specifically, bonds started the day in stronger territory but ended up weakening significantly between 10am and 2pm ET.   Underlying reasons for that weakness are a matter of debate and confusion.  Some point to comments from Fed speakers or a delayed reaction to economic data, but there are good reasons to be skeptical of both explanations.  One of the only things that can't be disproven right now is the sense that the entire bond market has acquiesced to the notion of interest rates being "higher for longer" and simply can't reach the "higher" destination all in one go.   In other words, the market believes the Fed and it sees the value in being cautious ahead of next week's important economic data.  Traders have apparently decided it's less painful to err on the side of higher rates and be forced to buy more bonds in the future (buying = lower rates, all other things being equal) than to be caught on the wrong side of the "higher for longer" trade yet again. 
In terms of day-over-day changes, today's mortgage rate movement was forgettable.  The average borrower wouldn't see much of a difference from yesterday's rates at the average lender.  In both cases, those rates would be at or near the highest levels since 2001. The underlying bond market experienced a bit more drama.  The early morning hours actually pointed to slightly lower rates, but those dreams were shattered by lunchtime.  Bonds had already lost a decent amount of ground by the time mortgage lenders released rates.  This kept lenders in a more conservative mindset, but several lenders were still forced to bump rates slightly later in the day as bonds lost more ground. Best case scenario rates remain near 7.5%, but many scenarios are seeing rates closer to 8%.
The average lender was already very close to multi-decade highs for 30yr fixed mortgage rates last Thursday afternoon, but a modest recovery on Friday meant that there was a chance we could have avoided printing today's headline this week.  Unfortunately, the bond market started the day in rough shape and continued to lose ground throughout.   At the time that most mortgage lenders released today's initial rate offerings, last Thursday was still worse.  It wasn't until several lenders released negative/upward revisions to rate sheets that we officially crossed above the multidecade ceiling. For the average lender, a top tier 30yr fixed rate is now over 7.5% for the first time in at least 22 years.  The average borrower (not "top tier") is seeing rates that are even higher.  This assumes an adjustment for discount points.  Many loans are being quoted with points currently, and in those cases, the note rate would be a bit lower.  Frustratingly, there were no compelling new motivations for the bond market weakness.  Negative momentum has been more of a snowball than a calculated decision over the past few business days.  It may be hard for rates to muster much of a counterattack without a meaningful, negative shift in economic data.  
Mortgage rates actually recovered a bit on Friday as the underlying bond market experienced a modest correction after spiking to the weakest levels in more than a decade over the past 2 days.  Despite the improvement, mortgages are also still near multi-decade highs.  Why is this the case when the Fed didn't hike rates this week? This counterintuitive movement is fairly common when it comes to the 8 Fed meetings each year.  Rates have fallen on several occasions when the Fed hiked throughout this rate hike cycle.  There are several reasons this can happen.  Some are complicated, but two of the simplest reasons are all we need this time around.  First off, the Fed only has 8 scheduled opportunities to update rates every year while the bond market has thousands of opportunities every day. Because of that, a Fed rate hike is often just a lagging development that the market has already priced in.  The Fed actually tries to avoid surprising the market when it comes to hikes/cuts.  Via speeches and press conferences, it effectively preps the market for potential changes.  The market can trade these expectations in a variety of ways.  The most direct is via Fed Funds Futures, which give traders a way to bet on the level of the Fed Funds Rate on any given month well into the future. Traders haven't budged in their expectation of this week's meeting resulting in a 5.375% Fed Funds Rate for  months!
Rates moved only moderately higher on Wednesday after the Fed rocked the bond market with its updated rate forecasts.  To reiterate yesterday's analysis, it's not that the market is expecting the Fed to be accurate in those forecasts.  Rather, the forecasts help investors understand how the Fed's approach will be calibrated going forward. In simpler terms, the Fed doesn't think rates are too high right now.  If anything, they might need to go higher.  Moreover, they won't go lower until economic data really starts to deteriorate in a compelling way.  Unfortunately, this morning's most relevant economic report didn't deteriorate at all (weekly jobless claims were 201k versus a median forecast of 225k).  Actually, it's fortunate for the economy, but unfortunate for interest rates.   Between the data and the overnight momentum in overseas markets, bonds are at their weakest levels in years.  Mortgage-backed securities (the bonds that dictate mortgage rates) didn't swoon quite as much as Treasuries, but as of today, it was just enough to push the average mortgage lender almost perfectly back in line with the highest 30yr fixed rate of the past 23 years. 
The Fed did not hike its policy rate today, but it did release updated forecasts that showed the average Fed member expects rates to be half a percent higher at the end of 2024 and 2025 compared to their forecasts released in June. The market was expecting a higher average forecast, but not that high.  The result was broad bond market weakness.  While that weakness was concentrated in the shortest-term bonds, longer-term rates (like those for mortgages) also took a hit. The inspiration for that weakness should not be confused with the Fed announcement itself or the press conference with Fed Chair Powell afterward.  As always, there are many comments that can be singled out as having an impact, but the only truly new and surprising news was in the updated forecasts. Notably, these forecasts can be wildly inaccurate.  The Fed knows this.  The market knows it.  But the market is only relying on the forecasts to measure the Fed's attitude toward its rate-setting policy--not to accurately predict actual rate levels.  Bottom line: the Fed continues choosing to talk tough on the rate outlook and the market has no choice but to comply.  This will only change when the economic data looks gloomy enough to soften the Fed's stance. In context, today's mortgage rate increase wasn't extreme.  In fact, the day began in slightly better territory and only went higher after lenders changed rates in the afternoon.  Versus yesterday afternoon, the change is minimal in the bigger picture.  We're still not back to the long term highs seen at the end of August.