Mortgage Rates [source: Mortgage News Daily]

Mortgage Rate Watch


Mortgage rates began the week with a modest move back up and over the 7% threshold, but managed to erase some of those losses today.  The improvement followed this morning's Retail Sales data which came out weaker than expected. Mortgage rates are based on trading levels in the bond market.  Bonds pay attention to multiple cues at any given time.  Major economic reports are always among those cues as the health of the economy tends to coincide with rates (i.e. stronger = higher).  Retail Sales isn't as big of a report as the Consumer Price Index (CPI) or The Employment Situation (the jobs report), but it's a respectable supporting act.  Sales growth was surprisingly high in the data that came out in March and April.  May's report showed a correction back to 0.0% growth.   Today's report came in just barely positive at 0.1--a far cry from the 0.6 level 2 months ago and below the median forecast of 0.2.  In addition, it included a revision to May's report from 0.0 to -0.2.  All told, it painted a less upbeat picture for the American consumer compared to a few months ago. A slower economy is less able to sustain higher interest rates for a variety of reasons--not the least of which being the suggestion of slower price growth.  With that, bond traders bought more bonds, thus pushing bond prices higher and yields (aka "rates") lower.  Tomorrow is a market closure for the Juneteenth holiday.  Trading resumes on Thursday but we'll be waiting until the end of next week for the next round of big ticket economic data.
Mortgage rates moved modestly higher to start the new week.  With the average top tier 30yr fixed rate just under 7% on Friday, this meant a move to just over 7% today.   As always, keep in mind that a mortgage rate index is best used to capture the day to day  movement in rates as opposed to outright levels.  The latter can vary significantly depending on credit score, equity, occupancy, discount points, and lender margins. There weren't any interesting or compelling developments driving today's bond market movement (bonds dictate mortgage rate momentum).  It was an uninspired, uninteresting Monday without any significant economic data or bond market volume.  Things should be more interesting tomorrow, for better or worse, due to the release of the Retail Sales data at 8:30am ET.  While this isn't in the same league as the jobs report or the Consumer Price Index, when Retail Sales come in much higher or lower than forecast, there's often a noticeable reaction in rates.
Today saw the average conventional 30yr fixed rate rise ever so slightly for top tier scenarios.  Most lenders are still quoting those scenarios just under 7%.  Depending on the specific details of any given scenario, rates range from the mid 6's all the way up to the mid 7's.  Unlike each of the past two days, there weren't any major flashpoints for the bonds that underlie mortgage rate movement today.  There were a few economic reports, but neither had a big impact on the market.  All in all: a very calm and boring day--especially compared to almost any other day since last Friday. From here, the market will wait for the next big ticket economic report: Tuesday's Retail Sales.  There are a smattering of other reports next week, punctuated by a holiday closure on Wednesday for Juneteenth. The biggest, most significant movement likely still depends on the economic reports that we just saw and won't see again for nearly a month.  It wouldn't be a surprise to see a more sideways, slightly choppy trend between now and then.
You'd have to go back to March 28th to see the average mortgage lender offering a lower rate on a top tier, conventional 30yr fixed scenario than they're offering today.  The same was technically true yesterday and today's rates were just a hair lower. That said, some lenders have done things differently over the past 24 hours due to yesterday afternoon's market volatility.  Bonds lost enough ground after the Fed announcement for some lenders to reissue rates at slightly higher levels.  Those lenders were noticeably improved this morning, but not much better than yesterday morning's levels. Today's helpful data included another friendly reading on inflation--this time at the wholesale level as opposed to yesterday's consumer-level report.  In addition, Jobless Claims rose to the highest levels since last summer.  Weak economic data is generally good for rates, but the claims data raised questions about seasonal distortions.  This is the same timing as last year's uptick in claims, which suggests the seasonal adjustment factors might not be perfectly dialed in for an evolving labor market. For this and several other reason, the bond market will be reluctant to push rates lower at a fast pace until traders can be sure the data is confirming a bona fide economic shift in addition to a high likelihood of a return to 2% annual inflation at the core level.
It was an incredibly high consequence day for the bond market and, thus, mortgage rates due to the confluence of two extremely important events. The first event was the monthly release of the Consumer Price Index (CPI), which is one of the two economic reports with the far more power to influence interest rates than any other.  The other report is the big jobs report that came out last Friday.  As much as the jobs data hurt, today's CPI helped.  It brought the average top tier 30yr fixed scenario down under 7.0% by a hair--one of the biggest single day drops in months. The good times lasted, but they got less good after the afternoon's Fed announcement.  To be precise, it wasn't the announcement itself, but rather the Fed's updated rate projections that did most of the damage.  After the last round of projections (in March) showed 3 rate cuts in 2024, today's only showed 1.  This wasn't too terribly different from what the market expected, but it was slightly more conservative than hoped.   At the very least, traders didn't find anything in the projections nor in Fed Chair Powell's press conference to suggest that the good times should keep on rolling after already having been so good in the morning hours.  Bonds ultimately retraced about half of their gains and several mortgage lenders had announced late-day rate increases by 4pm Eastern Time.   Lenders who didn't bump rates a bit higher this afternoon would need to account for the bond market movement in tomorrow's rate offerings, assuming the bond market doesn't move too much overnight or early tomorrow morning.
Today's mortgage rates were fairly close to yesterday's at the average lender for the 3rd business day in a row.  Friday was the last day with any substantial movement when rates spiked following the upbeat jobs report.  Since then, the average lender has only moved by 0.01% on each of the past 2 days. The absence of movement made better sense yesterday.  Rates are based on trading levels in the bond market and bonds ended the day very close to Friday's levels.  It's a bit harder to reconcile today given that bonds did quite well--especially after the auction of 10yr Treasury notes at 1pm Eastern time. Mortgage rates are often discussed against a benchmark of a 10yr Treasury yield.  The two tend to move in the same direction by generally similar amounts.  10yr Treasury yields are 0.07% lower today and the average mortgage rate is only 0.01% lower at the time of this writing.  What's up with that? First off, Treasuries tend to see bigger upsides and downsides when bonds are reacting to a Treasury auction.  Timing is also a factor with the auction happening late in the day.  Several mortgage lenders have already revised their initial rates lower in response, but the improvements won't be captured in our rate index until tomorrow. That brings us to another issue: tomorrow is a potentially crazy day for better or worse.  Well before mortgage lenders publish rates for the day, the Consumer Price Index (CPI) will be released for the month of May.  It has more power than any other economic report to push rates higher or lower, depending on the outcome.  Anticipation of that volatility could also have mortgage lenders feeling less like making any last minute changes.
There's been a noticeable uptick in mortgage rate volatility over the past two weeks with a quick spike at the end of May, a nice drop in early June and then another spike last Friday following the jobs report.  Of course everything's relative, so in objective terms, it was roughly a 0.30% round trip for conventional 30yr firxed rates.   Today's move is microscopic by comparison with the average lender only 0.02% higher from Friday.  That's not too surprising considering the lack of actionable data on the calendar for bond traders (bond market movement drives day to day mortgage rate movement). All that is about to change.  The event calendar ramps up quickly from here and Wednesday will be the most important day of the month due to the release of pivotal inflation data and an updated rate announcement and outlook from the Fed.  While there's no chance of a rate cut or hike at this meeting, we should get more clarity on the Fed's interpretation of the very latest trends in inflation.
There's a strong case to be made for the fact that interest rates had a sunny predisposition this week.  In practical terms, that simply meant giving more credence to rate-friendly news and trying harder to overlook unfriendly news. But the predisposition was put to the test in a major way with the week's most significant economic report today.  Nonfarm Payrolls (NFP) is the headline component of the Labor Department's Employment Situation report.  There are many reports that pertain to the jobs market, but this one is infinitely more important than the rest and this time around, NFP came in much higher than expected. While the chart of nonfarm payrolls looks range-bound, and while the job count has been much higher in the past few years, Friday's result of 272k represented an uncommonly large "beat" versus the median forecast of 185k, and a big jump from the previous reading of 165k. A move like this makes it seem like the labor market is too resilient to offer much help to the inflation problem (more jobs, more money, more spending, etc.).  Finally, the bond market's sunny outlook saw a cloud too big to ignore. With that, mortgage rates had their first (and only) motivation of the week to move higher.  But the chart above also illustrates the silver lining.  Specifically, even though rates jumped on Friday, they're not even halfway back to last week's highs, let alone the higher highs seen at the end of April.  Part of the justification for such resilience is that the bond market will defer to inflation data (and the Fed's interpretation of it) above all else in deciding how worried to be about impediments to lower rates.
The outcome of certain economic reports will determine whether the next big move in interest rates is higher or lower.  Two reports are more important than all others in that regard and we'll get both of the them by next Wednesday. Tomorrow's jobs report is the more pressing matter.  It may not be quite as important as next Wednesday's Consumer Price Index (CPI) these days, but it has plenty of power to make or break the day for rates. Today's data was far less consequential by comparison and bonds coasted sideways after a very respectable winning streak over the past 5 business days.  Bonds dictate day to day movement for interest rates.  As such, today's mortgage rates were unsurprisingly right in line with yesterday's. 
The phrase "data dependent" is ingrained in the current bond market psychology for good reason.  Weaker trends in economic data will reliably cause the Fed to cut rates when the time comes.  This is particularly true for inflation-related data, but other reports still matter.  One of those reports came out this morning, but things didn't go according to the data dependent script--at least not at first glance. The Institute for Supply Management (ISM) publishes a monthly index on the health of the services sector called the PMI (purchasing managers index).  Apart from the highest of the top tier economic reports, ISM PMIs are some of the most relevant considerations when it comes to data that moves the rate market. Today's Services PMI was HIGHER than expected, and not by a small margin.  This is something that would normally be  bad for rates .  Indeed, that was the bond market's initial reaction, but the first move quickly gave way to a rebound that resulted in even lower rates by the end of the day.  As for the rationale, it could have something to do with a component of the report that showed slightly lower price pressures versus last month.  Combine that with the same message in ISM's manufacturing PMI earlier this week, and the market could be hoping that next week's all important Consumer Price Index (CPI) sings a similar tune.   The average mortgage lender moved one step closer to the lowest levels since early April, but there still a few days in mid May that were microscopically better.