Mortgage rates began the day in uneventful fashion with the average lender right in line with yesterday's latest levels. Things might have gotten off to a slightly better start, but higher inflation in this morning's econ data and discouraging war-related headlines put upward pressure on bond yields (yields and rates are technically the same thing and they move in the same direction). The bulk of the day remained uneventful but that changed abruptly at 1:30pm when news circulated that Trump cancelled today's planned air strikes and said that both sides had approved final details of a permanent ceasefire, and that a time/place of a deal signing would be announced shortly. Markets reacted swiftly with stocks rallying, oil falling, and rates dropping. Mortgage lenders prefer to set rates only once per day, but they will make mid-day changes if the underlying bond market makes a big enough move. Today's was easily big enough, and a vast majority of lenders made friendly revisions to their daily rate offerings in short order. The net effect brough the average lender to the lowest levels since last Thursday.

There's been remarkably little change in mortgage rates so far this week. Monday saw a modest increase vs Friday, but since then, there's been essentially no change. Today's rates were technically 0.01% lower than yesterday's, but many lenders were perfectly unchanged. This is an acceptable result given the presence of high stakes economic data and ongoing war related headlines. The data in question was the Consumer Price Index (CPI), an inflation report that occasionally causes significant volatility for rates. Today's CPI (for the month of May) came in right in line with expectations, and slightly lower than expected when excluding food and energy prices. It seems to bear repeating that when CPI comes in lower than expected or lower versus the previous month, this rarely means that prices are falling. Rather, prices simply didn't go up quite as much as last month, but they're still rising at an unacceptably quick pace. Fortunately, rates get in position for forecasted results. Thus, the data merely needs to align with forecasts to avoid causing volatility.

Mortgage rates put an end to the most recent spike that followed last Friday's jobs report. Most of the upward movement happened on Friday, but yesterday offered a modest aftershock. Those two days brought the top tier 30yr fixed rate up to 6.68 from 6.58 on Thursday. Today's average remained perfectly flat at 6.68%. War-related headlines had periodic impacts on both oil prices and the bond/rate market. The scariest moment of the day for rates followed a headline that Iran had shot down a U.S. helicopter. Trump posted that the U.S. must respond to that attack, but subsequent comments minimized the initial sense of urgency. Oil prices definitely bounced higher on the news, but bonds/rates were able to hold their ground without forcing mortgage lenders to raise rates in the afternoon. Tomorrow brings the Consumer Price Index (CPI), which is the earlier of the two official government inflation reports on consumer-level prices. The market is already priced for the median economic forecast, as always. If the actual numbers come in much higher or lower than those forecasts, it could cause volatility for rates in either direction (i.e. higher inflation = higher rates and vice versa).

The average top-tier 30yr fixed mortgage rate rose 0.08% last Friday after the jobs report came in much stronger than expected. Today added another 0.02% of upward movement. Today's level of 6.68% is the 3rd highest of the past 9 months. Unlike Friday, there were no big-ticket economic reports driving volatility in rate markets. The only arguable cause and effect was seen earlier in the morning surrounding war-related headlines. These actually helped rates start the day lower than they otherwise would have. As the week continues, investors will remain tuned in to war-related developments as well as an important inflation report on Wednesday morning (the Consumer Price Index or "CPI"). 

Over the past three months, mortgage rate movement has been driven primarily by developments in the Iran war. It's not that war, itself, is a consideration, but rather the implications for fuel prices and inflation. Bonds care deeply about inflation and interest rates are based directly on bonds. When inflation isn't raging (or at the risk of raging), rates/bonds spend most of their time thinking about the economy. Lately, the data has been even-keeled enough that it hasn't had enough of an impact to override the war's inflation-related volatility, but today was an exception. The jobs report not only crushed expectations, but it revised the past 2 reports sharply higher as well. The net effect is that the labor market looks more like it's finding its footing (possibly even accelerating) and less like it is still in the downtrend that characterized the post-covid normalization.  If all that was confusing, here's the simple version. More people got jobs than expected and the market didn't like it because it removes any argument in favor of the Fed cutting rates. Fed rates don't equal mortgage rates, but Fed rate expectations for the future cause mortgage rate movement in the present (and Treasury movement, and stock market movement, etc.).  On a bright note, even after today's rout, the average lender remains under the highs seen on May 19th. The Iran war is still the most important input for rates, and a confirmed peace deal would still provide relief.