Mortgage Rate Watch
Mortgage Rates in a Holding Pattern

Mortgage rates were slightly higher today, marking the 6th day in a row where they've reversed course versus the previous day.  This is the sort of behavior we see when underlying financial markets are having a hard time making up their mind (or are simply waiting for something before committing to the next big move).

In the case of mortgage rates, the underlying financial market is the bond market.  There are specific bonds that most directly affect mortgage rates, but they are almost always moving in the same direction as other bonds anyway.  That allows us to use something like the 10yr Treasury yield to keep an eye on interest rate momentum.  There we see yields locked in an increasingly narrow range since the beginning of the year.

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Rates Are Better Today, But Not Back to 1-Year Lows

Mortgage rates recovered today after rising to the highest levels in a week as of yesterday.  The improvement followed a much-weaker-than-expected Retail Sales report--something investors have been waiting on for nearly 2 months due to the government shutdown. 

Retail sales comprise an important part of economic activity, and the economy is one of the biggest considerations for interest rates.  Generally speaking, economic strength pushes rates higher, all other thing being equal.  Thus, the unexpectedly weak retail numbers had the opposite effect. 

How big was the effect?  Not quite as big as most other media outlets would suggest.  

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Highest Mortgage Rates in a Week After Today's Move

Mortgage rates hadn't changed much over the past few business days, even though they arguably should have moved a bit higher yesterday.  That made today's adjustment slightly more abrupt. 

Why was there an adjustment?

Mortgage rates are based primarily on the trading levels in the bond market.  In turn, the bond market takes cues from a multitude of factors big and small.  Among the biggest considerations for bonds are the various regularly scheduled economic reports.  Among those reports, inflation data is traditionally very important to bonds.  And finally, among inflation data, today's Consumer Price Index is probably the most widely followed. 

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How The Shutdown Is Affecting Mortgage Rates

Mortgage rates were roughly unchanged yet again today, although the average lender was charging microscopically higher fees compared to yesterday.  The key ingredient in today's market movement (which ultimately translates to mortgage rate movement) was the promise of a deal to avert another government shutdown at the end of the week. 

Late in the day yesterday, congressional leaders on both sides of the aisle signaled a potential deal was in the works.  The fact that Trump didn't immediately dismiss the deal was taken as evidence of its viability.  This resulted in bond markets losing ground today, which normally coincides with higher rates.  It was also the inspiration for a good amount of today's improvement in stocks.

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Low Rates Unfazed by a Bit of Market Weakness

Mortgage rates held their ground fairly well today, despite the fact that underlying bond markets were weaker.  Bond market weakness is associated with higher interest rates, all other things being equal.  To understand this, consider that a bond is essentially a loan.  An investor who buys a bond is buying the right to collect interest payments on a loan.  That investor is effectively "the lender."  Ideally, those investors would compete with one another for the right to collect interest on loans.  If bonds are "weaker," it means those investors don't see as much value in buying those loans.  The price they pay to obtain the loan goes down (aka "weakness").  In turn, the loan's rate of return needs to be bumped up in order to attract investors.  And "bumping up the rate of return on a loan" is tantamount to "higher rates."

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