Mortgage rates managed to hold relatively steady today after moving higher at their fastest pace in over a week yesterday. Incidentally, they also hit their highest levels in more than a week as well. In the bigger picture, the changes have been relatively small. The underlying bond market is catching its breath after an impressive surge toward lower rates throughout August.
Some market participants think the next noticeable wave of momentum will begin tomorrow after Fed Chair Powell speaks at the annual Jackson Hole symposium. Like many potentially important communications from the Fed, this one has plenty of POTENTIAL to cause a stir, but is by no means guaranteed to do so. If it does, the risks are tilted toward rising rates as opposed to a quick return to recent lows. Importantly though: both scenarios are possible and entirely dependent on what's said.
Mortgage rates moved higher today, and it had nothing to do with any of the day's events or news headlines. Quite simply put, the bond market (which dictates the rates that can offered by lenders) had already begun to weaken as of yesterday afternoon. Weakness continued overnight as global financial markets dialed back their demand for safe havens.
In market terms, a safe haven is generally a lower rate of return with a higher guarantee of the return remaining stable. Fixed rate government bonds from financially solvent countries are a classic safe haven. And no matter what you've heard in the news, the US mortgage market is also squarely in the safe haven camp. The only major risk associated with mortgages as far as investors are concerned is how long the mortgage will last. That uncertainty surrounding cash flow time-frames means mortgage rates are higher than Treasury yields with comparable life-spans.
Mortgage rates held steady today, for the most part. If there was a leaning, it was toward slightly lower rates, but not by a wide enough margin to be significant. At first glance, holding steady at the lowest levels in nearly 3 years is great! In fact, it's still great at second glance. But the more information we consider, the more we may wonder why they're not lower. Reason being: 10yr Treasury yields (which often move in the same direction as mortgage rates and by similar amounts) are noticeably lower today! So why aren't mortgages following?
Mortgage rates mostly held steady today, despite a move higher in broader interest rate indicators like the 10yr Treasury yield. Treasuries and mortgage rates typically track each other quite well, but that relationship has broken down in recent weeks due to the rapid drop in rates and the increase in volatility. The mortgage sector has a much tougher time adjusting to new realities compared to Treasuries.
In other words, mortgage rates haven't been able to move lower nearly as quickly (though they have still managed to hit their lowest levels since 2016). The upside to that problem is that we get days like today where Treasury yields rebound without significantly damaging mortgage rates. In fact, many lenders are offering the same rates seen on Friday.
Things have been weird enough for mortgage rates recently that we were forced to add a "Temporary Note on Mortgage Rate Inconsistency" to our daily coverage recently. It will likely return before too long, but with a few edits for clarity. Edits will also need to account for days like today, which offered a prime example of how the inconsistency can be corrected.
There's a decent chance those first 3 sentences are confusing and/or relatively meaningless, so let's change that!
Mortgage rates aren't the only rates out there. They exist in an ecosystem with more established players like US Treasury yields. They move so much like Treasury yields that even very smart people mistakenly believe Treasuries (specifically, the 10yr) dictate mortgage rates. Recently though, mortgage rates have moved in the opposite direction from Treasuries at times, or simply haven't fallen remotely as much as past precedent would suggest....(read more)