There isn’t much on the economic calendar this week, which means mortgage rates will likely print lower.
This differs from last week, when we were able to pack a ton of labor data into a holiday-shortened week.
The good news (for mortgage rates) is that the labor market has shown signs of weakness, although the reports were not bleak.
Still, it may be enough to keep the Federal Reserve from hiking again, which could be good for mortgage rates going forward.
If the situation in the Middle East continues as it should, everything could point to a low-6% or even sub-6% 30-year fixed rate again. But not overnight.
How Do We Get Mortgage Rates Again?
It seems that everything is going well, at least in terms of good news and data to lower loan rates.
However, they remain significantly higher compared to levels seen this spring when the popular 30-year default was below 6% for the first time since 2022.
If you remember, 2022 was the last year for the mortgage rate, which started that year in the low 3s before rising rapidly as QE ended and fears of inflation.
We made great progress with loan rates seen reaching 8% by late 2023, but then hit a roadblock when the unexpected Iran conflict erupted this spring.
Since then, mortgage lenders seem to be pricing defensively, and rightly so.
We saw the price of a barrel of oil rise to over $125 due to the closure of the Strait of Hormuz, before calming down after the peace deal was announced.
We now have oil prices at pre-war levels, which is good news for the economy.
But the adjusted 30-year is nowhere near its pre-war rate, when it comes to that 3.5-year just under 6%.
Is it just a matter of time? And if so, how long?
Elevator Up, Stairs Down for Real Estate Estimates
Unfortunately, it takes time to reverse rising mortgage rates. And it doesn’t happen overnight.
Even though all signs point to a recovery, mortgage lenders are in no rush to cut their rates.
Instead, they take a measured approach to ensure they are not caught off guard by another unexpected event.
The last thing they want is to be on the wrong side of a trade deal, so cutting prices too quickly, only to see another conflict erupt, or another jump in oil prices, keeps them on their toes.
And let’s be honest. It wouldn’t be surprising if there was another twist in the story.
There was a report of an attack on a British cargo ship in the Red Sea over the weekend.
In addition, navigation in the newly opened Strait of Hormuz is not business as usual, with “significant” risks remaining and mines reportedly in the middle of the waterway.
So expecting mortgage rates to suddenly return to those sweet levels in a matter of weeks is perhaps too optimistic.
We Need More Signs of Stability in the Middle East and the Broader Economy
Instead, those hoping to find lower mortgage rates should be patient and focus on the same trends we’ve seen in the past few weeks take hold.
Namely, continued peace in the Middle East and improved shipping flows in the region. And the low inflation reading that comes with it.
And hot or cool data readings to give the Fed a reason NOT to raise rates again.
Mortgage rates take cues from the Fed, although the federal funds rate is a short-term rate (an overnight rate in fact) and the 30-year is a well-planned, 30-year rate.
But Fed rate expectations still play a role and if MBS investors and banks/lenders see the rate hikes become less risky, mortgage rates could continue to slide back into the low-6s and possibly beyond.
Just don’t expect it to happen overnight. It may take a while.
Read on: Compare interest rates and payments quickly with my new mortgage rate calculator.
