You can imagine that oil is around $100 a barrel and another jobs report says we’re going to have higher mortgage rates.
Instead, they continue to fall and extend a nice little rally this week.
It seems strange since both inflation from high oil prices and hot jobs tend to lead to high interest rates.
The reason why they seem to defy expectations is because these two things are not seen as permanent trends.
Instead, they are treated as blips in a larger story that points to slow growth, weak performance, and the end of the war.
Mortgage Rates Feel Like a Headscratcher Lately
Mortgage rates can be very complicated. There are many forces at play that determine whether it goes up or down.
Factors include inflation, labor, mortgage-backed securities (MBS) supply and demand, and many other drivers.
In normal times, things like inflation or a hot job report lead to higher mortgage rates.
The opposite is also true. When unemployment rises or inflation falls, mortgage rates typically fall.
Lately, it’s been kind of confusing because we’ve had $100+ oil because of the conflict in the Middle East.
And a series of “hot” jobs reports, including the ADP report on Wednesday and the BLS report today.
Both were beats, which in normal times would lead to higher loan rates. Especially if you have expensive oil.
Instead, mortgage rates continue to fall, as if ignoring both of these issues entirely.
Everyone thinks oil prices are going to drop and labor is going to go down a lot
The simple explanation is that bond traders and MBS investors believe that oil’s high prices and hot performance are past their prime.
Simply put, they are not seen as long-term trends. They are considered to be temporary problems that will soon disappear.
Therefore, they look beyond themselves and continue to hold the belief that the workforce will crack and that inflation will continue to moderate.
That is to benefit the rates of the loan otherwise.
So if you’re currently buying a home or looking to refinance your mortgage, be grateful.
Things could be worse. Mortgage rates can be on the other side of 6.50% and higher.
Instead, they sit near the low end of the 6% range, and only sit about half a point above the 3.5-year low.
That’s pretty good in the grand scheme of things.
Just one caveat. If everyone suddenly decides that expensive oil isn’t temporary, or that jobs aren’t really that bad, mortgage rates may go up again.
Personally, I still think that’s possible, even though I’m looking at low mortgage rates because the housing market needs them badly.
