This week's mortgage rates are hard to compare to last week's.  There are two simple reasons for this.  The first is the recent removal of the adverse market fee that artificially increased rates for refinance transactions starting late last summer.  The second is the general strength in the bond market compared to last week.  Mortgage rates are, after all, based on trading levels in the bond market with higher prices (or lower yields) coinciding with lower rates.  Bonds aren't doing quite as well as they were doing on Monday, but because lenders didn't rush to drop rates as much as the bond market allowed earlier in the week, they haven't had to dial things back as much as bonds would suggest over the past 2 days.

Now today, bonds are improving once again, albeit only slightly.  Still, the fact that improvement is even on the menu when bonds are operating in their best range since February is impressive.  The average mortgage lender isn't offering quite the same rates seen on Tuesday morning, but they're close.  Moreover, apart from the past few days, we'd have to go back to February to see anything nearly as low.

There are two pieces of big news for mortgage rates over the past few business days.  The first arrived last week in the form of the removal of the adverse market fee that artificially increased rates for refinance transactions starting late last summer.  The second arrived yesterday in the form of an impressive improvement in the bond market (bonds are the primary source of motivation for mortgage rates).  This friendly double whammy pushed the average lender easily into the lowest rate range since early February with conventional refinance quotes once again coming in under 3.0% in best-case scenarios.

It remains to be seen how long we'll be able to enjoy these rates.  Today's bond market volatility offered a warning.  The first few hours of trading were actually stellar, with bonds improving to significantly better levels than yesterday.  This was actually partly responsible for this morning's rates being even lower than yesterday's.  Then, in less than 2 hours, all of those gains were gone, and mortgage lenders were issuing negative reprices early this afternoon.  Granted, rates are still stellar, even after those mid-day price changes, but the intraday volatility is a reminder that rates can move in two directions.

It was big, bad news when it came out last summer.  Almost a year later, the 50 basis point "adverse market fee," which affected a majority of refinance mortgages has been eliminated!

Backstory

In early August 2020, Fannie and Freddie (who collectively buy or guarantee a vast majority of all mortgages) announced that virtually all conventional refinance loans would be subject to a new fee of 0.50 points (e.g. an extra  $1500 upfront on a $300k loan, or a 0.125-0.25% increase in rate).  

After much protest, the implementation of the fee was delayed at the end of August.  Lenders ultimately began adding it back into rate sheets en masse by mid September.  All of the above can be seen in the following chart which shows the effects on average daily rates.

Mortgage rates fell again today as the bond market continues to enjoy surprisingly strong levels over the past 2 weeks.  That strength was not always a given as rates were actually moving higher from Friday through Tuesday.  Since then, however, they've been falling back toward the recent lows seen on Thursday, July 8th.  "Toward" is the operative word there as the average lender is definitely not yet any lower than that.  

In other words, mortgage rates may be lower today, but they're better described as "flat to slightly higher" in week-over-week terms.  This is in contrast to Freddie Mac's weekly rate survey released this morning, showing a 0.02% decline on the week, but as always, Freddie's survey methodology means we're not really looking at Thursday vs Thursday.  Instead, Freddie's rate tends to capture the change in rates from the first business day of any given week to the first business day of the following week.  

Mortgage rates moved higher yesterday after a poorly-received 30yr bond auction (read more...).  The bond market began to heal in the overnight trading session.  By the time US traders clocked in this morning, more than half of the weakness had been erased.  As the day progressed, things have only improved.  All this despite another hotter-than-expected inflation report (something that traditionally puts upward pressure on rates) to kick off the day.

While inflation is indeed bad for rates, all other things being equal, there are several caveats at the moment.  The first is that the current inflation spike is well understood as being driven in large part by covid-related supply chain disruptions, even if the boundaries are not easy to predict in the short term.  Everyone hopes or expects the inflationary surge to be temporary and markets are trading accordingly--for now.  

Mortgage rates are coming off a solid performance last week after having moved to the lowest levels in 5 months by Thursday afternoon.  This week is shaping up to be a bit different, however.  In fact, as of this afternoon, the average lender has lost most of last week's improvements.  

What's behind the volatility?  

There are both general and specific considerations.  In a general sense, last week's bond market gains (stronger bonds = lower rates) were perhaps a bit overdone.  They set the stage for a potential correction purely for technical reasons.  In other words, nothing new or notable changed after last Thursday to push rates back up--at least not until today.

Even though rates rebounded to slightly higher levels on Friday, the week generally brought pleasant surprises as the mortgage market returned to levels not seen since February.

Back in February, we were passing through the present rate range on the way UP, and there were few--if any--reasons to think we'd return to those levels if underlying trends continued.

Specifically, covid case counts have continued to fall and are roughly as low as they've been since the start of the pandemic. Economic data has been volatile, but generally stronger in 2021 than most economists expected.  Inflation metrics have been running hot (inflation is bad for rates). And the Fed has increasingly talked about dialing back its rate-friendly bond-buying programs.

With yesterday's mortgage rates already near longer-term lows, all it took was a modest improvement for today's rates to officially hit their best levels since February.  The strong move in the bond market (which dictates rates) was more than enough.   

Back in February, we were passing through the present rate range on the way UP, and there were few--if any--reasons to think that we'd return to those levels given the present realities.  Specifically, covid case counts are roughly as low as they've been since the start of the pandemic.  Economic data has been strong.  Inflation metrics have been running hot (inflation is bad for rates).  And the Fed is increasingly talking about dialing back its rate-friendly bond-buying programs.

But as is always the case, markets were trying to price in as much of the future as possible when rates were rising, and now they're trying to get ahead of the next move (the one where the rising rate trend cools off).  In fact, they've been doing that for several months now, based on the knowledge that friendly Fed policies would be intact at least until this fall and that the surge in economic momentum associated with reopening would eventually level off.

Mortgage rates have fallen fairly consistently over the past 2.5 weeks with the past 2 days seeing some of the better improvements.  There haven't been any major revelations behind the move, but timing plays a role.  Last week ended with a stronger-than-expected jobs report.  That's the sort of thing that typically pushes rates higher, but the bond market took it in stride this time.  Still, that was only enough to keep rates relatively flat, which makes sense considering the extra uncertainty associated with a 3-day weekend for markets.

When trading resumed yesterday, bonds improved significantly (bond market improvement = lower rates, all other things being equal).  With the uncertainty of the 3-day weekend behind them and fresh bond gains in the new week, mortgage lenders had two good reasons to improve rates.

The net effect is the lowest average conventional 30yr fixed quote since June 11th.  Many lenders are right in line with those lows.  To find anything better, we'd need to go all the way back to February, 2021.

A heat wave on the west coast got national attention this week. Despite temps close to 120°, Tuesday's home price data was even hotter with both of the big reports telling the same story.

FHFA prices (nationwide) are increasing at a record pace.  Case Shiller (20 major metro areas) price appreciation isn't quite back to its pre-mortgage-meltdown level.

How hot is too hot?  That depends.  Prices can't continue this pace indefinitely, but many people said the same thing late last year only to regret not pulling the trigger.

Mortgage rates have had several good weeks now after being dealt a blow by the Fed announcement on June 16th.  Said "blow" is relative, to say the least.  Rates technically never departed the lower 3% range, and they remain there now, albeit closer to 3.0--especially for purchases.  In fact, "low 3's" arguably applied to most of 2021.  

Nothing about the coming days is likely to change that, even if the risk of volatility will be higher.  The most obvious hurdle to clear will be tomorrow morning's jobs report--traditionally the most important piece of economic data on any given month as far as interest rates are concerned.  While we know the Fed is waiting for several more months of data before making any big decisions on its rate-friendly policies, that won't stop traders from moving preemptively if they think the data makes the Fed's likely course of action more certain.

Mortgage rates fell again today--now officially below the lowest levels in the past 2 weeks.  In order to accomplish that, rates had to fully erase the damage done exactly 2 weeks ago after the Fed announcement caused the biggest single-day spike in months.  That recovery was mostly (but not quite) accomplished yesterday.  Today was simply a matter of crossing the finish line with modest improvements in underlying bond markets.

Notably, bonds are losing some ground this afternoon.  It's too late for the average lender to make any changes to today's mortgage rates, but if these same levels are intact tomorrow morning, rates will likely be slightly higher.

Mortgage rates are primarily a function of trading levels in the bond market and bonds have enjoyed (or suffered) an interesting mix of volatility and stability in June.  US Treasury yields (which share a strong correlation with ,mortgage rates) moved sharply lower at the beginning of the month.  Mortgages didn't move quite as much, but nonetheless made it to their best levels since late February.  

After that, the Fed announcement on June 16th was the next major source of volatility.  It pushed rates quickly higher and they've been gradually recovering since then.  Today adds another almost imperceptible brick to that wall, but it's enough to nudge the average 30yr fixed rate to its lowest level since the morning before the Fed announcement.  Some see those levels as a sign that  it's time to be more defensive when it comes to rate expectations going forward, and that's not a bad way to view things considering the broader bond market has struggled to improve much beyond current levels.

Mortgage rates hit their lowest levels in a week yesterday and are sideways to slightly lower today, depending on the lender.  These facts are not well represented in the news today, where you're more likely to see stories about rates being much higher this week.  What's up with the discrepancy?

As is often the case on Thursdays, we have Freddie Mac's weekly mortgage rate survey letting us know how Monday's rates compared to last Monday's rates.  Indeed, rates were noticeably higher on Monday, week-over-week.  But it's Thursday now, and we're generally more interested in the rates that are available today compared to those seen last week.  (NOTE: Freddie doesn't intentionally measure Monday vs Monday.  That's just the way it ends up happening due to the behavior of survey respondents).

Last week's announcement from the Federal Reserve was the last major shake-up for mortgage rates, sending them quickly higher on Wednesday afternoon.  Since then, things have been improving gradually, even if a bit unevenly.  

Mortgage lenders have been hoping for a little more stability, and today they got it.  The bonds that underlie mortgage rates had their most stable day since before the Fed meeting and they also managed to do that while trading at or near the best levels over the same time frame.  The result is the lowest mortgage rates since last Wednesday morning for the average lender.