This week's economic data included the biggest-ever gain in Pending Home Sales, a leading indicator for the housing market. Meanwhile, mortgage rates pushed down to new all-time lows yet again. 

But at what cost?

The most pessimistic way to explain the surge in home sales is to say it was only made possible by the record-setting declines in the past few months. 

That's mostly true, but it fails to give credit to what the industry and government officials have been doing to help jump start economic activity.  Would sales bounce back like this without all-time low mortgage rates and a stock market recovery (both made possible by emergency intervention from the Federal Reserve)?  Would consumers be as comfortable spending money without the promise of additional fiscal stimulus and other support programs already in place?

Mortgage rates were generally unchanged today, thus leaving the average lender at all-time lows for conventional 30yr fixed scenarios.  It continues to be the case that loan scenarios with additional risk factors have NOT seen nearly as much improvement as those in the top tier.  In general, however, things are starting to improve.

When coronavirus rocked the financial markets in March, mortgage rates were particularly hard hit.  This had a lot to do with the anticipated inability of millions of homeowners to make their mortgage payments.  While the government and the mortgage industry rushed to put programs in place to help those homeowners, there were/are unavoidable consequences for mortgages in the eyes of investors.  Simply put, each additional risk factor that makes forbearance (a temporary non-payment agreement) more likely from a statistical standpoint also made the available rates incrementally higher.  

Mortgage rates managed another slight improvement today, which means the average lender is offering new all-time low rates for the 4th time this month.  Even if rates had lurched unexpectedly higher today, June still would have gone down as the best month in the history of the mortgage market with many lenders now offering conventional 30yr fixed rates under 3% on top tier scenarios. 

The low rate environment has been made possible first and foremost by the economic contraction resulting from coronavirus.  In and of itself, however, that still likely wouldn't be sufficient to get rates as low as they are.  The rest of the heavy lifting has been done by the Federal Reserve, which stepped in when markets were experiencing the height of their recent volatility in early March 2020.  The Fed helped restore liquidity by buying Treasuries and mortgage-backed bonds directly.  This helps push interest rates down not only for mortgages, but also for the US government (which needs to borrower more heavily than ever before in order to finance the fiscal response to coronavirus).

Mortgage rates were unchanged to slightly lower today, bringing the average lender right in line with all-time lows.  Averages aside, several lenders are slightly higher than they were on Friday.  Either way, the movement was minimal over the weekend. Beyond that, no conversation about all-time low rates would be complete without several of these recently relevant caveats:

1. Different borrowers will see different pricing.  This sort of goes without saying, but it's much more pronounced than it has been before coronavirus.  Specifically, we're talking about the big differences in mortgage rate quotes for borrowers with certain combinations of risk factors.  These include things like investment properties, cash-out, higher loan-to-value ratios, and the like.  The all-time low rates seen in 2012 (and almost again in 2016) were much lower than what these off-the-beaten path scenarios are seeing today.

The fates of the economy, the housing market, and interest rates remain closely intertwined with coronavirus.  The pandemic is clearly responsible for the record-setting drop in economic activity (including the housing market).

If the market finds a reason for stocks and bond yields to move higher, mortgage rates are increasingly likely to follow.  

So will the market find that reason?  Again, we already know THAT it will.  We just don't know WHEN it will.  That answer depends entirely on coronavirus.  The point is to be ready to react when that happens. 

Mortgage rates moved modestly lower today, bringing the average lender very close to all-time lows.  The caveat continues to be that day-to-day rate changes have been small ever since hitting the confirmed all-time lows on June 11th.  Realistically, if you locked in a rate any time in the past 4 weeks, you did very well.  The same is true today, and it will continue to be true as long as the broader financial market remains concerned about the resurgence in covid-19 cases in several states.

Mortgage rates are primarily driven by the bond market.  They share many similarities with US Treasuries.  When investors are feeling cautious or seeking to prevent the loss of capital, the bond market offers a safe haven.  When demand for bonds increases, bond prices rise and bond yields fall.  "Yield" is another word for "rate."  In other words, the more investors want to buy bonds, the more we see downward pressure on rates, all other things being equal.  

Mortgage rates moved modestly lower today, but face an uphill battle in general.  They fell very quickly as coronavirus first hit financial markets.  They hit multiple new all-time lows in since March 9th and continued setting new records as recently as last week for some lenders.  In fact, there are a few lenders that are offering their best rates ever TODAY.  The catch is that these rates are very similar to those seen yesterday and the day before (and so on and so on).  Markets are waiting to see if we can prevent a massive 2nd wave of coronavirus cases while still reopening the economy.  To whatever extent that's possible, rates should begin to see gradual upward pressure.

It seems almost melodramatic to refer to any modest increase in mortgage rates these days.  If we were to go over each lender's rate sheet with a fine tooth comb today, indeed we'd likely find the average is just microscopically higher.  But higher from WHERE?  With the very best scenarios seeing 30yr fixed rate quotes of 3.0% or below, it's hard to spend too much time lamenting any modest day-over-day increases.

Beyond that, most of the recent movement has been very small--too small to measure in terms of changes in the actual interest rate you'd be quoted.  Instead, there could simply be a minor adjustment in the upfront costs (origination, discount, or lender credit toward closing costs, depending on the scenario).

Mortgage rates held their ground today, with the average lender in roughly the same shape as they were on Friday.  Incidentally, that's great shape!  When it comes to the best-case scenario conventional 30yr fixed quote, rates are still very close to the all-time lows seen two weeks ago.  Scenarios with additional risk factors (jumbo balances, lower credit, lower equity or investment properties), the landscape is far more varied.  For those scenarios, rates are much farther away from all-time lows.  

Will rates be able to remain at these levels or perhaps even set new all-time lows? 

Coronavirus hit markets with unprecedented force in March. Stock prices and bond yields sank.  When the outlook grew less dire, markets began moving back in the other direction.  As quarantine measures ease, fear surrounding a second wave of COVID-19 is pushing back on the recovery in markets.

Let's quantify the fear using daily COVID-19 case counts in several key states.  

There's no question that these trends are alarming at face value, but the implications can vary quite a bit due to increased testing.  We can get a clearer sense of the risks by looking at hospitalization data. 

Mortgage rates improved modestly today as investors remain cautious amidst rising coronavirus stats in several states.  The experience of those states is fueling broader concern about a 2nd wave of the disease that may logically follow less efficient social distancing as various states and counties reopen for business.

In general, when investors are feeling cautious or fearful (relatively), we tend to see things like the bond market do better while stocks do worse.  That's not a hard and fast rule, but it' a fair generalization.  This notion is supported in the current environment by the fact that stock prices and bond yields have been an almost perfect mirror image of each other recently.  

Mortgage rates joined many other sections of financial markets today in doing almost absolutely nothing.  Both stocks and bonds were almost perfectly flat.  Neither was overly interested in responding to economic data or Round 2 of Fed Chair Powell's congressional testimony.  That's not too surprising considering today's economic data wasn't hotly anticipated and Powell would have been hard-pressed to say something we haven't already heard him say several times (he was in the hot seat yesterday as well as last week after the Fed Announcement).

Mortgage rates moved higher for the 3rd straight business day.  That said, last Friday is better described as being a "2nd consecutive day of all-time lows."  Even yesterday, the average lender was able to quote rates under 3% for top tier conventional 30yr fixed scenarios.  Today's upward pressure was a bit more noticeable as markets cheered a Retail Sales report that was much stronger than expected.  In general, stronger data is good for stocks and bad for bonds (and when bonds are weaker, rates move higher).

There's a particular concern to be aware of in the world of mortgage rates--especially for those who are counting on additional improvements.  Simply put, the underlying bond market hasn't really been making  a case for additional improvement.  If anything, the case is for gradually higher rates.  It's only because mortgage rates were late to the low rate party (relative to Treasuries) that they've been able to hit all-time lows so recently.  Treasuries, meanwhile, are already sounding the alarm by trending slightly higher in yield for at least 6 weeks.

None of the above means that rates can't or won't hit another all-time low in the near or distant future--just that the prevailing trends make it decreasingly likely for the time being.  A significant deterioration in economic data or the coronavirus outlook could change things. Conversely a significant improvement in either of those factors could serve to accelerate a rising rate trend.

Mortgage rates were slightly higher today for the average lender.  Additionally, some lenders bumped rates a bit in the middle of the day in response to weakness in the bond market.  That weakness is increasingly tied to broad movement playing out across markets as they respond to coronavirus implications.

With several states seeing rising numbers of cases, stocks and rates (via the bond market) moved lower in unison in pre-market trading.  This is what allowed mortgage rates to begin the day relatively close to last week's all-time lows.  As the day progressed, the trend shifted toward modestly higher rates and higher stock prices (i.e. risk tolerance improved after investors began the day cautiously).

Mortgage rates plunged well into new all-time lows this week, which is a striking turn of events given the vastly different outlook at the end of last week.

Specifically, a series of strong economic reports led to significant losses in the bond market (bond losses = higher rates) and gains in stocks. The unspoken warning was that rates had been too complacent in the face of a potential economic rebound.  

Now this week, markets are singing a different tune. Recently strong economic data was great to see, but with coronavirus numbers spiking in several states, the sustainability of the economic improvement is in question.