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Mortgage Rates Return to Previous Levels

It’s all about oil. When oil prices were hitting new highs on a daily basis, the yield on the benchmark 10-year Treasury note consistently closed below 4 percent—a feat not seen since March. The reason? Bond traders believe high oil prices will slow economic growth and lessen the need for the Fed to hike interest rates—and some Fed officials agree. But when inventories of crude oil and gasoline were reported to be much higher than forecast, oil prices plunged and so did demand for Treasuries. Aggressive selling of government issues sent prices tumbling and yields, which move in the opposite direction of prices, climbing. China’s announcement of a rate hike to slow its economy sent the oil market down even further, resulting in knee-jerk selling of Treasuries. Higher yields, which mortgage lenders base their rates on, forced lenders to move rates back up after edging them down earlier in the week. A mixed batch of economic reports took a back seat to oil prices, when it came to influencing the markets. Thanks to low mortgage rates, housing sales rebounded in a big way in September. Existing home sales jumped to an annual rate of 6.75 million units—the third highest level ever, and new home sales surged 3.5 percent when analysts were expecting a decline. The Chicago PMI index on manufacturing conditions soared, but it was offset by a lower than expected reading on 3rd quarter GDP. Consumer confidence took a dive. The 92.8 reading was the third straight drop and the lowest level in seven months. The University of Michigan consumer sentiment reading also fell. Durable goods orders in September were also disappointing, although they rose 0.2 percent—less than expected. The good news showed business spending up 2.6 percent.

Refinancing was helped by lower mortgage rates for the week ended October 22, according to the Mortgage Bankers Association. Applications to refi increased 3.6 percent, accounting for 48 percent of mortgage activity. Purchases, however, were off 4.4 percent. After a two-day decline, the 30-year fixed-rate mortgage (based on zero discount points) is back near 5.5 percent, while the 15-year fixed-rate mortgage is holding at 4.875 percent. The introductory rate on the volatile one-year adjustable-rate is holding near 3.25 percent.

The election, the upcoming Fed meeting and the employment report for October will make for an interesting few days. In addition, there will be news on manufacturing, consumer spending, productivity and factory orders. Uncertainty over the election might promote temporary safe-haven buying, but the future of oil prices and reports on the labor market will be the keys. If oil prices stabilize and the economic indicators come in near expected levels, Treasury yields should remain fairly steady, allowing mortgage rates to do the same.