This week mortgage rates difficult to compare with last week. There are two simple reasons for this. IN first this is the recent cancellation of the adverse market effect fee that artificially raised rates on refinancing operations since the end of last summer. IN second this is the overall strength in the bond market compared to last week. After all, mortgage rates are based on trading levels in the bond market, where higher prices (or lower yields) match lower rates. Bonds are not doing as well as on Monday, but since lenders were slow to cut rates as much as the bond market would allow earlier in the week, they did not have to cut rates as much as bonds. I suggest for the last 2 days.
Bonds are improving again today, albeit Little… However, the fact that improvement even on the menu when bonds have been performing at their best range since February, it’s impressive. The average mortgage lender doesn’t offer the same rates as Tuesday morning, but they are close. Moreover, aside from the last few days, we will have to return to February to see something much the same.
The improvement in the bond market is largely driven by fear and uncertainty increase in the number of cases of COVID, especially since they relate to the delta variant of the virus. Investors conclude that as long as this uncertainty persists, the Fed will not be able to start phasing out its interest rate-friendly bond buying program, and the economy will not shoot as many cylinders as it would otherwise.
Overseas Markets also play a role. Federal Reserve officials have previously drawn attention to the fact that the world’s major central banks generally do not stray too far apart in terms of short-term interest rates. While short-term rates (in particular the federal funds rate) do NOT dictate mortgage rates, they provide an anchor for the rest of the rate spectrum, thereby effectively setting the potential range over which longer-term rates will operate. With all this in mind, the European Central Bank released its latest policy statement today, and while it did not fall far short of expectations, it was slightly better than expected on rates, ceteris paribus.
We will have the opportunity to hear from the Fed next Wednesday. They, too, are unable to make actual changes to current policies, but investors will keep a close eye on the verbosity of the announcement (as well as the press conference with Fed Chairman Powell) to understand how and when Fed policy may change in the near future.