The average 30-year fixed rate mortgage was 6.73% yesterday, an increase of 0.04% since the day before. The 15-year fixed mortgage rate stood at 5.88%, up by 0.02%. The 30-year FHA mortgage averaged 6.1% yesterday, having risen by 0.03. Meanwhile, the 30-year jumbo mortgage rate was 6.88%, reflecting an increase of 0.09%.
The bigger picture
It will likely take big news about the peace talks with Iran to move mortgage rates far today. This morning's economic reports rarely have much impact on those rates.
The same can't be said for tomorrow's consumer price index (CPI). If its figures surprise markets, mortgage rates might move appreciably.
Having said that, the analysts whose forecasts set market expectations tend to do much better than those who predict the contents of some other economic reports. So, we'll be mildly surprised if markets are shocked tomorrow.
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Mortgage Rate Trends: Past 90 Days
Purchase Rates
| Loan Type | Rate | APR | Daily Change | Monthly Change |
|---|---|---|---|---|
| 30-Year Fixed | 6.73% | 6.77% | +0.04% | +0.11% |
| 15-Year Fixed | 5.88% | 5.95% | +0.02% | +0.1% |
| 30-Year Fixed FHA | 6.1% | 7.31% | +0.03% | +0.15% |
| 30-Year Fixed VA | 6.18% | 6.34% | +0.03% | +0.11% |
| 30-Year Fixed USDA | 6.15% | 6.32% | +0.08% | +0.16% |
| 30-Year Fixed Jumbo | 6.88% | 6.9% | +0.09% | +0.12% |
| 5/6 Year ARM | 6.35% | 6.45% | +0.22% | +0.26% |
Refinance Rates
| Loan Type | Rate | APR | Daily Change | Monthly Change |
|---|---|---|---|---|
| 30-Year Fixed | 6.78% | 6.82% | +0.03% | +0.13% |
| 15-Year Fixed | 5.85% | 5.91% | +0.02% | +0.11% |
| 30-Year Fixed FHA | 6.1% | 7.3% | +0.02% | +0.16% |
| 30-Year Fixed VA | 6.21% | 6.29% | +0.03% | +0.15% |
| 5/6 Year ARM | 6.82% | 6.89% | +0.54% | +0.64% |
What's coming up?
Although economic reports are usually the main drivers of changes to mortgage rates, they're not the only ones. The general mood in markets and economically consequential news can also affect those rates. News items concerning the war, employment, inflation, tariffs, and deficit funding are especially influential at the moment.
The war and mortgage rates
Peace talks with Iran or mediators have been underway since Aug. 1, and have helped mortgage rates fall moderately over their duration. While we all know how fragile such negotiations are and how hard it is to make deals stick, markets have seemed happy to work with the hope of an end to the conflict. However, that hope seems to be fading.
"Over the weekend, Mr. Trump said his new strategy was to be 'low-keying it' in Iran, a suggestion that he wants to pressure the country into making a favorable deal without taking major military action," said The New York Times yesterday.
Iran is certainly in a weak position economically, and waiting for it to buckle may well be a smart way to resolve the conflict. However, markets are anxious for a rapid reopening of the Strait of Hormuz, and seem to have taken the president's new position as a sign the dispute could drag on for considerably longer — hence yesterday's higher oil prices and mortgage rates.
Mortgage rates respond to war news because a prolonged closure of the Strait of Hormuz could again choke off 20% of the world's oil supply, putting additional pressure on gas, diesel and many other prices. It would take years to build the infrastructure necessary to bypass the Strait completely.
Strategic petroleum reserves in the U.S. and elsewhere globally are now at multi-decade lows, meaning there's less room to cushion consumers from rising gas prices. It may not feel like it, but this method of suppressing pump prices has been in place since the start of the conflict.
Trading Economics says, "US Strategic Petroleum Reserve crude inventories fell to 307.650 million [barrels, presumably] for the week ending July 24, marking the lowest level since 1983."
Meanwhile, many oil refineries in the Middle East and Russia are out of commission due to damage from the separate wars involving Iran and Ukraine, sending oil prices lower on most days. Why buy crude oil when you can't refine it?
Unfortunately, that has so far translated into only moderately lower gas and diesel prices because a lack of refining capacity exacerbates rather than moderates supply issues for consumers and businesses, while demand remains fairly steady.
The Fed
The Federal Reserve's rate-setting body (the Federal Open Market Committee or FOMC) left general interest rates unchanged on Jul. 29, as many expected. However, many now think a hike is likely at the next FOMC meeting on Sep. 16, according to the CME FedWatch tool.
Still, that's been changing. Yesterday evening, that tool showed a 51.2% chance of a small hike, while on Friday evening it stood at 44.4% and a week earlier that number was 67.2%. So, it's unusually volatile.
Assuming that the war in Iran doesn't end quickly, we think such a hike remains a sensible expectation. A prolonged conflict is likely to fuel inflation, and the Fed has a duty to maintain that at 2% annually, a goal reaffirmed by Kevin Warsh, the new Fed Chair, on Jul. 29. The main tool the Fed uses to rein in inflation is rate hikes.
The Fed doesn't directly set new fixed-rate mortgage rates. But the factors that influence its decisions (and to a lesser extent the decisions themselves) certainly do move those rates, usually in advance of Fed rate-change announcements.
Why bond markets act differently from stock markets
Mortgage rates are largely dictated by the yields on a type of bond, the mortgage-backed security (MBS). So, we focus on bond markets.
On May 7, The New York Times explored why stock markets and bond markets have been behaving so differently from each other since the start of the conflict in the Middle East.
Investors in stocks have been wagering that U.S. companies will continue to generate large profits during the conflict. And the stock market typically cares only about whether dividends and company values will continue to rise.
"But the bond market is another matter," said The Times. "Bond traders have maintained a much sharper focus on risk. Yields remain correlated with shifts in the price of oil. As oil prices have spiked and inflation has risen, yields have risen and bond prices, which move in the opposite direction, have fallen."
Comerica Bank's outlook for this week
On Monday, Comerica Bank published its weekly outlook:
"CPI and PPI inflation are both forecast to be slightly cooler in July, helped by stable petroleum product prices. Core CPI also likely improved on benign shelter inflation. If these data come in as expected, they will bolster the case for the Fed to refrain from hiking at their next decision on September 16. Either way, the July inflation reports will have more bearing on the next Fed decision than the month’s jobs report. The August jobs data and CPI report will come out before the Fed meets, so the July reports are not the final word.
"Retail sales are forecast to have risen modestly in July, held back by lower spending at gas stations and new vehicle sales. Core sales were likely stronger. Consumer sentiment is expected to hold about flat in the early August release."
Comerica's forecasts are sometimes different from published market expectations, which are drawn from a broader pool of analysts' consensus forecasts.
Mortgage rates today
There are two main economic reports on today's MarketWatch economic calendar. However, neither is likely to affect mortgage rates more than modestly.
The reports are:
- July NFIB index of small business optimism — Markets expect the index to edge lower to 97 from June's 97.4
- July existing home sales — Markets expect sales of existing homes to slow slightly to an annualized rate of 4.0 million, compared with 4.1 million in June
Typically, mortgage rates rise when such figures are better than expected and fall when they're worse. On-forecast figures often leave those rates unchanged.
What's next?
This week's star report is tomorrow's consumer price index (CPI) for July. Some months, the CPI rivals the jobs report for its influence on mortgage rates. Thursday brings the CPI's little brother, the producer price index (PPI).
Friday's retail sales figures for July and preliminary consumer sentiment index for August might also affect mortgage rates appreciably.
