Mortgage rates remain flat today, still hovering around 7.375% or so for the 30-year fixed.
The 10-year yield continues to sit just under 5%, which is about all the “good news” bond investors have to offer at the moment.
New home sales came out this morning and AI spending is back in the headlines.
But mortgage rates seem to be in a holding pattern until we get something more substantial, like tech earnings or a Fed presser.
This could be a big week for mortgage rates in terms of where they go next.
New Home Sales Hold Up, But Builders Are Offering Massive Concessions
New home sales slipped to an annual pace of roughly 676,000 in September, per the Census Bureau.
However, that was actually a little better than economists expected, despite being about 5% lower than a year ago.
For the record, new home sales are counted when a contract is signed, which makes this report a little timelier than others.
It likely captured some of the recent run-up in mortgage rates in September when they more or less peaked (at least so far).
The median price was also about 4% lower relative to last year, which may be a composition thing and also a sign that builders are cutting prices (and buying down rates) just to keep sales from falling any further.
The builders have been big on mortgage rate buydowns this cycle, so technically mortgage rates shouldn’t matter as much.
After all, if the builder is paying to lower your mortgage rate, it doesn’t really matter if market rates are higher or lower (you still get the lower bought-down rate).
It just hurts their profits, which might explain why builder confidence just fell to its lowest level since 2012.
Long story short, the home buyers are still out there, but they want a discount and a lower rate to boot.
Why Is AI Spending Back in the Mortgage Rate Conversation?
Last week’s big drop in bond yields was mostly about concerns related to AI spending, with investors flocking to the safety of bonds.
There have been bubble fears for a while now and everyone seems to be kind of waiting for it to burst.
But this week it seems chips are back en vogue, perhaps driven by the Anthropic IPO news and the likelihood of OpenAI following suit.
There was also a $63 billion deal unveiled that involves the big banks and Broadcom.
So just like that, AI and chips and their associated debt are hot again.
And that means the AI spending could once again crowd out bond investors and push mortgage rates higher because those bonds compete with mortgage bonds.
In other words, the pullback we got from AI last week could unravel this week, especially if the tech companies reporting this week add fuel to the flames.
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Don’t Forget About Oil…
While the AI story is latest focus for mortgage rates, oil continues to be a key driver as well.
Fortunately, oil prices continue to ease and are close to about $100 a barrel thanks to hopes for diplomacy with Iran.
That could be the real reason the bellwether 10-year bond yield remains below 5%, though it’s precariously perched.
It wouldn’t take much to rile bond investors again and send yields surging higher once more.
The Fed’s two-day meeting starts today as well and could also complicate matters.
We know they’re likely holding, so the press conference after the decision will be what to watch.
It could be a pivotal week for bonds and mortgage rates between the Fed meeting, the ever-changing AI story, tech earnings, GDP, and the PCE inflation report on Thursday.
If yields can manage to stay under 5% through all that, mortgage rates could continue to trend lower and even build on it.
If not, a move back to 7.5% or higher for the 30-year fixed could be in the cards instead.
(photo: Saundra Castaneda)
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