There isn’t much on the economic calendar this week, meaning mortgage rates will likely print flat.
This differs from last week, when we managed to pack a ton of labor data into a holiday-shortened week.
The good news (for mortgage rates) is the labor market showed signs of weakness, though the reports weren’t ice cold.
Still, it might be enough to keep the Federal Reserve from hiking again, which would be a positive for mortgage rates going forward.
If the Middle East situation continues in the right direction, it could all point to a low-6% or even sub-6% 30-year fixed again. But not overnight.
How Do We Get Lower Mortgage Rates Again?
It seems like everything is going right, at least with regard to favorable news and data to push mortgage rates lower.
Yet they remain quite elevated relative to levels seen this spring when the popular 30-year fixed was below 6% for the first time since 2022.
If you recall, 2022 was the last stellar year for mortgage rates, which began that year in the low 3s before quickly shooting higher as QE ended and inflation fears set in.
We’ve made a lot of progress since mortgage rates appeared to peak at 8% in late 2023, but then hit a roadblock when the unexpected Iranian conflict broke out this spring.
Since that time, mortgage lenders seem to be pricing defensively, and rightfully so.
We saw the cost of a barrel of oil skyrocket to over $125 thanks to the closure of the Strait of Hormuz, before finally calming down after a peace deal was announced.
We now have oil prices back at pre-war levels, which is great news for the economy.
But the 30-year fixed is nowhere close to its pre-war level, when it hit that 3.5-year low just below 6%.
Is it just a matter of time? And if so, how much time?
Elevator Up, Stairs Down for Mortgage Rates
Unfortunately, it takes time to recover after mortgage rates rise. And it never happens overnight.
Even if all the signs point to a recovery, mortgage lenders are never quick to just slash their rates.
Instead, they take a measured approach to ensure they don’t get caught out by another unexpected event.
The last thing they want is to be on the wrong side of a trade, so lowering rates too fast, only to see another conflict break out, or another jump in oil prices, keeps them cautious.
And let’s be honest. It wouldn’t be shocking if there was another twist in the tale.
There was a report of a British cargo ship getting attacked in the Red Sea over the weekend.
In addition, navigating the freshly reopened Strait of Hormuz isn’t business as usual, with “substantial” risk remaining and mines reportedly in the center of the key waterway.
So to expect mortgage rates to just fall back to those sweet levels in a matter of weeks is perhaps a bit too optimistic.
We Need More Signs of Stability in Middle East and Wider Economy
Instead, those hoping for lower mortgage rates should be patient and root for the same trends we’ve seen over the past couple weeks to hold.
That is, continued peace in the Middle East and improved shipping flows in the region. And the lower inflation readings that come with it.
Along with tepid or cool labor data readings to give the Fed a reason NOT to raise rates again.
Mortgage rates take cues from the Fed, though the federal funds rate is a short-term rate (overnight rate in fact) and the 30-year fixed is well, a 30-year rate.
But Fed rate expectations still play a role and if MBS investors and banks/lenders see hikes becoming less of a threat, mortgage rates can continue to drift back toward the low-6s and possibly beyond.
Just don’t expect it to happen overnight. It might take a while.
Read on: Compare interest rates and payments fast with my new mortgage rate calculator.
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