You would think with oil remaining around $100 per barrel and yet another jobs report beat that we’d have higher mortgage rates.
Instead, they’re continuing to fall and extending a nice little rally this week.
It seems odd on the surface as both inflation from higher oil prices and hot jobs tend to lead to higher interest rates.
The reason why they appear to be defying expectations is because these two things aren’t seen as lasting trends.
Instead, they are being treated as blips in a bigger story that points toward slowing growth, weaker labor, and an end to the war.
Mortgage Rates Feel Like a Headscratcher Lately
Mortgage rates can be pretty complex. There are a lot of forces at play that determine whether they go up or down.
Factors include inflation, labor, mortgage-backed securities (MBS) supply and demand, and many other drivers.
In normal times, things like rising inflation or a hot jobs report lead to higher mortgage rates.
The opposite is also true. If unemployment is rising or inflation is easing, mortgage rates typically go down.
Lately, it’s been kind of confusing because we’ve got $100+ oil due to the conflict in the Middle East.
And a series of “hot” jobs reports, including the ADP report on Wednesday and the BLS report today.
Both were beats, which in normal times would lead to higher mortgage rates. Especially if you’ve got expensive oil.
Instead, mortgage rates continue to drift lower, as if they’re ignoring both these issues entirely.
Everyone Thinks Oil Prices Will Come Down and Labor Will Get Worse
The simple explanation is that bond traders and MBS investors believe both pricey oil and hot labor to be transitory at best.
Simply put, they aren’t seen as long-term trends. They’re seen as fleeting issues that will go away sooner rather than later.
As such, they’re looking past them and continuing to hold the belief that labor is going to crack and that inflation is going to continue to ease.
That is benefiting mortgage rates when it otherwise might not.
So if you’re currently shopping for a home or looking to refinance a mortgage, be grateful.
Things could be a lot worse. Mortgage rates could be on the other side of 6.50% and rising.
Instead, they’re staying closer to the lower-end of the 6% range, and remain only about a half-point above 3.5-year lows.
That’s pretty good in the grand scheme of things.
Just one caveat though. If everyone all of a sudden decides that expensive oil isn’t temporary, or that labor is in fact not so bad, mortgage rates could jump back up again.
Personally, I still think that’s a possibility, though I’m rooting for lower mortgage rates because the housing market badly needs them.
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