Mortgage rates may still be elevated by historical standards, but by the end of the week, they had reached their lowest levels since July 17th. If there’s one thing we can thank, it’s this week’s inflation data. Finally, some economic numbers decided to be helpful.
Things didn’t exactly start on a high note, though. Bond yields—which tend to correlate with interest rates—jumped sharply alongside oil prices on Monday as hopes for a U.S./Iran peace deal faded and concerns grew over a potentially prolonged blockade of the Strait of Hormuz. Because apparently, mortgage rates weren’t dealing with enough drama already.
Thankfully, oil prices stabilized by Tuesday morning, allowing the bond market to shift its attention toward the week’s two major inflation reports.
The first was the Consumer Price Index (CPI), released Wednesday morning. While CPI is usually one of the more influential inflation reports, it barely moved the needle this time around. The numbers came in almost exactly as expected, leaving the market with very little to get excited about. Bonds had apparently been hoping for better news and drifted back toward higher rates by the end of the day.
That changed Thursday with the release of July’s Producer Price Index (PPI), which measures inflation at the wholesale level. PPI came in slightly below forecasts in several key areas—a particularly encouraging result given the higher fuel prices seen during July.
The bond market liked the news. Bond yields dropped sharply, and mortgage rates followed, reaching their lowest levels in four weeks.
Friday brought another interesting development: Retail Sales came in well below forecasts. At first glance, that sounded like great news for rates. Generally speaking, weaker economic data can lead to lower rates, all else being equal.
Of course, there was a catch. There is always a catch.
Much of the decline in retail sales was tied to some unusual timing surrounding Amazon’s Prime Day. On top of that, the reported decline in fuel sales was distorted by seasonal factors. Once the market accounted for those quirks, the retail sales report looked more like decent news than a major economic slowdown. Bond yields responded by moving back up toward their mid-week highs.
Fortunately, mortgage-specific bonds held up better than 10-year Treasuries. Even better, the average lender hadn’t fully adjusted Thursday’s mortgage rates to reflect the bond market rally. As a result, Friday’s rates were only modestly higher.
Bottom line: Thursday and Friday’s mortgage rates were effectively the lowest we’ve seen since July 17th. Not exactly a rate-revolution, but after the roller coaster ride earlier in the week, we’ll happily take the win.
