It’s been a good couple of weeks for mortgage rates during the ongoing government shutdown.
Historically, they tend to do well when the government is not operational. The short answer why is a perceived flight to safety (in bonds) which pushes interest rates down.
The 30-year fix is ​​now at its lowest point in about three years, having fallen about 20 basis points (0.20%) since the shutdown began on October 1.
At the same time, a lack of new economic data from the government makes it difficult for interest rates to do too much.
That changes tomorrow, when we get a (delayed) CPI report for the month of September.
The CPI report has the chance to be a big move in mortgage rates tomorrow
While the CPI report isn’t necessarily the biggest mover of mortgage rates, it carries some weight.
Especially lately, when inflation has been top of mind for the past few years, in part due to the record low mortgage rates that many enjoyed (and continue to enjoy).
I would argue that the monthly jobs report is the heavyweight, but that is on hold until the government gets back to work.
The CPI report was too, but it turns out the Social Security Administration (SSA) needs it to calculate the Cost-of-Living Adjustment (COLA).
So it was produced by some government employees who were pulled back to work…
Since nothing else is going down compared to new data, and because we’ve been in a data blackout for weeks, it will obviously mean more than usual.
The lack of additional data also means that it could have enduranceas there won’t be another government report to refute it.
For example, if it comes into line and shows slowing inflation, mortgage rates could be moved ever closer to the 5% range.
As seen in the chart above from MND, the 30-year fix has not been below 6% since February 2023!
Conversely, if it happens to warm up and we see rates on the rise again, it could send mortgage rates back towards the mid-6s.
Then you wouldn’t really have much to get them back to where they were until more data is released.
Long story short, it’s a potentially big report and all eyes will be on the CPI tomorrow morning.
Mortgage rates play defense on the eve of the report
Blame it on ongoing trade tensions between the US and China, or perhaps some defensiveness ahead of tomorrow’s report, but the 10-year yield rose today.
It climbed about five basis points to get back above the key 4% threshold, which wasn’t necessarily enough to push mortgage rates higher today.
But it shows you that there is some defense being played on the eve of the report. No one wants to stick their neck out until the lone government data report is released.
This means that mortgage lenders may also be hesitant to lower mortgage interest rates much more than they already have.
But if that report comes out cold tomorrow, we may see another leg lower, still closer to the key 5% threshold for the 30-year fix.
That could be helped further by VVS (MBS) with mortgage-backed securities, with investors switching to lower coupon buckets if they expect interest rates to fall further.
So there is potential for this to serve as a catalyst of sorts for prices starting with a 5.
Of course, it can also be a harmless report that does little to nothing for the rates. Or as I said, it comes hot and results in higher mortgage interest rates. Pretty much everything is on the table here.
And it could also affect what the Fed has to say at its meeting next week before it’s next monetary policy decision.
For good measure, they are widely expected to cut the federal funds rate another 25 bps next Wednesday, with CME odds currently at around 99%.
That’s not likely to change regardless of this CPI report. But it could provide downward (or upward) momentum for mortgage rates depending on the outcome.
Read on: How to track interest on home loans with ease.
(photo: atramos)
Before creating this site, I worked as an account manager for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to start writing about mortgages 19 years ago to help potential (and existing) homebuyers better navigate the home loan process. Follow me on X for hot takes.