Mortgage Rates

Mortgage Charges Pretty Regular, However Volatility May Improve


After a strong increase at the beginning of the year and significant improvements between April and mid-July, Mortgage rates have been pretty flat for more than a month. That’s definitely not a bad thing considering how close they are to all-time lows, with the best 30-year scenarios still below 3.0%.

However, changes come, for better or for worse. Interest rates might actually go down, but not for reasons we’d like to see. Any significant rate cut would require a deterioration in the “outlook” – a term that is intentionally ambiguous here as it encompasses the outlook for Covid, the economy and Fed policy.

It will take time to read the Covid outlook more clearly given the start of a new school year. It will therefore also take time to understand how the economic dynamics will be affected by the Covid outlook. If the interdependence is not enough, there is the problem of potential labor market shifts due to the new school year (the theory is that significant numbers of workers could return to work as their children go back to face-to-face school for the first time in more than one time Year). And, of course, these job market dominos depend on schools staying open, despite the fact that Covid is spreading at record speeds in some states.

I am not here to hypothesize how the pandemic will unfold or the resulting policy responses. The point here is to identify risks and comment on a possible range of motion. To that end, we must also consider the lens through which the Federal Reserve looks at these factors. We know the Fed is looking for an opportunity to taper its asset purchases.

It can be assumed that if the Covid numbers were back to the June level, the reduction of the announcement would be published in September at the latest. In fact, it’s still a possibility as the September Fed meeting is almost a month away. But it’s only possible that the next 29 days are enough to cause enough concern about the economic outlook that the Fed will remain on hold. How much concern would it take? Market participants have a decent idea, but ask Fed Chairman Powell for clarification. They expect to get another dose of clarity on Friday when Powell speaks (practically) at the Fed’s annual Jackson Hole Symposium.

Powell’s stance is already pretty well understood, but markets are still ready to move a little if that stance changes noticeably. Most agree that this shouldn’t be the case, but trade can be mistaken defensively at times. In other words, bond buyers could be a little less aggressive until they acknowledge “no blows” from Powell. That means rates may have a hard time falling this week – at least until Friday afternoon. At this point the potential for volatility will increase and will remain elevated until the beginning of next week.