Mortgage Rates Moderately Higher Despite Bond Market Recovery.
After moving up sharply on Friday, mortgage rates weren’t significantly higher yesterday. That represented a bit of a disconnect with underlying bond markets. Specifically, the mortgage-backed bonds most directly responsible for mortgage rates suggested yesterday should have been worse.
Now today, those same bonds suggest we should be seeing rates that are roughly flat compared to yesterday. Instead, today’s rates are modestly higher. The simplest way to think about all of the above is that today’s excess weakness is payback for yesterday’s excess strength.
The other consideration is that today’s resilience wasn’t quite compelling enough to motivate many mortgage lenders to adjust rates in the middle of the day. In those cases, we typically see the bond market improvement reflected in the following day’s rates. This, of course, assumes that bonds remain at the same levels (or better) through the overnight trading hours.
Rates tend to be offered in 0.125% increments, but it’s rare to see that much movement on any given day. There are also upfront costs associated with any given rate, even if you can’t always see them. Those move much more easily and in much smaller increments. Increases in upfront costs mean that today’s rates are effectively 0.07% higher than yesterday’s.
Ongoing disclaimer: As has been the case many times during the 2022 rate spike, there is a much higher degree of variation between lenders compared to more stable times for rates. There is also an uncommonly small amount of cost separating certain rates in terms of “points.” In other words, whereas paying 1 point might be worth 0.25% during more normal times, there are certain rates/scenarios where paying a point could drop a rate by 0.5%.