Huge reversal in mortgage rates. No promise of durability

Huge reversal in mortgage rates. No promise of durability

If you just got caught up, mortgage rates rose above 7% yesterday for the first time since 2002. Read our coverage to learn more about why rates are everywhere: Yes, mortgage rates are now above 7%, but It’s complicated.

Today was a completely different day. In fact, rates not only fell below yesterday’s levels, but also through the end of last week (Thursday afternoon, according to the lender). That wasn’t necessarily the case earlier this morning, but almost all lenders adjusted their rate offers mid-day – in many cases multiple times.

Mortgage rates are based on bonds. When bonds rally enough, mortgage lenders issue these “mid-day repricings.”

Why were the bonds so happy? Happy is not the right word. “Relieved” would be more appropriate. A UK fiscal policy announcement is at the heart of all the drama over the past few days, and while it hasn’t been retracted or changed, a UK MONETARY POLICY decision has helped calm financial markets early this morning.

In short, the UK government said things that spooked investors in a major way. Then, the British central bank announced an emergency bond buying operation so as not to scare them away. UK 10-year yields fell more than half a point in 40 minutes. US bonds followed cautiously in comparison, just as they followed their advance (the movement of the US bond market was less than half as sharp as that of the United Kingdom).

All of the gains in the bond market translated pretty well into mortgage-backed bonds, with the average lender finally able to get back well into the 6s. For those wondering if all the “bad stuff” is done, there’s no no way to know. What we do know is that nothing in today’s Bank of England announcement by itself guarantees a lasting reversal.

There are still reasons to be cautious about what lies ahead for rates. It will take additional motivation and especially pessimistic economic data (including more subdued inflation) for rates to come down reliably across the board. That said, whenever a major central bank unexpectedly injects a lot of liquidity into the bond market, good things tend to happen for rates. So if other central banks do the same at some point in the near future, we wouldn’t need to wait for pessimistic data.

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