Global Tensions and Economic Shifts: Impact on Mortgage Rates

Good Afternoon everyone! I hope you all had a fantastic weekend! Are you ready to dive into another bustling week in the mortgage industry? With mortgage rates making unexpected moves and global events influencing market dynamics, there's a lot to unpack this week. Let’s explore the latest trends and how they might impact your dealings in the days ahead.

Read time: ~4 minutes

Rates ended HIGHER compared to last week, and volatility was HIGH. Rates are now in the low 7’s for most loan types without paying discount points. Paying discount points can get you in the high 6’s.

Global Tensions and the Mortgage Market

As we keep an eye on global events, particularly the ongoing conflict between Iran and Israel, it’s crucial to understand how such geopolitical issues affect financial markets. Historically, during such conflicts, there's a flight to safety which often benefits the U.S. Dollar and Treasury securities. This shift typically results in lower mortgage rates as funds move away from riskier assets like stocks and cryptocurrencies.

The duration and outcome of the Iran-Israel conflict remain uncertain, and as the situation develops, it will continue to influence market conditions. Should the conflict escalate, we might see rates stabilizing or even decreasing further. Conversely, a resolution or easing of tensions could reverse this trend and push rates upward.

Inflation's Stubborn Persistence

Inflation continues to be a thorn in the side of the economy, with the latest CPI report showing higher than expected increases for the third consecutive month. This has led to a quick and sharp reaction in the mortgage market, with rates climbing nearly 0.375% in just 24 hours—enough to make anyone queasy.

The Fed has made it clear that their decisions will be data-driven, and with inflation consistently overshooting their 2% target, the likelihood of rate cuts seems increasingly slim. Initially, there were expectations of up to 7 rate cuts this year, but now that number has been adjusted to possibly only two.

I remain in the “No rate cut in 2024” camp as long as inflation remains hot, and the economy remains resilient. What could cause the Fed to lower rates despite higher inflation? A black swan event, such as war (see above).

Treasury Yields and Retail Sales Impact

Adding to our economic landscape, today you had the U.S. retail sales figures surpassing expectations, pushing most Treasury yields to new highs for 2024. The 2-year note is edging close to 5%, with the 10-year note climbing 11 basis points to 4.63%.

This movement reflects growing skepticism around the likelihood of Fed rate cuts this year, as strong retail sales signal a robust consumer sector, further complicating the Fed's inflation management strategy.

What’s on the Horizon

This week, all eyes will be on the Federal Reserve, with 13 Fed speakers, including Jerome Powell, scheduled to address the public. The Fed finds itself in a precarious position, balancing last week's high inflation reports and ongoing geopolitical tensions. Their statements will be crucial in shaping market expectations.

Their commentary could either soothe or stir the markets, significantly impacting the direction of mortgage rates.