Mortgage Rates Today Aug. 12, 2024 — Inflation Back in Focus

Today’s Market

In Brief

Two or three times a month, we get an economic report that can not only move mortgage rates but which can set their direction for days or weeks to come.

Often, the most consequential of those reports is the consumer price index (CPI). And the next one of those is due on Wednesday. So, stand by.

What’s Driving Mortgage Rates?

Last week, we made the assertion: “Were confidence to crumble more, we could see [mortgage] rates fall further and faster than anyone’s been expecting.”

This was correct, but confidence rebounded the very next day.

Worse, mortgage rates ended the week higher than they started it, according to Mortgage News Daily’s figures.

(Forget Freddie Mac’s weekly numbers. They’re great for tracking mortgage rates over the long term. But they’re often seriously out of date by the Thursday on which they’re published.)

We just talked about confidence. But that may overstate the rationality in markets over the last 10 days.

During the notorious Black Monday in 1987, economist Robert J. Shiller polled top Wall Streeters about why they were selling stocks. Far from providing sophisticated reasons, by far the biggest response was: Because everyone else is.

We suspect markets panicked on Aug. 2 and then panicked again (because they feared they’d overreacted) on Aug. 6. Perhaps things are beginning to get back to normal now.

In his New York Times DealBook e-newsletter this morning, Andrew Ross Sorkin wrote: “A sense of calm has returned to global markets this morning, but the economic conditions that triggered last week’s roller coaster swings are still on many minds ahead of a pivotal week.”

Still grounds for hope

Last Friday, The Wall Street Journal (paywall) published an article, What Economic Dangers Is the Bond Market Pricing In?

In answering its own question, it listed two especially critical dangers, both of which could lead to lower mortgage rates:

1. “A key lingering concern for Wall Street is that the Federal Reserve may have left interest rates at prohibitive levels for too long. … Markets are now pricing in that the Fed will need to start loosening policy aggressively starting in September.”

2. “It is undeniable that U.S. job growth is weakening, global manufacturing is struggling to lift off and corporate earnings growth is mostly being driven by spending on artificial intelligence, which could well fail to deliver on its promise.”

So, despite last week’s rise in mortgage rates, we doubt there are reasons to be more pessimistic about those rates than there were 10 days ago.

Over the coming days, months and years, rate decreases still look much more likely than increases. Although, peaks and troughs are inevitable whatever the underlying trend.

What To Watch This Week

Wednesday’s CPI

We already mentioned this week’s big event, Wednesday’s CPI for July. As always, market expectations are crucial to how mortgage rates will fare. For lower mortgage rates, we need to see lower inflation figures than markets are expecting.

The CPI comprises four components. Two cover the month of July. And two are year-over-year (YOY) figures, which show how prices changed between Aug. 1, 2023 and Jul. 31, 2024.

We need two for each period because different prices are measured. CPI comprises all the items that are surveyed. And “core” CPI comprises the same prices after food and energy ones have been stripped out. Food and energy prices tend to be the most volatile and can mask underlying trends.

Here’s what markets are expecting from Wednesday’s CPI, according to MarketWatch:

• July CPI — 0.2%, up from June’s -0.1%

• YOY CPI — 3.0%, unchanged since June

• July core CPI — 0.2%, up from June’s 0.1%

• YOY core CPI — 3.2%, down from June 3.3%

Lower-than-expected numbers could send mortgage rates downward. Higher-than-expected ones could push them higher. And as-expected ones could leave them barely changed.

Other potentially consequential reports this week

Retail sales figures for July are due on Thursday. According to The White House, “[personal] consumption spending makes up two-thirds of the U.S. economy on average.”

So, this report can certainly move mortgage rates. But it currently tends to be less influential than either inflation or employment data.

Also on this week’s schedule are the CPI’s two little siblings, the producer price index (PPI, Tuesday) and the import price index (IPI, Thursday).

The IPI rarely affects mortgage rates but the PPI could move them temporarily on Tuesday. Still, expect any change to be swamped by the following day’s CPI.

Thursday also brings industrial production in July. And a preliminary reading of consumer confidence in August is due on Friday. Any changes to mortgage rates these bring are likely to be limited and short-lived.

Forecasts

This time last week, we wrote, “In the current mayhem, all bets are off for forecasts.” Well, maybe they’re back on now.

Fannie Mae and the Mortgage Bankers Association (MBA) updated their forecasts for future mortgage rates on July 22 and 23. And they brought good news.

As recently as May, Fannie was expecting that 30-year, fixed-rate mortgages would average over 7% during the last quarter of this year. Now, it’s forecasting 6.7%. Meanwhile, the MBA is predicting 6.6%.

Better yet, both expect decreases to continue through 2025. Fannie reckons they’ll average 6.4% over the whole of that year. And the MBA thinks that same average will be 6.0% — and 5.8% in 2026.

Of course, it’s hard enough to predict mortgage rates over a month or two — sometimes, a day or two. Over the longer term, the number of variables multiplies, and the results grow less and less reliable.