What’s Happening in the Mortgage Market?
The U.S. government funds its annual budget deficits by selling Treasury Bills, Notes, and Bonds. Every few weeks, the Treasury Department holds auctions to sell this debt, and how these auctions go can influence mortgage rates.
Here’s how it works: If there’s strong demand for these Treasuries, mortgage rates tend to stay steady or even improve. If demand is weak, rates can rise. This past week showed both sides of the coin:
- Mixed Auction Results: The 10-year Treasury auction saw lukewarm interest, meaning buyers wanted higher returns to invest. This pushed interest rates higher, with the 10-year Note hitting 4.70%, its highest point since April. However, the very next day, the 30-year Bond auction was a hit! Investors were drawn to its nearly 5% yield, helping to stabilize long-term rates like mortgages.
This pattern highlights an interesting reality: higher interest rates eventually attract buyers, which can help keep rates from spiraling upward.
The Bigger Picture: Deficits and Debt
In 2024, the U.S. ran a $2 trillion deficit, spending far more than it earned in revenue. Federal Reserve Chair Jerome Powell has repeatedly warned that this trajectory is unsustainable and poses long-term risks to the economy. Addressing this issue will play a key role in shaping interest rates in the future.
Job Market: Mixed Signals
Recent job market data has been all over the place:
- The ADP report, which tracks private-sector job growth, came in much weaker than expected.
- On the flip side, the JOLTS report showed an increase in job openings, suggesting companies are still hiring, albeit cautiously.
This mixed news has helped keep bond markets—and by extension, mortgage rates—on somewhat stable ground for now.
Inflation and Oil: Key Factors to Watch
Inflation continues to be a concern, both at home and abroad. If inflation proves to be “sticky” or starts climbing again, it could make it harder for the Federal Reserve to consider cutting rates later this year.
Another inflationary factor to watch is oil prices, which have been on the rise. A barrel of oil recently hit $75, its highest level in months. Falling oil prices could signal relief for long-term interest rates, so this is a trend worth monitoring.
Mortgage Rates: Where Are We Now?
- The 30-year fixed-rate mortgage (FRM) averaged 6.93% as of January 9, 2025, slightly up from 6.91% the previous week. A year ago, it was 6.66%.
Rates have been climbing since mid-September but are showing signs of stabilization. A key level to watch is the 10-year Treasury yield at 4.75%, which served as a peak in 2024. Let’s hope it continues to act as a “ceiling” to prevent rates from rising further.
What’s Next?
This coming week, all eyes will be on inflation. We’ll see key reports like the Producer Price Index (PPI) and Consumer Price Index (CPI), which measure wholesale and consumer-level inflation. Housing data and commentary from Federal Reserve officials will also provide clues about the direction of interest rates.
In A Nutshell . . .
While mortgage rates are higher than they’ve been in the past year, there are signs of stabilization. Staying informed about market trends can help you navigate these changes confidently. We will keep an eye on the data in the weeks ahead to keep you informed amongst information overload.