After rebounding sharply last week, mortgage rates may finally have found stable ground. Despite easing inflation, the strong jobs report caused yields and the mortgage rates that shadow them to rebound sharply in October. Higher inflation-adjusted wages are supportive of consumer spending. While headline inflation fell, mostly due to lower energy prices, core inflation — measured by the consumer price index — accelerated. Core prices increased at an annualized rate of 3.6%, up from 3.4% in August and 2% in July. The index is up 3.3% year-over-year.
Stronger economic data and the prospects of higher business investment returns lower the demand for safe assets, such as Treasury securities. That’s led to rising Treasury yields that mortgage rates tend to follow. A strong economy also means smaller and potentially fewer Federal Reserve rate cuts. On one hand a strong labor market is good for potential home buyers. On the other hand, it means mortgage rates aren’t likely to decline.
Expect more mortgage rate volatility as traders process the incoming retail sales data. A glimpse into the financial health of consumers will likely change their forecasts for economic growth and the path of the fed funds rate.