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Blog posted On February 26, 2025
It’s been a good couple of weeks for mortgage rates. The bond market (which dictates rate trends) is on a six-week gain streak. Read more about what’s been going on in the market (and what’s to come the next week).
Worse economy = better rates
As we know, when the economy is doing worse (or shows signs that it could do worse in the future), more people tend to put money into bonds. And when the bond market is hot, mortgage rates are cooler. In recent weeks, we’ve had a few key economic reports come in with weaker numbers. First was the Producer Price Index (PPI). The index itself is less important than its implications for inflation. The PPI from a couple weeks ago showed implications that inflation on the PCE index for January could be lower. That PCE index is scheduled for release this Friday, so we will see if the predictions ring true. Lower inflation numbers = better for rates. Another report that helped rates a couple weeks ago was the retail sales report, which came in much lower than expected. Lower sales indicate slower economic activity.
Goodbye stocks, hello bonds (and lower rates)
The second bout of good rate news came in the form of some comments from the Treasury Secretary, more economic reports, and a stock sell off. At the end of last week, we heard some comments from Treasury Secretary Scott Bessent regarding the probable mix of future Treasury debt. This helped bring rate trends down to two-month lows. More rate improvement came on Friday thanks to S&P Global's service sector index dropping to the lowest levels since mid-2023. Piling onto the good news for rates, there was a big stock market sell off at the end of last week. “Stock market weakness has a mixed relationship with bonds/rates,” wrote Matthew Graham of Mortgage News Daily. “There are times where they move in unison and other times, in opposite directions. [Friday’s] version involved organic, heavy selling in stocks which ultimately pushed some investors into the bond market as a safe haven. When investors buy more bonds, rates drop, all other things being equal.”
In other housing news…
Builder sentiment dropped sharply in February following the news about potential tariffs, which could send lumber costs soaring. “With 32% of appliances and 30% of softwood lumber coming from international trade, uncertainty over the scale and scope of tariffs has builders further concerned about costs,” said NAHB Chief Economist Robert Dietz.
For now, rates will likely be hovering around the same levels as investors wait and see what Friday’s inflation report holds. We’ll keep you posted on any updates and please let us know if you have any questions!
Sources: Bloomberg, MBS Highway, Mortgage News Daily, Mortgage News Daily, Mortgage News Daily, Mortgage News Daily
