Mortgage rates dip below 7% after retail sales surprise

This Valentine’s weekend brought an unexpected gift to the housing market as a weaker-than-expected retail sales report sent the 10-year yield tumbling, bringing mortgage rates down to under 7%. Although it’s a welcome decline, we’re still seeing rates considerably higher than the near-6% levels we enjoyed for a fleeting moment last year.

It’s been a rollercoaster week for the bond market, particularly after a relative calm in mortgage pricing. Let’s look at what happened in this wild week for rates and bonds.

Wednesday: CPI inflation report

The drama started with the release of the Consumer Price Index (CPI) report, which came in hotter than anticipated. This prompted a swift jump in the 10-year yield from 4.52% to 4.66%, pushing mortgage rates up from 7.04% to 7.13%, according to Mortgage Daily News.

The hot inflation report got people talking about fewer rate cuts and saying the Fed may even need to raise rates. I discussed the CPI report on this episode of the HousingWire Daily podcast and talked about how the early CPI inflation reports tend to be hotter than normal — and the Fed does know this reality.

Thursday: PPI inflation report

When it seemed like mortgage rates were on a relentless climb, the Producer Price Index (PPI) added to the tension by coming in higher than expected. There was a prevailing sentiment that the bond market would continue on its upward trajectory, sending mortgage rates higher. 

However, the core components of that PPI report, pivotal for the Fed’s inflation tracking, showed softening signs, particularly in the Personal Consumption Expenditures (PCE) inflation report. As a result, the 10-year yield dropped to 4.52%, and mortgage rates responded in kind, offering a glimmer of hope for potential homebuyers. I will dive into the crazy dynamics of this on Monday’s episode of the HousingWire Daily podcast to offer clarity.

Friday: Retail sales

The cherry on top came Friday when retail sales figures missed expectations, leading to a further dip in the 10-year yield and pushing mortgage rates comfortably below that crucial 7% mark. It’s been a crazy week for financial markets, but the silver lining is that borrowers now have a chance to benefit from lower mortgage rates just in time for the long weekend!

Just remember that if the economic data gets weaker, then the 10-year yield and mortgage rates will go lower, like they have the past two years. However, to get mortgage rates below 5.75%, you really need the labor market to break. Or you need the Fed to cut the Fed funds rate one more full percent, making it is easier to get mortgage rates toward 6% for the marketplace.

What a whirlwind of headlines this week! It can be quite confusing, and I completely understand — this has probably been one of the more perplexing weeks we’ve had. However, when everything is taken into account, mortgage rates remain high. The 10-year yield and mortgage rates are still nearer to my peak forecast of 4.70% and 7.25% than to my lower range forecast of 3.80% and 5.75%.