Three Things to Know About How Headlines Shape Mortgage Interest Rates

By Ryan Casey Stephens,  FPQP®
Special Contributor

Welcome to another week, one that is already a mixed bag of good and bad. On the one hand, the average 30-year fixed rate just hit its highest level since the 2008 financial crisis, and at a time when we expected rates to drop. At the same time, inflation looks poised to drop once again, and Texans can finally count on slightly lower property taxes. There are plenty of headlines to cover, so let’s jump right into this week’s Three Things to Know. 

A Victory For Us All

Let’s begin with good news —  some relief is finally in store for Texas homeowners. According to reports, the state house and senate have reached a deal to lower property taxes. The bill still needs to clear both bodies with a vote before the governor can sign it, but Abbott has already declared his intent to see the legislation become law.

The compromise would increase the homestead exemption from $40,000 to $100,000, reducing the school tax burden by 10.7 cents per $100 valuation, and allowing extra relief for senior homeowners. The most exciting part – the new changes would take effect for the 2023 property tax year. As we continue to battle inflation and costs on nearly all goods continue to increase, we’ll take any help we can get to improve the cost of housing. 

Inflation And The Fed Are Top of Mind 

Mortgage bonds are experiencing a positive start to the week as we await the results of two important inflation reports. On Wednesday, the latest Consumer Price Index (CPI) data will quantify last month’s inflation for the goods we Americans purchase. The overall final inflation figure as well as the core reading, which removed energy and food prices, are expected to see a healthy decrease. Thursday will reveal the most recent numbers from the Producer Price Index (PPI), which records the changing cost of actually producing the goods we buy.

The results of those reports might have temporary effects on mortgage rates each day, but there’s one variable they seem unlikely to change. After pausing rate hikes last month, there is now a 92 percent consensus the Fed will hike once again by .25 percent later this month. Jerome Powell’s stated intention is two more hikes this year — with this month being the first of those. Mortgage rates don’t have a direct relationship with the Fed’s rate, but with both numbers increasing by more than 5 percent in the past two years, we must wonder which one will give way first. 

Jobs Not Adding Up

On Thursday we’ll also see new Initial Jobless Claims figures. The job data we’ve seen in the last few weeks has only caused confusion. Last week’s ADP Employment data showed the U.S. added 497,000 jobs in June, which was far above the expected number of 228,000. Despite that, last week’s jobless claims increased — 12,000 more than estimated. What’s more, 60,000 of the new jobs added were government positions. The confusion and difficulty with understanding the labor situation is taking its toll. Thursday and Friday are becoming the most volatile days of the week for mortgage rates, and it’s likely this week will be no different. 

Ryan Casey Stephens FPQP® is a mortgage banker with Watermark Capital. You can reach him at [email protected].