Economist demystifies topsy-turvy mortgage market

We’ve been on this amazing see-saw ride where we see inflation is still running very hot but there have been signs of weakness in the economy that have caused bond yields to go down. The thought of being in inflation brought bond yields down and mortgage rates down. The jobs report said there were more than 500,000 new jobs – more than double the number the market was expecting. The 10-year Treasury is up 15 basis points, causing mortgage rates to go up. Mortgage rates have moved up and done, I’d say, half-a-percentage difference in rates ever since the Fed raised rates last month.”

In simple terms: “Oh my God, it’s a rollercoaster,” Cohn said. “Buckle up, it’s going to be a bumpy ride.”

Take last Friday’s jobs report again, for instance. “Now with the strong jobs report, the expectation is that the Fed may have the bandwidth to raise rates by a quarter of a point in September. The big jobs report basically said the economy is still robust – people are still working, people are still making money, people are still spending. And when people spend money, that’s inflationary.”

Cohn said the causation of lower gas prices was a prime example of understanding the relationship among various market dynamics: “The Fed raises rates, everyone panics that mortgage rates are going to go up — mortgage rates did quite the opposite,” she said. That’s largely because inflation is causing people to spend less money, she added. “Gas prices have come down for the past month because people just didn’t want to pay the higher prices. So, they stopped driving. So, in effect, both mortgage rates and gas prices are much more influenced by supply and demand than anything else, including the Fed.”