Why good economic news can push mortgage rates higher

If you looked at last week's economic news and thought, “Wait…isn't a stronger economy supposed to be a good thing?” — you're right.

But when it comes to mortgage rates, good economic news can sometimes work against borrowers.

That's exactly what we saw last week.

The latest S&P Global data showed U.S. business activity accelerating in September, with its Composite PMI rising from 56.0 to 58.4 — the strongest reading since July 2021. Companies also reported stronger hiring and rising costs.

Normally, stronger business activity and hiring sound like great news.

For mortgage rates, though, there's another side to the story.

When the economy looks stronger than expected—especially when inflation pressures are also building—investors have less reason to expect lower interest rates. That can push bond yields higher, and mortgage rates tend to move with the bond market.

Good economic news → higher bond yields → higher mortgage rates

It doesn't happen every time, and mortgage rates aren't set directly by the Federal Reserve. But this is one of the reasons economic reports that seem completely unrelated to housing can suddenly move mortgage rates.

Freddie Mac's weekly mortgage-rate benchmark reflected some of that pressure. Its average 30-year fixed rate rose to 7.03% on September 24, up from 6.95% the week before. Remember, Freddie Mac's number is a weekly national benchmark—not a live quote and not necessarily the rate an individual borrower would receive.

The day-to-day market was even more volatile. Mortgage News Daily's daily index jumped from 7.26% Wednesday to 7.45% Thursday, before improving slightly to 7.43% Friday.

What this means for you: Don't assume mortgage rates will fall just because inflation is improving in one report—or rise because the economy looks strong in another. Rates are constantly repricing based on what the market thinks the next economic data means for inflation and interest rates.

August new-home sales came in stronger than expected at a seasonally adjusted annual rate of 684,000 homes, up 6.4% from July.

At first glance, that's an encouraging jump.

But there's an important detail buried in the report: the Census Bureau's margin of error around that monthly change was ±19.5%.

In plain English, one month's 6.4% increase isn't enough to confidently say the new-home market has suddenly turned a corner.

There were still an estimated 483,000 new homes for sale at the end of August, representing about 8.5 months of supply at the current sales pace. The median sales price was $393,700, compared with $417,900 a year earlier, although that year-over-year price estimate also came with a wide margin of error.

What this means for buyers: Builders still have inventory to move. Depending on the market and property, that can create opportunities for incentives—such as closing-cost assistance or financing incentives—that may matter more to your monthly payment than negotiating a slightly lower purchase price.

If you're buying or refinancing, hearing a rate from a lender doesn't automatically mean you have that rate locked.

A rate quote tells you what may be available based on the market and your scenario at that moment.

A rate lock generally means the lender is agreeing to honor specified loan terms for a defined period, assuming the loan and borrower continue to meet the conditions of that lock.

That distinction becomes especially important during volatile weeks.

For example, Mortgage News Daily's daily 30-year index moved from 7.17% Tuesday to 7.45% Thursday last week before easing slightly Friday. Your actual pricing can differ significantly based on loan type, credit, points, occupancy, property type and other factors, but the movement illustrates how quickly the broader rate environment can change.

So before assuming your rate is protected, ask:

“Is my rate officially locked, what is the expiration date, and are there any costs or conditions attached to the lock?”

And if you're comparing lenders, make sure you're comparing quotes from roughly the same time and day. Otherwise, you may be comparing two different markets rather than two different lenders.

1. Tuesday: Job openings

The August Job Openings and Labor Turnover Survey (JOLTS) comes out Tuesday. The labor market matters because continued strength can add to inflation concerns, while meaningful weakening can change expectations for the economy and interest rates.

2. Wednesday: Inflation, consumer spending + another look at GDP

Wednesday is a big data day. The Bureau of Economic Analysis releases August Personal Income and Outlays, which includes the PCE inflation data closely watched by the Federal Reserve. We'll also get the third estimate of second-quarter GDP.

For mortgage rates, the inflation numbers could be particularly important. A surprise in either direction can move the bond market quickly.

3. Friday: The September jobs report

The September Employment Situation report is scheduled for Friday morning. Jobs, unemployment and wage growth all help shape the market's view of the economy and inflation—and that can make jobs-report Friday an important day for mortgage rates.

The big picture this week: mortgage rates are still highly sensitive to economic data.

Instead of trying to perfectly predict where rates go next, I think it's more useful to understand your numbers at today's rates—and then know what opportunities you have if the market improves.

I'll be watching the data this week and breaking down what actually matters for homeowners and homebuyers next Monday.

Jessica Eiroa | Mortgage Loan Officer | NMLS #1380149
Five Star Mortgage | Company NMLS #1756744 | 702-285-0633| [email protected]

This newsletter is for educational and informational purposes only and is not a commitment to lend. Mortgage rates, programs, terms and availability are subject to change and borrower qualification. This information is not intended as tax, legal or financial advice.