Mortgage Rates Will Remain Low, Then High, Then Low

Mortgage rates are always a little jumpy near the holidays and this week doesn’t look to be any exception.

With the Labor Day approaching, many traders will get a head-start on the holiday weekend and leave early.  As trading volume gets lower, volatility tends to increase.

The relationship between these holiday weekends and mortgage rate volatility is an interesting one; based more in scarcity than market fundamentals.

Rates tend to get volatile near holidays because of two inter-related facts:

1. Mortgage rates are based on the price of a specific mortgage-backed bond
2. Mortgage-backed bond prices are established when a buyer and seller agree to a price

Traders are these buyers and sellers.   Less traders, less buyers and sellers.   As the potential partners in a trade become scarce, there are faster, larger changes in rates.

Another item that causes faster, larger changes in rates is an economic calendar as loaded as this week’s.  We get the Fed minutes, inflation data and then the August jobs report hits on Friday when Wall Street is a near ghost town.

Mortgage rates would have been volatile this week no matter what.   Add the Labor Day travel and you have a perfect storm brewing.

Mortgage rates may rise this week, or they may fall.  Realistically, they’ll probably do both at least once.

If you have the opportunity to lock in your rate and it meets your budget, it might or might not be a bad week to do so.  You might miss out on saving an extra 0.125-0.25%, but protect against a more significant loss if rates go up.