Oil Versus Economy – Two forces are now competing to determine mortgage rates
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Brian Manning here. The weekly update. Let’s get right to it. So the big story this week—guess what—oil, not housing. So we got tensions in the Strait of Hormuz which is disrupting global oil shipping. You know 20% of the oil moves through that route.
What happened? So we had several ships that were attacked or damaged this week. One of the vessels was disabled and really partially blocking the route. And like I already said, 20% of oil moves to there. So there’s a lot of concerns about oil in the world right now. Oil itself really jumped between $10 and $20 a barrel this week.
What does that mean for us as consumers? That means per gallon oil and gas went from $2.90 to an average of $3.30 per gallon. Why does this matter? Higher energy prices creates inflationary concerns. Inflation is really the enemy of mortgage rates and it keeps them elevated.
But at the same exact time, we had a weakening economy. Today we get the Friday jobs report. This is the BLS. This shows that February lost 92,000 jobs and unemployment moved up to 4.4%, and the prior three months were revised. And now we’re flat employment growth in this country for the last three months.
What does this mean? The labour market is cooling, but they’re still encouraging signs for real estate here because mortgage rates move lower. And it just showed us that buyers will come out when rates improved, as they did last week. And this week, mortgage applications for purchases are up 6% this week and 10% year over year. Refinances are up 109% year over year. So housing improves very quickly as mortgage rates improves. The forecast for housing over the next 12 months is appreciation at 4.4%.
What’s the takeaway? Two forces right now. Number one, a weak economy helps mortgage rates. That’s the labor market. But number two, oil prices are pushing inflation higher. And that’s what’s dominating everything this week. So we haven’t seen the move lower in mortgage rates like we normally would. Typically you get a 92,000 job loss month and mortgage rates would go down. It would be a dance and a party for mortgage backed securities. But it isn’t because the world right now is dominated by oil.
I’m around all week. Have you got any questions? Give me a call. I want to give a quick shout out to Paul Orland and his recommendations mean changes. Thanks, Paul, I appreciate everything. Hope you all have a great day. Happy Friday. Talk to you soon.
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