Well spooky season is here and I think for Halloween this year I’m going to go as a chart of mortgage rates over the last month. I can’t think of anything scarier than that! I’ll do my best to break down what my best guess as to why the sudden increase in rates.

It was interesting looking back over the last two years to see when mortgage rates peaked and to my surprise both occurred in October! That’s right for both 2022 & 2023 rates peaked in October before heading back down. Why is that? Most of that can be explained by the fact that the Government fiscal calendar ends in September. A new year means a new round of funding is needed and that funding comes in the form of new issuances of bonds. Econ 101 tells us that the more supply the less demand there is. Mortgage rates are highly correlated to the bond market so if there is a flood of new bonds then buyers will demand a higher price to absorb all those bonds. Hence the higher rates. For both 2022 & 2023 rates had a meaningful drop by mid-November so hopefully that trend will continue. However the election could throw a wrench into that theory.

A few updates back I said that the election most likely won’t impact mortgage rates. The one caveat I would add to that is that if one party controls runs the tables then I do think mortgage rates will not like that since the easier it is to pass legislation the more likelihood that higher deficit spending will occur. The bigger the deficit the more bonds will have to be issued. If we do get divided government then I don’t think there will be much impact on rates. I do think there is some of that risk being priced into the market now. Also the October jobs report comes out next Friday so this could be a bumpy few weeks here, buckle up!

Recap:

• Mortgage rates have risen rapidly in the last two years in October, this year is no different
• New Government debt appears to be the cause
• If one party runs the tables in the election we could see rates increase further
• Next jobs report comes out next Friday November 1^st