Mortgage Rates Will Be Volatile Heading Into Labor Day Weekend

Lock in a Rate You Like and Call it Good

Mortgage rates are low right now but pinning them down this week could be a real challenge. As Labor Day Weekend nears and Wall Streeters take their head-start on the holiday, trading volume will fall, which will cause mortgage rates in Iowa to get jumpy.

As mortgage rates change, so does the long-term cost of owning a home. Every 1/8 percent adjustment changes a household budget.

Meanwhile, the relationship between “vacation days” 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:

Conforming mortgage rates are based on the price of mortgage-backed bonds
Mortgage-backed bonds can’t trade without a buyer and a seller at a specific price

Waiting Could Cost You $

So, as the week progresses and more traders leave for their respective “extended” 3-day weekends, there’s fewer buyers and sellers left on Wall Street to connect for a trade. As a result, mortgage bond prices move across larger gaps than on a “normal” day which, in turn, translates into much faster, larger changes in rates.

This phenomenon can be exaggerated during periods of economic uncertainty — like what we’re in now — and, furthermore, there’s a lot of important data set for release this week including the FOMC Minutes, inflation data, and August jobs figures.

In other words, rates would have been volatile without the vacation week. The presence of Labor Day just piles it on even more thick.

Mortgage rates may rise this week, or they may fall. I’m really not sure what to think just looking at the economic news. However, if you have a chance to lock something favorable and within your budget, consider doing it. Rates are at all-time lows and likely won’t last.

If you haven’t talked with a loan officer yet about locking in your interest rate, I’d be happy to help you see where rates are at. All of my contact information is on the right hand side of this page.