Weekly Mortgage Rates Are Up as Investors Weigh Inflation and AI

Mortgage rates are up slightly this week, mostly due to a spike on Wednesday after new data showed that inflation grew faster than anticipated in July. Rates have since settled back to “normal” (by this week’s standards).

And then … the Fed didn’t raise interest rates in July. Forecasters are doubting whether it’ll happen in September, either, with the futures traders behind CME Group’s FedWatch tool currently projecting a 65% chance that central bankers will keep rates the same again.

That’s not to say that mortgage borrowers won’t be absorbing other rising costs. The Bureau of Economic Analysis released the Personal Consumption Expenditures Price Index on Wednesday morning, with data showing that the Fed’s preferred measure of inflation went up a little higher than expected (0.2%, vs. the forecasted 0.1%).

Even if the Fed does hold borrowing rates steady, mortgage rates could continue rising a bit, as lenders hedge against the weakening value of the dollar.

Water isn’t the only resource that AI systems demand — they also need oodles of cash. Companies like Microsoft and Oracle are selling loads of bonds to quickly raise the enormous capital needed to build the infrastructure propelling the AI boom. Amazon sold $25 billion in bonds in early July alone as part of its data center funding strategy.

When massive amounts of bonds from these tech giants flooded the market, government bonds suddenly faced major competition for investor dollars. This caused the value of these government bonds to plummet, sending yields rocketing (bond prices and yields have an inverse relationship).

Today’s mortgage rates might be higher than what you’re comfortable with, but you can still play the market strategically to pay as little interest as possible.

For instance, let’s say you’re buying a $400,000 home, and you’ve got $20,000 to put toward your down payment. Instead, you could put down the minimum 3% required, which would be $12,000. You could use most of the additional $8,000 to purchase two discount points, which, using this week’s average rate of 6.57%, would bring you down to 6.07%.

In this scenario, you’d break even on your points purchase after about five years in the home.

Mortgage lenders tend to react to indications that the war is progressing toward peace talks, since a resolution would ease the inflation pressure that’s been keeping rates elevated. If a lasting agreement is reached and oil prices stay down, we could see mortgage rates drifting lower — which could be a good time to lock in.

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