The graph below shows the relative correlation of oil prices and mortgage interest rates. You can see that oil prices are much more volatile than mortgage interest rates, and occasionally their paths briefly diverge, put on the whole, the direction of oil is a pretty good indication of where mortgage rates are headed.
Since reaching three month highs toward the end of September, oil prices have plunged 16%. WTI oil hit $81/bbl back in January and fell to $56 yesterday. We like that because of the disinflationary impact on our economy. For example, the national average price for a regular gallon of gasoline has fallen to around $3 from the $5 highs in June of 2022.
Before the government shutdown three weeks ago, reports showed cracks in the labor market from downward payroll revisions, rising layoff announcements, and intentions of slowing hiring. There was also a sharp contraction in the Philly Fed Manufacturing Index despite the Empire State Index’s rebound, which corroborates the likelihood of future job losses.
Lower oil and gas prices alongside soft labor market data, as well as expectations for further Fed rate cuts starting next week are positive signals us cheerleaders of low interest rates.
