Mortgage rates WISH they were still at 2.97% – the number transmitted today by Freddie Mac’s weekly survey. Freddie’s data is accurate when it comes to capturing general trends over time, but it can really fail when the bond market is going through high volatility.
To say that the volatility of the bond market has recently been high is a euphemism for extreme proportions. Things are happening that have not happened in years old. Some measures of volatility rival the March 2020 covid panic, only this time there is no other catalyst than the market movement itself.
Today was by far the worst the group when it comes to the latest wave of volatility. Almost all mortgage lenders have added another eighth of a percent to their 30-year fixed rate offerings. Over the past week, most creditors were 0.25-0.375% higher. And compared to the beginning of last week, many lenders are HALF POINT more. That is, what was 2.75% before, now is 3.25%. What was 2.875% is now 3.375%.
Are these rates high in a historical context? No way. Before coveted, they would be in line with low records. But in relation to recent casualties, this rate hike is getting as steep as we’ve seen in the past few decades – not exactly on the same level as the worst criminals, but close enough to be on the same level.
The rest is a repeat of the most recent comment:
Why are rates going up so quickly?
This is a simple question with a long answer. Last week’s comment come in more details to answer, but the short version is that the bond market has been pointing to rising rates since August 2020 and the latest increases represent only an acceleration of that process. As for the reasons behind this reason, here are some points for those who don’t want to click on the link above:
- Bonds / rates initially represented a bleak reality in mid-2020 and that reality became less threatening in some ways at the end of the year, and significantly less threatening in 2021
- The case count is plummeting in 2021 and the vaccine distribution – although not perfect – is going very well (60mln + doses so far)
- The prospects for fiscal stimulus increased dramatically with the democratic sweep of Congress in early January, and the fiscal stimulus puts obvious upward pressure on rates
- inflation metrics have sparked conversations about the return of inflation to the threat stage of interest rates after more than a decade being extremely moderate
- economy doing better than many expected in terms of adapting to constraints related to ambition
- Optimistic attitudes about people being able to return to the labor market in greater numbers after the widespread distribution of vaccines and a full-time return to school.
- generally stronger economic data, despite recent blockages
- the belief that a combination of fiscal and monetary stimulus will continue to support economic resilience and inflation
- the certainty that the Fed will buy fewer bonds as soon as the economy justifies the change, thereby prompting a “taper tantrum” part 2.