Mortgage Rates Turning Upward

Mortgage rates continued higher today, extending a troubling move up to the highest levels since early March.  Normally, movement in domestic interest rates is driven by economic data and inflation expectations.  This time around, neither of those quintessential indicators are showing much cause for concern.  Instead, it's European market movements that have done the most to push rates higher in the US for the past 2 weeks.

No one wants to see higher interest rates but even at these levels and a little higher are still at historically lows.  In 1984 when I bought my first home, interest rates were at 15%.  Since the early 1980’2, interest rates have declined – are we now going to see them increase?

As I discussed last week, this is a serious move higher.  At that time, I was able to observe that the long term trend toward lower rates has not yet been defeated.  After today's weakness, we have moved to the very edge of that long term trend and have yet to see any indication that rates will bounce back down.  That could happen at any time, but until it does, the best strategy is to lock loans as if that bounce won't happen.  Keep in mind that if such a bounce does materialize, it will make a lock decision seem like a very bad idea in hindsight, but consider if you'd rather have the frustration of NOT locking only to watch rates continue higher.

In summary, more red ink on MBS screens today, as rates rose again.  We have broken previous strong support levels, and the end is not in sight yet.  Floating borrowers need to honestly assess their risk tolerance from here.  Just because rates were lower a week or two ago, it does not mean they are headed back there soon.  A strong jobs report on Friday could take rates to levels last seen last November.  Let's hope it does not come to that, but it is safe to say the trend is NOT our friend for now.