Mortgage Rates Near 24-Month Highs

Mortgage rates spiked abruptly today, now bringing them close to the highest levels in the last 24 months – another bad day in the bond market.  Not only did the prices fall but the bellwether 10yr note broke into new high yield that had held for a few days. Crude oil still running higher on the surprising OPEC agreement to cut 1.2 mil barrels/day from current production. Mixed together with the present belief the US economy will begin to grow, wages will increase and taxes will - be cut when the Trump administration gets going. Also, adding pressure - the economic data out of Europe has been improving.

The situation is more troubling considering the fact that rates were not too far above all-time lows less than a month ago.  The pace of losses has only been seen 2 other times in the last 30 years (in 1987 and 1996).  For the record, 2013's taper tantrum resulted in a bigger rate spike than we are seeing currently, but it took more than twice as long to play out.  There were no 4-week periods of time in 2013 that compare to rise in rates seen over the past 4 weeks.  For those who recall the vicious rate spike at the end of 2010, the current pace is just a bit faster. 

Tomorrow November employment expectations are that unemployment will stay at 4.9%, non-farm jobs +170K, private jobs +155K (on Wednesday ADP reported private jobs up 216K, average hourly earnings +0.2%. There are not any published estimates on the U-6 or the labor participation rates but they are two of the key components.  

Large cap stocks continue to increase, but the broader market though is slipping, especially the NASDAQ with the concerns that borrowing costs will increase as rates move higher. If you are watching the dollar, it also weakened today - no reason to make any deal out of it but keep the dollar in focus. If the buck begins to slip after the recent huge increases, it will help slow the increase in interest rates.  

The increase on the 10yr note easily broke into another level today, climbing above 2.41%. Adds to the bearish outlook - to reverse or slow the ascent it is going to require a huge shift in sentiment.  The momentum is very strong, as I have never seen this kind of momentum in the bond markets since the beginning of the year when the 10yr declined from 2.30% to 1.50% in a one month move. This one has driven the 10yr up from 1.80% on 11/8 to 2.44% in just 17 sessions.

The higher rates go - the more the boundaries of past precedent are stretched, the more likely we are to see a rebound.  The catch is that there's no way to know when that rebound will happen until it's underway.  That makes floating very dangerous, and locking potentially very frustrating (because it's clearly the safer bet since the election, but increasingly runs the risk of being ill-timed). 

In summary, some people may think it is funny, but they are terribly wrong.  When borrowing, costs move higher, this much, this fast, it is toxic to many areas of the economy.  Unfortunately, it takes a while to surface.  Locking in is the only option now.  Sure, this can all change, but for now, the only play is defense.  Take what you can and move along.  It is too bad that mortgage rates for average families buying a home as this environment has added an undue burden – and it really should not be this way for them.