Mortgage Rates Continue to Climb

Mortgage rates continue to baffle me on what they are doing as they continue to increase even with no news out there to drive them one way or another.  Currently we are seeing them at the highest levels in the last three years.

With nothing driving the market, why would the direction of the bonds head this way.  This has simply been the trend that has taken hold in the last two weeks, and even though we all know that the Fed will increase their rate on Wednesday, it is now what will they do for the rest of the year? 

The Fed Funds Rate is an "overnight" rate--the shortest possible term used by banks to borrower and lend on an overnight basis to meet the shortest-term obligations.  Mortgage loans are dictated by rates on longer-term bonds (specifically, "mortgage-backed-securities" or "MBS").  These bonds are moving up and down every day whereas the Fed Funds Rate has only changed 2 times in nearly 9 years.  Longer-term bonds can also behave differently than shorter-term bonds. 

After my report this morning where I stated that the volatility was high, but that the rates were sideways, they decided to take off and did not stop as we saw the 10yr testing a new high of 2.63%, the last time this was higher was in December.  MBSs lost 37BPS today.

In summary, markets are already sure the Fed will hike.  I would be shocked if they did not do such.  Right now, everyone is looking forward to the Fed’s forecasts.  Right now they are saying three rate hikes, but if they state more, the mortgage rates will continue to go higher.  But would it be nice that the Fed surprises us and sends caution to the wind?  I do not really believe that would happen, so the best bet is to lock the loans down and hope for the best.