Mortgage Rates See Dramatic Turn Upward

Mortgage rates are again higher and are now back to the levels we saw in mid-May.  What has happened in two days is laughable as we were basically in standing water for nearly 10 days, but in less than 48 hours, one would think that someone lit a firecracker and are now seeing the rates burst higher.  At one point today, the 10yr had climbed to 2.30% from the close of 2.14% on Friday.  Thankfully the mortgage rates have not followed this dramatic increase.

The stock market was hit today but as is the norm these days in the final hour traders bolted and the indexes rose from the lows early this afternoon when the DJIA was down 257 points. A global sell off in the bond market spread to equities today amid fears that the post-crisis era of easy money from the world’s largest central banks was coming to an end. Those kind of declines or increases are in themselves big moves, especially for those that have a long history but by percentage, not much.

Janet Yellen said on Tuesday that “she does not believe there will be another financial crisis in her (our) lifetime…(may be true if she passes within the next year).  Irving Fisher’s statement in October 1929: “Stock prices have reached what looks like a permanently high plateau.” John Maynard Keynes’ comment in March 1929: “We will not have any more crashes in our time.” He was probably right since most living in 1929 are gone. Bernanke commented in 2007 that “the subprime crisis was contained.” Do economists really have a clue - not so sure.

I do not know when the crash may come, as my timing has been off in the last 18 months.  I do see the DJIA to bubble up to 23K+ before the end. Hang my hat on demographic changes, US and global debt that is going to keep increasing, and central bankers continuing interference in free markets.

In summary, a lot has changed since Monday and the first half of Tuesday.  The current trend is the most aggressive we've seen since early March, and it should be respected until further increases in rates can be ruled out.  It will be difficult to assess the trend in the coming days due to the Independence Day holiday.  Many market participants will be out of the office or on abbreviated schedules.  Essential point, err on the side of caution until further market movement proves itself friendly.