Mortgage rates WISH they were still at 2.97% – the number transmitted today by Freddie Mac’s weekly survey. Freddie’s data is accurate as it catches on over broad trends over time, but it could really fall short if the bond market is highly volatile.
To say that volatility in the bond market has recently increased is an understatement of extreme relationships. Things happen that have not happened yet years. Some degree of volatility is the opposition to the panic in March 2020 around Covid, but this time there is no other catalyst than the market movement itself.
Today was by far the worst of the bunch when it comes to the most recent volatility. Most of all mortgage lenders added another eighth percent to their 30-year fixed-rate offer. Over the past week, most lenders are 0.25 -, 375% higher. And compared to the beginning of last week, many lenders are a full HALF point higher. In other words, what was 2.75% is now 3.25%. What was 2.875% is now 3.375%.
Are these high rates in a historical context? Not at all. Before they are decided, they will be in line with record lows. But relative to the recent lows, this pace increase will be about as sudden as we’ve seen over the past few decades – not quite on par with the worst offenders, but close enough to be in the same league.
The rest is a repeat of the most recent comments:
Why are rates suddenly rising so fast?
This is a simple question with a long answer. Last week’s comments go in larger details to answer this, but the short version is that the bond market has shown rising rates since August 2020 and that the most recent increases are only an acceleration of the process. As for the reasons underlying the reason, here are some points for those who do not want to click the link above:
- Bonds / rates initially became a grim reality in mid-2020 and by the end of the year, reality became less threatening in some ways and significantly less threatening in 2021.
- The number of cases will decrease in 2021 and distribution of vaccines – although not perfect – is going fairly well (so far 60 mln + doses)
- Fiscal stimulus prospects have increased dramatically with the democratic sweep of Congress in early January, and fiscal stimulus puts clear upward pressure on rates
- inflation measures talked about inflation returning to the stage as a threat to interest rates after more than a decade that has been extremely subdued
- economy performs better than many people expected in terms of adapting to coherence-related constraints
- Optimistic attitudes about people returning to the workforce in greater numbers to widespread vaccine distribution and return to full-time personal training.
- generally stronger economic data despite recent closures
- the belief that a combination of fiscal and monetary stimulus will support economic resilience and inflation
- the certainty that the Fed will buy less bonds once the economy justifies the shift, thus inciting a “taper tantrum” part 2.