Mortgage rates have enjoyed 2 days of uncommonly big gains. Granted, they come at the expense of horrific events and an exceptionally high starting point, but such is the nature of the underlying bond market.
In other words, we’re historically more likely to see strong surges toward lower rates amid stronger, broader surges toward higher rates. Unexpected events that cause significant geopolitical uncertainty frequently serve as catalysts. Thus, the past two days were a bit of a perfect storm for one of these periodic corrections.
These sorts of corrections tend to last a day or two and then the market gets back to business. Today was the ‘back to business’ day in the current example. It might not have been so bad were it not for the details of the Consumer Price Index (CPI), an important report on inflation.
Inflation is one of the main reasons that rates are as high as they are. If the data fails to show progress back toward more normal levels, rates won’t come down. Today’s data arguably showed the opposite of progress, particularly in the services sector.
The bond market (which dictates mortgage rates) began losing ground (which implies higher rates) immediately following the release of the CPI data. Later in the day, a scheduled auction of 30yr Treasury bonds was met with lackluster demand, thus pushing rates even higher.
Most mortgage lenders were forced to increase rates at least once in the middle of the day, and that’s on top of the moderately higher levels out of the gate this morning. Rates aren’t as high as they were at the end of last week, but they’ve taken a solid step back in that direction. That leaves the average lender well over 7.5% and closer to 7.75% for a top tier, conventional 30yr fixed scenario.
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