15 Dec Hold on, we could be in for a wild ride….
Outside of a brief period from mid-June to mid-July of this year, mortgage rates hit highs not seen since October of 2014. This comes on the heels of tomorrow’s Federal Reserve interest rate announcement, where we are expecting the Fed to raise short term interest rates by .25%. Since this is the first increase we have experienced since June 2006, the markets are unsure how to properly respond. This heightens volatility in most financial markets, which so far has not been good for mortgage interest rates. Many who have been waiting for rates to drop even lower are now rushing in to secure an interest rate ahead of the Fed announcement.
The Consumer Price Index (CPI) for the month of November was released this morning. Although the headline number was unchanged, Core CPI (which strips out food and energy costs) was reported to be up 0.2%. Since low oil prices largely contributed to the 0% increase in the Headline number, the market is adding more weight to the Core figure in considering the reality on inflation. More importantly, the year over year Core rate has now reached the psychological 2.0% level. This was the target set by the Fed a long time ago and so happens to be achieved just one day in advance of the first Fed rate hike in the changing cycle.
Given the tremendous volatility, we will maintain our locking bias. We need to closely watch the market’s reaction to tomorrow’s historic rate hike. We could be in for a wild ride as the market adjusts to a new reality.