Mortgage Rates Match Highs of Early 2014

Both stocks and mortgage bonds are getting HAMMERED again today, as the technical picture is UGLY for mortgage interest rates. The Bureau of Labor Statistics (BLS) jobs report came in at 200,000 new hires in the month of January. This was higher than the market anticipated. The big number was Hourly Earnings, which spiked up to an annualized rate of 2.9%. This is a big jump from the 2.5% number reported in the previous month’s report, since Average Hourly Earnings are a forward indicator of inflation. Based on this report, we can anticipate inflation to tick higher in the months to come. Further, since inflation is the arch enemy of mortgage bonds, we can anticipate mortgage interest rates to tick higher in the months to come as well. 

The last time we had mortgage interest rates as high as they are now was in the early months of 2014. Bond prices quickly dipped even below the lows of this time frame this morning. It appears inevitable that rates will continue to tick higher. One challenge will be that we will have limited data to help show where bond prices will find support. This will make anticipating moves more complicated. 

Since early October of 2016, we have seen mortgage rates move from their best levels in many years to their worst. The key change was the election of President Trump. Since he has been in office, the US stock market has climbed to historic highs, the Unemployment Rate hit a 16-year low, and Consumer Optimism has climbed to multi-year highs as well. The change in economic conditions has led the Federal Reserve to raise short term interest rates for the first time in nine years, as well as initiated a massive pull back on the Fed balance sheet. Combined, these forces have pressured mortgage interest rates to multi-year highs. With no end in sight, mortgage rates are expected to continue to climb higher. 

Unfortunately, we see rates getting worse as time goes on. Although not in a straight line, bond prices will likely fall even further. We will maintain our locking bias.