We are tracking lots going on here at home and globally that are creating more volatility than normal in markets and mortgage rates. Last week we saw mortgage rates rise again thanks to high inflation numbers and stronger than expected consumer spending.
The average rate trend for the 30-year fixed mortgage is nearing four percent, according to Freddie Mac. Although these rates are still stellar historically, it’s been since May 2019 – pre-pandemic – that we’ve seen mortgage rates at this level.
Still, the housing market remains strong – and a great place to be as a homeowner, home buyer, or investor. We saw Existing Home Sales come in strong last week, despite inventory dropping another 50k homes.
Driving markets and the volatility in bonds and mortgage rates is yes, inflation domestically, but also the geo-political tensions happening in Eastern Europe between Russia and Ukraine. When it looks like fighting is imminent, investor funds flood to the safety of the bond market and it can help mortgage rates improve; however, when diplomatic means look to be succeeding, money exits bonds and rates may be spurred higher.
How do we know what to expect? We watch the 10-year Treasury yield percentage for clues as to the direction mortgage rates are likely to take. This week I’m watching 2.05 percent on the 10-year. If the yield stays below that ‘ceiling’, rates are more likely to stay steady, if it drops as low as 1.95, mortgage rates may improve a little. If we see it rise above 2.05, watch out for rising mortgage rates.
As for the data that could affect rates this week, we’ve got two reports on home price appreciation coming out. Case-Shiller price data have been steady at strong rates of appreciation. December’s number beat expectations with a 1.1 percent gain for the month and 18.6 percent for the year-over-year increase. The FHFA House Price Index beat expectations in the last two reports and once again beat expectations rising 1.2 percent for the month and rising 17.6 percent for the year.
We’ll also get a look at the leading indicator for housing, the Pending Home Sales report which gives us the numbers for homes that have gone under contract. After two sharp declines, pending home sales have moved from a climbing to an uncertain trend. A 0.8 percent gain is expected for January.
Friday the Fed’s favorite inflation report, the PCE Index, comes out. Inflation readings are expected at monthly gains of 0.6 percent overall for an annual rate of 6.1. As we know, mortgage rates are sensitive to inflation readings, so upside surprises here could lead to higher rates to end the week.
