It looks like mortgage rates will be on the rise again after a good reprieve in early April.
We all know they had a bad March due to the start of the ongoing conflict in the Middle East.
But he then reversed course in the first half of April to reach a surprisingly low 6.25% or so on the 30-year fixed rate.
Now it looks like they’re on the upswing again, perhaps because the situation doesn’t seem destined to be resolved anytime soon.
Throw in oil at around $120 per barrel now and you can see why. Inflation, the enemy of mortgage rates.
Bond Yields and Mortgage Rates Rise with Oil Near $120 a Barrel
I’ve been saying that things will get worse before they get better.
I was actually surprised that mortgage rates performed well in the first half of April, despite so much uncertainty in Iran.
Sure, mortgage rates are still higher than they were in early March, but a rate of around 6.25% for the 30-year fixed rate almost seemed too good to be true.
Especially since the less than 6% rate we saw before the crash was the best rate we had seen in 3.5 years.
So it wasn’t like we were working at high levels and had a lot of room to go down.
Now it seems that the market is starting to come to terms with the fact that the situation in the Strait of Hormuz is very bad.
And that oil with a price of almost $120 a barrel will make a big impact on the economy, first on fuel prices and eventually on all other goods from energy to everything including manufacturing and logistics.
Bonds hate inflation so we’re starting to see bond yields rise again, with the 10-year bellwether hitting 4.40% today.
It was below 4% in early February before the dispute and rose to 4.45% in late March before hopes of a quick end to the dispute pushed yields lower.
They have been quietly climbing over the past week and now look vulnerable to a move above that 4.45% level.
Fixed 30-years tend to follow bond yields, so if that happens, we may see rates pushed back to 6.50% or higher.
Next Week’s Jobs Report Could Cause More Damage to Housing Prices
Today is Fed chairman Jerome Powell’s last meeting and press conference as chairman.
He may stay on as Fed governor after incoming chairman Kevin Warsh takes over, but that remains to be seen.
Either way, the biggest piece of data the new Fed will have to go on will be the April jobs report, which will be released on May 8.
If that comes hot (or warm), it could lead to higher mortgage rates when combined with these energy-bound inflation worries.
That could make it even more difficult for Warsh to justify any rate cuts as the new Fed chair.
On the other hand, if it’s something else and shows little job creation, it would be easy for Warsh to look beyond the potentially temporary inflation and suggest cuts.
Mortgage rates are not set by the Fed, but take cues from Fed rate expectations, which are driven by underlying economic data.
So the April jobs report could be the one that decides whether this rise in mortgage rates gets more legs, or if it fizzles out again.
