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Following a particularly volatile couple of weeks, the equity markets went into recovery mode last week, with the S&P500 seeing the best weekly gain in 5-years, to end the week 4.9% short of its record high.
In contrast to previous weeks, the equity markets have moved on from the sheer panic of rising Treasury yields that have come in response to signs of a pickup in inflation in recent weeks.
Following the market response to the wage growth figures at the start of the month, we saw January inflation figures come in better than expected on Tuesday, with import and export prices on the rise, according to figures released on Friday, suggesting that pressure is to build further.
10-year Treasury yields ended the week at 2.87%, which was down from above 2.9% levels hit during the past week that pushed mortgage rates higher from the previous week.
Refinancing rates are currently as follows:
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30-year fixed refinance rates rose from 4.23% to 4.33%,
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15-year fixed refinance rates rose from 3.56% to 3.67%.
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10-year fixed refinance rates rose by 12 basis points to 3.62%.
Freddie Mac rates for new mortgages last week were quoted to be:
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30-year fixed rate loan rose to from 4.32% to 4.38% last week and up from 4.15% a year ago.
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15-year fixed rates rising from 3.77% to 3.84% and from 3.35% from a year ago.
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5-year fixed rates stand at 3.63%, up from the previous week’s 3.57% a 3.18% a year ago.
Looking at the moves from a year ago, it may not look so bad but, when considering the fact that 30-year fixed mortgage rates averaged 3.78% in September of last year, that’s quite a leap and equivalent to an additional $100 per month payment on a $300,000, 30-year fixed loan.
For those looking to buy, the rise in rates over the last 6-weeks will be a painful one, but rates are still well below record levels and, while some may be looking to sit back in hope of a reversal in trend, the general trend is upward.
FED monetary policy is unlikely to go into reverse anytime soon and, with inflationary pressures beginning to build, a March rate hike could result in the financial markets beginning to price in a 4th rate hike for this year. Such a move would certainly push Treasury yields higher and see mortgage rates move much closer to the 5% mark, which would be a doomsday scenario for some.
It’s quite a shift from late December when Freddie Mac had projected that 30-year fixed mortgage rates would peak at 4.4% in 2018. We’re almost there and there seems to be little evidence that we’re anywhere near a peak, with inflationary pressures only beginning to appear within the economic indicators.