Weekly Mortgage Rate Update- 4-16-24

The March CPI report released last week was expected to show inflation moderating, instead it came in higher than expected with inflation increasing 0.4% from February, with core CPI now at 3.8%.  After 3 months of higher inflation data, it’s safe to say this is now a trend direction and not just a bump in the road.

At the end of 2023 good progress had been made on inflation and a soft landing for the economy was in our sights, causing the markets to expect rates to moderate in 2024. But inflation progress has stalled and is moving higher.  All while the economy is still very strong and expanding. So far higher rates have not accomplished what the Fed had hoped: Cool the economy enough to bring inflation back to its target.  But these things rarely move in a straight line or go as expected.

The 10-year treasury Note which is known as the bell weather for investor confidence suffered a major blow at the treasury auction that followed CPI release. It was met with very low demand; investors weren’t buying at the yield offered. Bonds offer a safe fixed rate of return which is why inflation is kryptonite to bonds. When inflation is high or increasing, the real rate of return is diminished. The yield (rate) must rise to meet demand.  Long term bonds (like mortgage-backed bonds) will not decline substantially in a high inflation environment. Unless it is a “flight to safety” move because the economy is doing poorly or there is a major uncertainty to the economic or geopolitical outlook. With stubborn inflation and a swiftly rising federal deficit that must be funded through bond issuance this will weigh on the rate outlook for the foreseeable future.  

Yesterday rates rose higher still on the heels of a very hot retail sales reading coming in more than double the expectations with the February reading revised higher too. 

Rates have moved up quite a bit since last week and now we are in a higher trading channel.  All buyers out shopping for homes should update their approvals.    

* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.