Weekly Mortgage Rate Update- 8-22-23

I peeked at the headlines while I was on vacation. I was reluctant to come back since rates have move up steadily over the past few weeks. Now firmly entrenched in the 7’s. Just in the span of 31 months, we have gone from the lowest mortgage rates in history to the highest in 22 years.

The catalyst to the recent spike in mortgage rates is the ever-increasing level of debt. The Treasury announced that they would need to increase borrowing needs for the quarter from 733 billion to 1 trillion by the end of September.

On the heels of this, Fitch downgraded the US Treasury debt rating from AAA to AA+ due to “steady deterioration in standards of governance over the last 20 years.” Then, Moody’s also lowered credit ratings on several small to mid-sized banks and financial firms.

Signaling their concern over the rising deficit, increased risk, and rising borrowing costs due to higher rates.

For years under ZIRP (Zero Interest Rate Policy) the U.S. treasury had the luxury of paying little to no interest on borrowing needs. Now, a snowball effect of mounting deficits on top of rising borrowing costs to fund our government. It comes down to supply and demand, rates must rise to spur the demand to meet the growing supply. 

The Wall Street Journal noted recently that Americans with cash are moving it into treasuries, 36 billion just last week as higher rates entice cash to move from banks and stocks and into virtually risk-free earnings of over 5%. The ripple effects of the shift in policy from ZIRP haven’t fully developed yet.  

We begin this week with rates still moving up as we haven’t found our footing yet. Rates rising steadily after a dismal 30-year bond auction was met with weak demand last week, and all the technical supports didn’t hold.

For the week ahead, we look for the Fed speakers at the annual Jackson Hole symposium being held to either try and cool the bond sell off, or stick to the script, Powell takes the stage Friday.  A softer tone from the Fed this week, and a stronger 20-year bond auction on the schedule could help stabilize rates.

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