Thursday marks the weekly release of the industry’s most-cited mortgage rate survey. All types of news outlets rely on the poll to generate reports once a week. These have been particularly popular lately, but only because bad news sells.
The only problem with this message in this case is the fact that it is no longer accurate. Due to the methodology of the survey, some things may have changed by the time the numbers are released on Thursday morning. That was the case throughout 2022 and is no exception today.
Thankfully, the survey was at least moving in the right direction, pointing again to an abrupt rise to the highest rates in years. But the 30-year fixed rate figure (5.11%) is way too optimistic compared to current reality closer to 5.375%.
It is difficult to discuss the reasons for the rise in interest rates during the day as so much of it is due to general phenomena. The most important of these are inflation and the related central bank response. Inflation can be viewed as a component of interest rates. The higher it goes, the higher interest rates will be, all other things being equal, and the market’s running estimate of inflation hit another new long-term high today.
Inflation is also forcing the Federal Reserve and other central banks to tighten monetary policy. Yes, the Fed is about to raise the fed funds rate, but the bigger concern for mortgage rates is the soon to be announced “normalization” of the Fed’s balance sheet. It’s a fancy way of saying they’ll buy less mortgage-backed bonds and Treasuries — actions that do more than almost anything else to influence the momentum for longer-term interest rates.
At this point is the market run scared from the Fed’s messages – brace for the worst and hope for something that isn’t quite so bad. Traders fear an impending normalization announcement and a potential for the Fed to become even more aggressive in removing rate-friendly measures. These fears were reinforced by several Fed speakers today, and a similar tone was echoed by other key central bankers. But this is where it gets difficult. It wasn’t so much today’s individual comments that drove prices higher, but the comments definitely did nothing to allay market fears.