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What’s Ahead For Mortgage Rates This Week : November 22, 2010

November 22, 2010 by Scott Kinne Leave a Comment

CPI Oct 2009-2010Mortgage markets worsened last week as the U.S. dollar gave up ground in currency markets, and inflation concerns mounted. In response to the events, conforming mortgage rates rose for the third straight week.

Mortgage rates have now climbed by as much as half-percent since the start of the month, and Freddie Mac reports average loan fees to be higher, too.

The 7-month rally in rates may be nearing its end. The 30-year fixed rate mortgage is at a 4-month high after reaching an all-time low just 3 weeks ago.

The abrupt change in rates makes for an interesting study in expectations, and how they can influence a market.

Remember, inflation is bad for mortgage rates. Inflation devalues the dollar which, as a consequence, devalues repayments made to mortgage bond holders. As a result, when inflation is present, mortgage bonds tend to sell-off which causes mortgage rates to rise.

This is what’s been happening these past 3 weeks. However, we’re not in an inflationary environment. To the contrary:

  1. The Federal Reserve has said inflation is too low to be economically healthy
  2. Last week, the Cost of Living posted its lowest year-over-year gain in history

But mortgage rates are rising anyway. This is because global investors believe the Fed’s most recent market intervention — a $600 billion bond purchase program — will later lead to inflation. Just on the expectation, markets are behaving like inflation is already here.

This week is holiday-shortened, and rates should remain volatile. There’s a bevy of data including the Existing and New Home Sales reports, consumer confidence data, and the FOMC Minutes from the November 3 meeting.

If you haven’t locked a mortgage rate, consider locking one today. Rates have farther to climb than the fall.

Filed Under: Weekly Review Tagged With: Mortgage Rates,Inflation,US Dollar

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Scott Kinne

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Vice President, Senior Loan Officer
NMLS ID #182351
Office: 703.293.6146
Mobile: 571.237.6241
Fax: 571.317.2478
skinne@fhmtg.com

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