Mortgage Rates Surge to 8 Month Highs

Happy Friday from Local Mortgage!

Another volatile week for mortgage rates as the markets continue to weaken with unsettled issues in the Middle East increase inflationary pressure. Mortgage rates surged toward 8-month highs, now at 6.375% for our best 30-year fixed Conventional scenario.

Mortgage rates are driven by bonds and the bond market hoped to see more evidence of shift toward peace during the 2-day Trump/Xi meeting in China. As soon as Trump got back on the plane to head home, bonds began tanking (i.e. jumping to higher yields).

If there's a silver lining, it's that mortgage rates aren't higher. Much of the credit goes to the ramp in purchases of mortgage-backed debt by Fannie and Freddie. The more mortgage debt they buy, the better it is for mortgage rates relative to benchmarks like U.S. Treasuries.

The Consumer Price Index (CPI) is one of the most closely watched inflation indicators released each month, and investors were prepared for the effects of sharply higher oil prices. In April, CPI jumped 0.6% from March, matching expectations. CPI was 3.8% higher than a year ago, up substantially from an annual rate of 3.3% last month and the highest level since May 2023.

A different inflation report released this week, which measures wholesale costs for producers, also reflected the rise in energy prices. The April Producer Price Index (PPI) rose a shocking 1.4% from March, far above the consensus forecast for an increase of 0.5% and the largest monthly gain since March 2022.

Looking ahead, attention will remain fixed on the conflict in the Middle East. Investors also will monitor comments from Fed officials about future monetary policy. The detailed minutes from the April 29 Fed meeting will come out on Wednesday. It will be a light week for economic data. 

Hope everyone has a great weekend and thank you for reading.