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Why Mortgage Rates Are Rising Again

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feel like déjà vu Mortgage rates will rise again. What helps? I think they reached their peak.

Not so fast. The Fed has reminded us time and time again that this fight against inflation will not be easy or short.

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And it looks like they might be right. This is based on the latest economic report released last week.

Simply put, the economy is too strong. And inflation is still the main problem.

This explains why mortgage rates have gone back to 7%!

Mortgage rates do not like inflation.

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in early 2022 mortgage rates rocketed off like a bottle rocket, holding a 30-year average of 3.22% during the first week of January, per Freddy Mac.

The price then rose almost every week of the year, reaching 7.08% in early November. before coming back down a bit

The problem is (and is being) inflation, which is out of control. Causing the Fed to start in earnest Fed rate.

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Long story short, the economy is overheating and prices are out of control. And only higher rates can cause the oversized money supply to decrease.

at the same time The Fed has suspended the purchase of mortgage-backed securities (MBS) and Treasuries, known as QE.

The absence of a major buyer for MBS, coupled with the need to protect it from the remaining buyers. This means much higher mortgage rates.

No one could imagine mortgage rates doubling in less than a year. but they can For the first time in history

Consumer prices are too high and the labor market is too strong.

mortgage rates vs. cpi

Mortgage Rate vs. Consumer Price Less Food/Energy

Although we have seen interest rate cuts in recent months. But thanks to encouraging economic reports. But interest rates rose again.

You can thank the latest CPI (CPI), which came out higher than expected.

The graph above compares Freddie Mac’s 30-year average of fixed-rate mortgages in the United States (source) and the Consumer Price Index, Sticky Price, deducted from food and energy, according to the Federal Reserve Bank of Atlanta (source).

CPI measures inflation and last report Consumer prices rose 6.4% annually in January. That’s down slightly from 6.5% in December. This was higher than expected at 6.2%.

Meanwhile, core CPI excluding food and energy rose 0.4% month-over-month.

A week earlier we have better than expected job reportwhich has already put pressure on mortgage rates

In summary, it is A lot of “economic good news” appears at a time when the Fed is trying to create a scenario on the verge of a recession.

That’s not good for mortgage rates. Interest rates tend to fall when the economy slows.

But these reports do not show the Fed that the economy is slowing. If something happens Shows that the Fed needs to stand up and fight.

Why does the mortgage rate have a relief period in late 2022?

Mortgage rates improved slightly from mid-November 2022 to early February 2023.

The driver is a positive CPI report showing that inflation is slowing. It looks like the Fed is getting prices under control.

In fact, it seems the worst is behind us. even if it’s just a few months

but looking back Looks like it’s lost. Or at least not out of trend as I warned back then. Perhaps it was foolish to think that fighting would be that easy.

This is what the Fed is warning us about. until they see that the fight against inflation has actually been won. They will then raise interest rates and maintain levels.

for a real-world perspective I just got back from the grocery store. I bought a loaf of plain bread, a bag of chips, and organic tomatoes. The bill is $14.49.

Last year, that would set me back $8, so inflation is real and it hits our wallets every day.

Higher mortgage rates are expected until they stop. How tall is it, we have to see.

Will Mortgage Rates Be High in 2023?

Many people think mortgage rates are the highest in 2022, myself included. but since then We have seen a number of strong economic reports.

Both the Consumer Price Index and the Jobs report defied expectations. And this is doubly frightening considering the Fed’s aggressive engineering as of late.

Although interest rates are much higher. But employment remains strong and consumer prices continue to rise.

If we see more of these reports, the 30-year revision may increase. Back above 7%and may head to 8%.

Either way These developments reinforce the argument that mortgage rates will continue to rise for a long time.

It’s not a foregone conclusion. These monthly reports are uncertain and may be reversed at any time.

Therefore, mortgage rates still have the potential to return to recent lows and fall further.

The point is, the fight against inflation will take longer than expected, as the Fed tells us.

And that means more defensive mortgage pricing, known as higher mortgage rates, for a long time.

Read more: What month is the lowest mortgage rate??

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