Mortgage Rate Update May 7, 2015

Mortgage rates have had a very difficult run from April 21st to today.  During the past couple weeks mortgage rates have risen by ~.25% and the yield on the US 10-year treasury yield went from ~1.90% to 2.25%.

Will rates continue to trend higher or are we in for a reversal soon?  If recent history is any lesson then the outlook is promising.  The last two times that the yield on the US 10-year treasury yield reached 2.2% (December 24th & March 9th) rates declined sharply back to 1.90% within 8 trading days.

Based on this pattern it would seem that floating is the best option.  However, tomorrow we get the all-important jobs report.  As we know this is typically the most influential monthly economic report.  Should the report come out stronger than expected then we’d expect rates to move higher and vice versa.

Knowing that the Fed is looking for signs of inflation it will also be important to pay attention to the average hourly earnings growth.  Assuming wages are growing this would likely pressure prices higher and force the Fed to begin raising short-term interest rates.

Current Outlook: floating bias