Mortgage Rate Update December 12, 2016

Mortgage rates are worse than they were on Thursday of last week.

Higher oil prices are placing pressure on US interest rates.  Over the weekend a pact of oil producing nations reached an agreement to cut output of crude oil which is pressuring prices higher.  In the past announcements from the Organization of the Petroleum Exporting Countries (OPEC) have been viewed with skepticism but many analysts think this deal has merit.

Why are interest rates moving higher in reaction to higher oil prices?  Oil prices impact nearly every aspect of the economy.  Higher prices for oil will likely lead to higher prices for other goods and services.  Inflation is the primary driver of mortgage rates so when expectations for inflationary pressure rises rates follow suit.

The US 10-year treasury yield, which mortgage rates tend to follow, eclipsed 2.50% earlier in the day.  This marks the first time the US 10-year treasury note has hit 2.50% in over two years.  Mortgage rates have worsened by ~.125%.

The remainder of the week should be a busy one for the interest rate markets.  On Wednesday we get retail sales, the producer price index, and the Fed rate decision (the Fed is expected to hike short-term rates by +.25%).  On Thursday we get the consumer price index along with weekly jobless claims.

I still hold onto the belief that ultimately mortgage rates will improve modestly after the markets digest the Fed rate hike but I am less confident in floating because I’ve gotten burned a couple times in the past couple weeks.  The safe play is to lock.

Current Outlook: neutral