Most mortgage rates are higher this morning.
In yesterday’s ‘rate update’ we shifted our outlook to “floating so long as technical support holds”. Unfortunately mortgage-backed bonds (MBS’s) were not able to hold technical support yesterday after the Fed unexpectedly announced an increase the discount rate.
The discount rate DOES NOT directly impact the rates charged on consumer loans including mortgages. Instead it is a liquidity tool used by the Fed for depository financial institutions (i.e. banks). In recent testimony the Fed has stated that they would begin raising the discount rate but most analysts are surprised they elected to move this soon.
Although the discount rate does not directly impact mortgage rates they did move higher yesterday after the markets took a knee-jerk reaction on the news.
This morning the Consumer Price Index showed lower than expected price growth at the retail level of the economy. This helps to alleviate inflationary fears following yesterday’s worse than expected Producer Price Index.
From a technical standpoint MBS prices have now broken below support. Unless they can rally in the next day or two we expect rates to remain higher. We continue to recommend a long-term locking position but wouldn’t be surprised to see volatility in rates in the near-term.
Current outlook: long-term locking bias