Higher oil prices pressure home loan rates higher

They say that weddings are getting more and more expensive.  In fact, the average cost of one surpassed $30,000 in 2017.  That is enough to put 5% down and pay closing costs for a median priced home in Portland, OR..   

As I type there are four days, six hours, and 27 minutes until the royal wedding for Prince Harry and Meghan Markle.  That ceremony is estimated to cost $2.8 million which could be used to put 5% down on THIS HOME.

Mortgage Rates  

Unfortunately mortgage rates worsened modestly last week as US stocks rallied.  The US stock market registered its best week in over two months which put upward pressure on home loan rates.

Oil prices

Geopolitical tension in the middle east coupled with uncertainty around Iran economic sanctions further supported oil prices last week which are now at three and a half year highs.

Higher oil prices are problematic for interest rates because they tend to be inflationary and inflation is the primary driver of mortgage rates.  

The Week Ahead

This week’s economic calendar is relatively light.  It features a slew Fed officials speaking around the country.  The Fed does not directly control mortgage rates but their comments can certainly influence them.  

According to CME Group there is currently a 95% probability that the Fed will hike short-term interest rates at the next meeting on June 13th.  There is a 50% probability that the Fed will hike short-term rates three more times in 2018.


Due to momentum and the longer-term trend for interest rates I favor a locking position this week.

Current Outlook: locking

Higher oil prices threaten mortgage rates

President Woodrow Wilson proclaimed the first Mother’s Day holiday this week in 1914.  For the past 104 years we have celebrated those special women in our society who desperately need a break yet do not want to miss a single minute.  Thank you moms!

Mortgage Rates  

Interest rates improved modestly last week but not enough to get excited about.  For most applicants their note rate is unchanged but the accompanying closing costs are lower.

Oil prices

Oil prices have been on the rise which does not bode well for mortgage rates.  In the past month they have increased by 10% reaching the highest levels since 2014.  

When oil prices rise it tends to cause inflationary pressure in the economy.  Inflation is the primary driver of long-term interest rates.  

The Week Ahead

Speaking of inflation we’ll get the latest reading on the Producer Price Index this Wednesday and the Consumer Price Index on Thursday.  If those reports come in hotter than expected I would expect rates to worsen.

Also on Wednesday the US Treasury is scheduled to auction $25 billion of 10-year treasury notes.  The added supply could make it hard for mortgage rates to improve for the second week in a row.  

From a technical perspective the yield on the US 10-year treasury note is currently at ~2.95%.  Fortunately the 3.00% level has acted as resistance so if we test that level again I am hopeful it will hold.  


I am less optimistic than I was last week but still feel like rates will not move meaningfully higher in the near-term.  I will shift to a neutral position.

Current Outlook: neutral