Mortgage Interest Rates jumped significantly higher this week. Most lender are quoting around 5.0% or higher for a 30 year fixed conventional mortgage. The most recent motivation for this upward momentum was a speech from Federal Reserve Vice Chair Lael Brainard who warned of the need for the Fed to move more rapidly to reduce the size of its balance sheet. This means they will most likely purchase fewer bonds.
When the Fed buys a bond it is like lending money. When the Fed is purchasing more bonds, there is more demand for bonds and that makes investors want to lend more money. It’s basic competition. The more competition between producers making a product, prices for that product will lower. Same with bonds and thus mortgage rates.
This spike in rates was not forecasted by most “experts”. But in today’s economy, is anything predictable? Uh, no.