Mortgage Rates Hit 2023 Highs And There’s More Volatility in Store
Before you let the promise of volatility alarm you, keep in mind that it cuts both ways. In other words, mortgage rate volatility can result in rates moving either generally higher or lower.
Tuesday’s scheduled release of the Consumer Price Index (CPI) is responsible for the looming volatility in this case. To be fair, it’s not the only factor–just the most immediate.
The current state of play in the world of interest rates is just as responsible. This refers to the highest inflation in decades seen after the pandemic, the Federal Reserve’s aggressive efforts to fight said inflation with unfriendly rate-setting policies, and the persistently resilient labor market, among other things. CPI is merely the most official and most consequential update on the fight against inflation.
If CPI says inflation is lower than economists predict, rates should fall. If CPI is higher than expected, rates should rise. In fact, part of today’s “highest in 2023” rates is merely the bond market taking a defensive stance ahead of the important data (bond trading dictates day to day movement in interest rates).
Rates were already near 2023’s highs on Friday, to be fair, and today merely saw a modest bump. Many lenders actually had higher rates on Friday because they changed rates in the afternoon in response to weaker bond trading. The net effect is a conventional 30yr fixed rate that is back in the mid 6% range.
Keep in mind there are several ways to structure a mortgage quote with varying levels of upfront costs and interest rate. Here’s a quick real world example involving one of the largest lenders: a rate of 6.625% with 1% in upfront costs paid to the lender is equivalent to 6.125% with 2% upfront costs. The total level of upfront cost isn’t as important to understand as the difference between the two options.
The bottom line is that whatever the upfront costs may be at 6.625%, they should be about 1% higher at 6.125%. This means a person getting a $400k loan could pay an extra $4k upfront to drop their payment by $131/mo. That’s neither good nor bad. It’s just a choice to pay more upfront vs over time, and the only reason to bring it up is to help you reconcile why some mortgage rate quotes can be so different.
The other reason is that some sources of data are stale. If you’re reading this on Monday, February 13th, 2023 this is as fresh as it gets.