Mortgage Rates Improved

Mortgage rates jumped from mid-January until the end of March, which took the steam out of some potential home buyers.

U.S. stocks have recently rallied to all-time highs. At the same time, inflation spiked, and the economy continues to reopen. You would think these occurrences would have a negative effect on rates. However, mortgage rates recently improved to the best levels in a month. Why?

Well, for one thing, fears of runaway inflation have been eased a bit in the past few weeks. The Fed has assured us that the recent rise in inflation will only be temporary or transitory.

Why did inflation pressures recently increase? Due to the shutdowns across the U.S. in the past year, suppliers of goods were under constraint during lock downs while consumer demand declined, so inflation pressures were almost nonexistent. But as the economy reopened and demand outgrew supply, what happened? Simple Economics 101. Higher demand with low supplies tends to drive up prices, and that is what we’ve been experiencing.

However the situation is improving. Suppliers are now catching up, as most states have reopened, which should equate to prices inching lower soon.

Also, the March Consumer Price Index came in at 2.6% year-over-year, the highest level since August 2018. All signs are pointing to even higher consumer inflation in the next three months, but the market is forward-looking. Bonds are already looking at where inflation is going to be four months from now. Currently, the bond market is not worried about inflation, because if it were, rates would be higher, not lower.

The additional stimulus measures from D.C. could be delayed, and that coupled with talk of higher taxes could also help to hold rates near or just above current levels. Talk of higher taxes could slow the economy a bit, and to bond investors, that’s good news.

Freddie Mac is forecasting that the 30-year fixed-rate mortgage will average 3.20% in 2021, just above the all-time historic low of 2.65% seen in early January of this year.

Bottom line: Mortgage rates are still low, while the labor market is rebounding. It is a great time to refinance if you can, while the privilege of buying a home is well within the grasp. Remember, jobs buy homes; not rates.

Source: Mortgage Market Guide