Climbing Mortgages Rates Tempered by Market Volatility

The average prime 30-year fixed mortgage rate quoted on Zillow increased about 12 basis points between last Wednesday and Monday morning, before giving up about half that increase by mid-week.

Over the weekend, rates matched their highest levels since September 2014. Rates are now up almost 35 basis points over the past month – about half the magnitude of the increase in mortgage rates that markets saw in the month after the 2016 U.S. presidential election.

The increase in mortgage rates was driven by the combination of financial market volatility, employment and wage growth data – further evidence of a strong U.S. labor market and stronger global economic growth. Those factors are expected to push the world’s major central banks to collectively tighten monetary policy for the first time in almost a decade and a half. Loose fiscal policy is compounding these trends.

Financial market turbulence early this week put downward pressure on mortgage rates as investors moved to relatively safe assets like bonds, but the longer-term trend in rates is clearly upward.

It will be important to continue monitoring financial markets, but near-term risk waned on Wednesday as Congressional negotiators reportedly agreed to a two-year budget, eliminating the possibility of another government shutdown. While some volatility is to be expected, particularly in stock markets, the longer that any financial turmoil, and especially downward movement in equities, lasts, the greater the risk that it could spill into the real economy.