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After hitting the lowest levels in months in the first week of April, mortgage rates have been on a sharp rise. As of this afternoon, you have to go back about a month to see the 30-year fixed rate from the average lender.
In a slightly bigger picture, this leaves us with a range closer to 6% in early February than the low of mid-2023 and a little over 7% in early March. Those levels can be thought of as opposing sides in the battle to determine the next major trendline in the interest rate world.
Actually, it’s more fair to say that mortgage rates are a bystander in that fight. The real combatants include inflation, economic data and any potential downside from the recent banking turmoil. The relative health and apparent stability of the banking sector is one reason rates are heading back up.
Economic data has also been surprisingly resilient at times and that came as a surprise to some market watchers who thought the bank failures in early March marked a turnaround. Just today, a report on the manufacturing sector at the New York Federal Reserve District came in much higher than expected and much higher than last month.
Stronger data coincides with upward pressure on interest rates, all other things being equal. It’s not that this particular report caused a ton of movement for rates, but the ongoing flexibility in average economic reports is leading the market to believe the Fed will be able to raise rates at its next meeting. The probability is now roughly 100% whereas a few weeks ago it was close to 0%.
The fed funds rate does not directly determine mortgage rates, but changes in Fed rate hike expectations correlate very well with the rest of the interest rate market.
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