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Mortgage rates are rising in this summer but don't look so shocked -- rates seem to rise every summer.
As recorded by Freddie Mac, since 2006, 30-year fixed-rate conforming mortgage rate have made a habit of rising in May, June, July and August before settling down through football season.
This year, the June Swoon looks especially strong. Mortgage rates are higher by 3/4 percent versus late-May and we're only at the start of the summer trend.
The biggest reason why mortgage rates are up is because of inflation fears.
Inflation devalues the U.S. dollar and renders fixed-rate investments -- a set that includes mortgage-backed bonds -- less attractive to investors. When the dollar worth less, bond repayments are worth less, too. This is why traders don't like holding mortgage bonds in their portfolios when inflation looms -- it can be a real money-loser.
So, mortgage bond tend to sell-off when inflation is coming which, in turn, causes mortgage-backed bond prices to fall. Lower bond prices yields higher mortgage rates.
Now, it's tough to know what's happening with inflation in real-time because most officially-published government data lags by a few weeks. However, you can sometimes use your local gas station as a proxy. Rising gas prices are often considered inflationary so if you notice a rising cost to fill-up is rising, it may be a predictor of higher mortgage rates ahead.
Dan Green (NMLS #227607) is an active loan officer with Waterstone Mortgage. Email Dan ator call 513-443-2020.
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