Jeff Tucker, chief economist for the City of Windermere, looks at mortgage rates and the factors that have pushed them up more than a percentage point since September.
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In this exclusive series on Inman, Windermere Chief Economist Jeff Tucker reveals the latest statistics, reports and numbers you need to know this week.
All the numbers you need to know this week are about mortgage rates and what’s driving them up.
Number known: 7.25%
This is a typical 30-year mortgage rate measurement as reported by Mortgage News Daily on Tuesday, January 14th. That’s up more than 1 percentage point from its low of 6.11% in mid-September just four months ago. For an $800,000 loan, that’s $5,457 a month in principal and interest, a 12% increase from $4,853 at the low rate four months ago.
As for the direct cause of the rise in mortgage interest rates, let’s look at the second number we want to know right now, which is about 4.8%. This is the latest 10-year Treasury yield as of January 14th. Mortgage rates tend to track closely with this important benchmark. long-term yield.
However, there is a bit of a quandary here. The Federal Reserve is lowering the federal funds rate, the ultra-short-term overnight interest rate. It started with a huge half-point reduction in September, followed by two further quarter-point reductions.
As Thorsten Slok, chief economist at Apollo Global Management, recently pointed out in this chart, historically, 10-year Treasury yields have fallen slowly after the Fed begins lowering short-term interest rates. There is a tendency to continue. But this time it’s very different. Instead, these long-term rates have more than reversed all the downward progress achieved over the summer.
To put it simply, the reason for the rise is that the outlook for three factors – real economic growth, inflation, and borrowing – has recently risen.
In terms of economic growth, the next number you need to know is 256,000 people. That’s a staggering number of new payroll jobs added in December, according to the Bureau of Labor Statistics’ latest employment report. Excluding October’s hurricane-impacted report, this represents a surprisingly strong three-month period for 2024 to end 2024.
In terms of inflation, the final numbers we have are 2.7 percent and 3.8 percent. These are the year-on-year inflation rate of the Consumer Price Index and the latest monthly growth rate compounded annually. Both are above the Fed’s 2% target.
Combined with a surprisingly resilient labor market, these data are dampening investor expectations for further rate cuts by the Fed, all of which is leading to higher Treasury yields and, in turn, higher mortgage rates.
Jeff Tucker is principal economist at Windermere Real Estate in Seattle, Washington. Connect with him on X or Facebook.
