ABBA First Mortgage News

Why are rates higher today than they were a couple of weeks ago?

The following is the “simplified” answer according to a rate advisor* (for loan officers) that I listen to on a daily basis-

  • The new Biden administration and the $1.9 trillion stimulus plan that is likely to be passed in the next few weeks. This is the main reason rates have moved. The plan will be paid for with debt, meaning a glut of supply in Treasuries that will drive down prices and drive up yields. If Treasury prices fall, so do mortgage bond prices, which means rate sheet pricing (the rates from lenders to loan officers) gets worse too.
  • Many economists and industry pundits feel that Biden’s stimulus plan is too much money, and that it is going to overheat the economy. Although there are still millions of Americans who need help recovering financially from the lockdowns and response to COVID, the economy is doing much better than the media makes it sound, other than the labor market (and that is largely jobs in hospitality and travel).
  • Inflation is now a concern. After more than a decade of not being an issue, inflation is expected to kick in big time. Inflation is bad for rates, it drives them up. Biden’s stimulus plan is expected to be a catalyst to drive more inflation, and the Fed has said that they will not fight to keep inflation in check if it starts to rise, at least not for awhile.
  • COVID counts are dropping and the vaccine numbers are increasing. This will open the door for the economy to continue to recover, for consumer spending to continue to increase, and for people to get back to work.

*Abba First would like to thank the “Hammer” for his insight on how the markets react one with another and how that affects mortgage interest rates.  His daily communications are invaluable as he keeps his finger on the pulse for hundreds of loan officers that rely on his wisdom as to how to react to daily economic changes that affect the mortgage marketplace.

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