This week saw a noteworthy increase to mortgage rates that warrants explanation. Many clients are asking what’s happening in the market, especially in light of the fact that the Dow Jones fell 356 points a few days ago, the worst decline in over 2 months.
Simply put, interest rates are rising in response to several months of data that suggest the United States economy is accelerating, specifically the labor market. Yesterday, initial jobless claims fell to a 49 year low. Unemployment now sits at 3.7%, the lowest level since December 1969.
So, with the economy heating up, why the drop on the Dow Jones? The issue with the Dow Jones has more to do with the pace of rate increases vs the actual increases themselves. A portfolio manager at Federated Investors stated for CNBC that “the level of rates does not concern us. That said, moving more than 10 basis points in two days is a different story. Pace matters…”
Suffice to say, this will pass and we’re not likely to see another week like this one when the markets open on Tuesday (closed Monday for Columbus Day). The long run, however, will include more rate increases. Clients need to be prepared for the reality that a rate quote on Monday may not match an update to the same quote on Friday, or even Wednesday. As always, we recommend an open line of communication with your mortgage banker in this changing environment.