The latest readings from the Consumer Price Index blew up the bond market Wednesday.
As the CPI increased 3.5% from one year ago March (higher than anticipated by many market participants), the 10-year Treasury bond exploded to 4.55%. It started the day at 4.35%. Consumers’ 30-year fixed mortgage rates tend to shadow the 10-year Treasury rates.
Freddie Mac’s 30-year fixed rate survey averaged 6.88%, just 6 basis points higher than last week.
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The weekly survey starts the previous Thursday through Wednesday at 11:59 p.m. The CPI report came out Wednesday morning. Timing is such that we’ll see the CPI and consequential bond market affect Freddie rates next week.
Undoubtedly, rates will top 7% with the next Freddie report. The Mortgage Bankers Association is already reporting a 7.01% rate.
Related: No relief this year for homebuyers, industry insiders predict
For perspective, one week ago, I reported that local borrowers could capture a 30-year fixed rate at 6.25% with 1 point cost. Today, that 30-year fixed rate is 6.625% at 1 point cost. Rates jumped 0.375%. Due to larger conforming loan sizes than the rest of the country, California mortgage rates tend to be cheaper than Freddie’s national survey numbers.
The principal and interest payment on $760,550 (maximum conforming loan amount) at 6.25% is $4,720. At 6.625% the payment is $4,908. The payment jumps $188 or 4% in the blink of an eye.
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“The CPI came in hotter than I expected. The Fed won’t ease until the fall with two rate drops,” predicted Mark Zandi, the chief economist at Moody’s Analytics. “Mortgage rates are close to 7% now. They will top out at 7.5%. This puts an end to home price increases.”
Zandi believes we’ll see mortgage rates close to 6% by the end of this year.
Jordan Levine, chief economist of the California…
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