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Mortgage Rates Could Rise Amid Good Economic News


chart showing mortgage rates going up

Mortgage rates are on the verge of reaching new highs in 2023, driven by a series of positive economic developments and indications of future Federal Reserve rate hikes. Factors such as falling jobless claims, an upward revision to second-quarter GDP, passing grades on bank stress tests, and inflation concerns have contributed to the anticipation of rising mortgage rates. In this blog post, we will delve into these factors and their potential impact on the mortgage market.

10 Year Treasury Spikes

10 year treasury spike

The Influence of Treasury Yields

Yields on 10-year Treasury notes serve as a valuable indicator of the direction mortgage rates may take. Recent spikes in 10-year yields suggest a shift towards higher mortgage rates. Although the yield of 3.87 percent observed on Thursday fell short of the 2023 high of 4.09 percent recorded on March 2, it represents a significant increase from the low point of 3.25 percent on April 6. This upward trajectory in yields reflects a growing certainty regarding future Federal Reserve rate hikes.


The Federal Reserve's Battle Against Inflation

To combat inflationary pressures, Federal Reserve policymakers have been closely monitoring a tight job market, which has been driving wage increases. However, last week's report from the Department of Labor revealing a substantial drop in unemployment claims caught many analysts off guard. This unexpected trend could concern Fed policymakers if it continues. Although claims should be viewed with skepticism on a week-to-week basis, the 26,000 drop to 239,000 claims was lower than the 265,000 forecasted by economists.


Growth in the U.S. Economy

The Commerce Department's report on the U.S. economy's growth during the first quarter of the year added to the case for future rate hikes. While the pace of economic growth, as measured by real GDP, is decelerating, the first-quarter growth of 2 percent surpassed the earlier estimate of 1.3 percent. The decline in real GDP primarily resulted from a downturn in private inventory investment and a slowdown in nonresidential fixed investment. However, these trends were partly offset by an increase in consumer spending, an upturn in exports, and a smaller decrease in residential fixed investment.


Consumer Spending and Bank Stress Tests

Despite the Federal Reserve's efforts to curb consumer spending by making borrowing more expensive, consumer spending rose at a rate of 4.2 percent in the first quarter, the highest since the second quarter of 2021. Additionally, the Federal Reserve's annual stress tests on banks demonstrated that the 23 tested banks could endure a severe recession while continuing to lend. The stress test results revealed that the banks had sufficient capital to absorb over $540 billion in losses and sustain lending under stressful conditions.


graph of inflation over the years

Implications for Mortgage Rates

The combination of positive economic news and indications of future Federal Reserve rate hikes has triggered investor concerns, leading to increased stock purchases and bond sell-offs. As a result, mortgage rates are likely to rise. The Federal Open Market Committee has already implemented 10 increases in the federal funds rate since March 2022, with two more 25-basis point rate hikes anticipated this year. The probability of a rate hike in July stands at 87 percent, according to the CME FedWatch Tool.



The convergence of various economic factors, including falling jobless claims, an upward revision to GDP, passing grades on bank stress tests, and inflationary concerns, is pointing toward a rise in mortgage rates. The impact of these developments on the mortgage market suggests that consumers may face higher borrowing costs in the near future. As the Federal Reserve aims to curb inflation, the trajectory of mortgage rates remains uncertain. It is important for potential homebuyers and homeowners to monitor these

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