Mortgage Rates Jump Sharply Higher this Week

Mortgage rates are sharply higher this week, following U.S. Treasury yields higher. Average 30 year mortgage rates increased almost 30 basis points since the election. 30 year rates are up from 3.49 percent last week before the election to 3.77 percent today.   

During the same time period, 10 year Treasury yields have risen from 1.80 percent to 2.10 percent. Why the sharp increase in mortgage rates and Treasury yields the past week? Donald Trump won the election. Trump has called for lowering taxes and investing about a trillion dollars in the nation's crumbling infrastructure.

If you lower taxes and spend more, the money has to come from somewhere. The most likely source will be issuing more public debt. If the government issues a lot more debt, the most likely scenario will be investors demanding a higher yield on their investment in U.S. Treasuries.

Lowering taxes, issuing more public debt, and spending more are all inflationary policies. These policies will all contribute to higher Treasury yields, which will send mortgage rates higher. Whether or not these scenarios play out in the coming months and years remains to be seen.

In all likelihood, we won't see Treasury yields and mortgage rates as low as they have been. The only way yields and rates will fall towards the recent record lows would be if the economy fell into another recession.

Treasury yields and mortgage rates move in the same direction. Right now, both are moving sharply higher. You can view the relationship between Treasury yields and mortgage rates for the past 10 years in the FRED Chart below.

 Courtesy of the Federal Reserve.