The recent spike in fixed mortgage rates is a direct result of an incredibly sharp rises in bond yields. I say incredibly because the market grossly over-reacted to Ben Bernake’s comment that the Fed will eventually begin to taper monetary stimulus. Following this over-reaction, you can expect to see bond yields ease back nearer to their previous lows.
Kent Engelke, chief economic strategist at Capitol Securities Management Inc., confirms that the bond selling has “just gone too far too Quickly.” He also believes the market is oversold, meaning that the market is primed for a counter rally that could be started by some good news or any buying behavior. This counter rally should bring bond yields back by 0.35% to 0.45%. In turn you can expect to see mortgage rates fall back by a similar margin.
The long term forecast for mortgage rates is still an eventual increase and perhaps this is the beginning of the long road back to more normal rates, but the sharp increase we’ve seen over the past 2 weeks is sure to soften in the weeks ahead.