Why you can expect mortgage rates to creep toward 5% this summer

  • If the Fed continues to push up the cost of money, sooner or later long-term rates will rise also.
  • There is no rule defining the relationship between the cost of money as set by the Fed and long-term rates, but there is a persistent pattern that ends in recession -- still years away, with any luck.
  • Three weeks ago, the Fed began telegraphing to markets that it was raising rates today, and markets overreacted a bit, thinking the Fed might accelerate its rate hikes in 2017.
  • Instead, the Fed left its forecast for three total hikes this year unchanged, and left the levels in future years unchanged also. So markets adjusted.

First, may as well get the embarrassing part over: the Fed raised its rate today, and mortgage rates fell. “Fell” is a bit of an overstatement, the decline no more than a fractional point — a large loan, fine credit, 80 percent, 30-year fixed still sits between 4.375 percent and 4.50 percent.