Key facts
- US mortgage rates exceeded 7% for the first time this year.
- Oil prices broke over $100 per barrel for WTI.
- The 10-year Treasury yield reached 4.92%.
- Low jobless claims and unemployment rate support a hawkish Federal Reserve stance.
- Housing demand tends to fade when mortgage rates exceed 6.64% and break above 7%.
US mortgage rates have climbed above 7% for the first time this year, a level that historically signals a weakening in housing demand. This breach occurred as WTI crude oil prices surpassed $100 per barrel and the 10-year Treasury yield rose to 4.92%.
Analysts had previously suggested it would be difficult for rates to exceed 7% and remain there, citing the need for significant geopolitical escalation or a shift in economic data. However, the current market pressure from rising oil prices and persistent strength in labor market data, including low jobless claims and unemployment rates, has pushed mortgage rates higher. The Federal Reserve views these labor market indicators favorably, allowing them to prioritize price stability and inflation control.
The author noted in a July 8 article that while conflict could push rates higher, economic data and the Fed's hawkish stance were more critical. The current situation, with oil prices rallying and labor data remaining robust, has validated these concerns. Despite strong performance from mortgage spreads throughout the year, they were unable to counteract the upward pressure from yields and oil.
Historically, mortgage rates would have been significantly higher at this 10-year yield level, indicating that mortgage spreads have performed well in mitigating some of the impact. However, they could not prevent rates from crossing the 7% mark in the current environment.