Mortgage Rates Spike Above 7% Amid Soaring Oil Prices

Mortgage rates have broken above 7% for the first time this year, marking a significant milestone in the housing market. This development comes as oil prices have surged past $100 and the 10-year yield has risen to 4.92%, nearing its cycle high.

The mortgage rate increase is largely attributed to the strong labor market data, including low jobless claims and unemployment rates. These figures are key indicators for the Federal Reserve's dual mandate of maximum employment and price stability. With these metrics looking good, the Fed can focus on tackling inflation and getting it back to its 2% target level.

The mortgage rate increase is not unexpected given the recent trend in oil prices and the 10-year yield. In fact, if we were dealing with the worst levels of mortgage spreads from 2023, rates would be even higher, exceeding 8.10%. Similarly, if this was 2024 or 2025, rates would be above 7.50%.

The author notes that oil prices and the 10-year yield are trading hand in hand more now than at any time in recent history. This means that as oil prices rise, so does the 10-year yield, exerting upward pressure on mortgage rates.