If I can borrow (and slightly change) a saying, the rates will continue to increase until morale improves. Why do rates just seem to keep going up and up? To be honest this recent move is a bit head-scratching to me. Normally the catalyst for rate movements has been the jobs reports and inflation data. The July inflation report came in lower than expected and the jobs report added fewer jobs than expected so naturally rates have (checks notes) increased by almost a half percent in the last few weeks.

So what gives? Well going into this year the expectation from the market was that a recession is on the horizon. The rapid rise in interest rates will force companies to cut jobs which will reduce growth which will reduce inflation. Cut to eight months later and inflation has come down but it’s still over 3% which is too high for the Fed who wants to see it at 2% Unemployment is still near record lows and there is no sign of a recession. That means that rate hikes are still not off the table yet. Plus the supply of bonds have been increasing and the amount of buying from foreign countries has decreased. All of this adds up to higher rates.

Where do rates go from here? Currently, rates are at a pivotal point. The 10-year treasury, which is what mortgage rates are highly correlated to, is at the highest level since October of last year. Prior to that, you would have to go back to 2007 when the 10-year treasury was higher. Why does that matter? To put it simply, markets like to look at the past to determine current value. Think of these past values like castle walls, once a wall is breached the defenders will fall back to the next castle wall and the attackers (rates) move forward until the next wall is hit. Well, the enemy is at the last castle wall right now. It’s going to take a lot to break through but if rates do break through these levels then it’s unclear where the next level of resistance will be at. If I had to take a guess I would say that we will see a rally here, as we have seen before anytime we have gotten near these levels. However, momentum is not in our favor which might be enough to break through the gates.

Recap:

-Rates match the highs from last fall

-Multiple factors are causing rates to rise

-Another rate hike next month is not off the table