Rebel Capitalist: Mortgage Rates are Soaring! (Here’s What Everyone’s Missing)

One of the surprising trends of the past few months is the fact that interest rates have been trending higher. While the Federal Reserve has cut its short-term federal funds rate, long-dated rates haven’t fallen. Instead, they’ve jumped higher.

That’s created an unusual market. The most impactful result of this change is that mortgage rates have soared. That’s because mortgages are held for 30-year periods.

Since September, rates have risen from an average of 6.2% to 6.9%.

Why does this matter? The Fed started cutting rates citing its need to protect the labor market. Unemployment ticked higher in 2024, and still ended the year at a healthy level.

But the rising trend doesn’t bode well for consumer spending if it continues.

So, the Fed’s shift to protecting the jobs market comes at the expense of potentially higher inflation. The bond market may be pushing yields higher to account for higher expected inflation.

With rates rising, the economy could potentially slow, leading to a stock market selloff. And the housing market could also struggle with rising mortgage rates.

Consumers may have trouble selling a home as well, given that buyers will have to contend with higher payments as interest rates rise.

Since inflation hasn’t quite picked up quite yet, investors can still benefit from these rising rates with a higher allocation to bonds.

For the full look at rising mortgage rates, click here.