I predicted mid to low 5% mortgage rates later this year several times in blogs and talks – but I did not expect three things:
- Ukraine to get so good at attacking Russian oil facilities.
- The Iran war, and its continuance.
And - Too fast of an increase in the money supply.
As recently as two weeks ago, I discussed energy analyst Doomberg’s reminder that oil producers always overproduce in response to high oil prices, which always results in gluts later on. Doomberg predicts that oil will drop to as low as $30 per barrel (from $105 today).
But that could take several years to play out.
High oil prices push up all other prices, sparking the inflation concerns that have been pushing rates way up since the Iran war started.
Iran’s resistance and Trump’s escalatory language pushed oil prices up to a new high today, and rates are up again as a result.
Rates Are Now About 3/8 % Higher Than When the Iran War Started.
If the war had ended quickly, oil production in the war-impacted countries could have been revived quickly.
But Peter Zeihan reminds us that it could take years to get production back to pre-war levels.
Zeihan and Doomberg also explain that Ukraine has become unexpectedly good at taking out Russian oil refineries and export facilities with drones – knocking out another big chunk of world supply.
So, oil prices (and rates) will likely remain higher for some time – even if the war ends.
And we’re already seeing this in inflation numbers, and Barry Habib expects tomorrow’s PCE (wholesale inflation) report to be pretty nasty (which will likely push rates up further).
And again, making all this worse is the increase in the money supply (the primary cause of inflation) due to bank deregulation and errant Fed policy.
TWO HUGE TAKEAWAYS
- Borrowers should not wait to lock in rates for refis or purchases. This is important because borrowers are still telling us they want to “wait for rates to fall” before they lock.
- Expect the unexpected. This is something I repeat constantly in my blogs, reminding readers how often analysts get things wrong because there are just too many unknown variables in play (which is why I get things wrong too; see above).
The “Unexpected” Is Why Rates Could Still Fall Too…
A stock market crash, a major credit crisis, or massive productivity gains from AI could all bring rates down.
Unexpected energy discoveries could also bring rates down; Doomberg recently pointed out that China is faring far better than expected right now in the face of high oil prices, speculating that they may have tapped into oil or energy reserves that nobody else knows about.
HERE IS A THIRD HUGE TAKEAWAY: Borrowers need to remember that they can always refinance if rates fall again.
