Mortgage Rates Hit New High; Causes? When Does It End?

Why I Know High Rates Won’t Kill Us

The average mortgage rate today is 7.20%, per the Mortgage News Daily, the highest rate we have seen since November of last year.

I know this rate won’t kill us though because we saw even higher mortgage rates in October, when the average hit 7.32%.

We also saw very similar rates in March, May, and early July, so yes, the likelihood of survival is high given that we’re all still alive now.

The Cause of Today’s High Rates: The Gig Is up (America’s Spending Addiction Was Exposed)

A major cause of today’s higher rates was the downgrading of U.S. Treasuries (from AAA to AA+) by the bond rating agency, Fitch.

Fitch effectively just illuminated America’s runaway public debt problem, as our total federal debt is now approaching $33 trillion with no clear plan in place to pay it off.

This is because tax revenues are not coming close to covering expenditures, and spending cuts are not even on the table.

Not Serious in the Short Run (U.S. = Cleanest Dirty Shirt)

This reckoning and downgrade is not serious in the short run for a few reasons: (1) Other countries like Japan, China, and much of Europe have equally serious debt problems; (2) U.S. Treasuries remain the primary liquidity instruments (collateral, place to park cash) in the world and there is no other that can come close to replacing U.S. Treasuries right now simply because of the size of the market for them is so huge; and (3) the U.S. remains one of the most stable countries on the planet, with a strong rule of law and the largest economy and military on the planet.

So, U.S. Treasuries are not threatened in the short run for the same reasons the dollar is not, as the dollar and Treasuries go hand in hand.

And Yes, I Still Expect Rates to Fall

One of my favorite macro analysts, Brent Johnson, released this short YouTube video today: The Next Crash Is Coming…

Brent reminded us that there is data coming out in droves right now that can support both bull and bear (crash and no crash) cases.

But, he also reminded us again that we see a recession every time the yield curves invert in the way that they have over the last 18 months – it is just a matter of when.

Interestingly too, Brent reminded us as well that stocks always rally after yield curves invert but before the recession hits (and it is these rallies that give false hope that we may be avoiding a recession).