Surging Mortgage Rates to Test Vulnerable Housing Market

Since the election of Donald Trump, average mortgage rates have soared and will likely surpass 4 percent on the 30-year fixed, a benchmark home loan borrowers haven’t seen much since last year.

An historic sell-off in the Treasury market has pushed the average 30-year fixed rate to 3.94 percent, up from 3.57 percent last week, Freddie Mac says. Over the last two weeks, the 30-year mortgage rate jumped 40 basis points, almost identical to the 39 basis point increase in the 10-year Treasury yield.
The week of Dec. 31, 2015 was the last time the average long-term rate hit 4 percent (4.01 percent), according to Freddie Mac.
Rates had been hovering near historic lows, in the mid-30s range, before the election. Now, consumers who are in the market to buy a home have to move fast or wait out next few weeks or longer for the policies of the new administration to hold. But the market’s response ahead of the Trump Administration taking office has been swift and sharp. This week, the Mortgage Bankers Association (MBA) reported that mortgage applications dropped a sharp 9 percent from a week earlier. The refinance component of the MBA’s index sank 11 percent.
The prospect of faster growth, spurred by an anticipated infrastructure improvement plan under the new administration, has investors abandoning bonds over stocks. There is also the prospect of higher inflation which would prompt rate hikes by the Federal Reserve’s policy makers.
“Investor expectations of faster growth and higher inflation are driving the jump up in rates, and rates have now increased for five of the past six weeks, spurring a commensurate drop in refinance activity,” said David H. Stevens, CMB, President and CEO of the Mortgage Bankers Association.
Mortgage rates are still historically low. The higher rate would push up the monthly payment on a $250,000 home loan with a 20 percent down payment by $42 to $948 a month.
“If rates stick at these levels, expect a final burst of home sales and refinances as ‘fence sitters’ try to beat further increases, then a marked slowdown in housing activity,” says Sean Becketti, chief economist, Freddie Mac.
Treasury notes serve as a benchmark for different loan products, including mortgages and auto loans. The 10-year Treasury note closed at 1.85 percent on Election Day. A week later, it was at 2.24 percent.
Meanwhile, tight inventory levels have pushed up housing prices in many housing markets throughout the country, making it a big challenge for first-time homebuyers.  The Federal Reserve is set to meet next month and is expected to raise the federal funds rate, which is the short-term interest rate it uses to lend money to banks.
Here’s a rundown of mortgage rates for the week from Freddie Mac:
30-year fixed-rate mortgage (FRM) averaged 3.94 percent, with an average 0.5 point for the week ending November 17, 2016, up from last week when it averaged 3.57 percent. A year ago at this time, the 30-year FRM averaged 3.97 percent.
15-year FRM this week averaged 3.14 percent with an average 0.5 point, up from last week when it averaged 2.88 percent. A year ago at this time, the 15-year FRM averaged 3.18 percent.
5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.07 percent this week with an average 0.4 point, up from last week when it averaged 2.88 percent. A year ago, the 5-year ARM averaged 2.98 percent.

Leave a Reply

Your email address will not be published. Required fields are marked *