That was fast: 30-year fixed mortgage rate spikes to 6.18% – Wolf Street

That Was Fast: 30-Year Fixed Mortgage Rate Spikes to 6.18%, 10-Year Treasury Yield to 3.43%. Home Sellers Face New Reality

Something has to give. And it’s going to be price.

By Wolf Richter for WOLF STREET.

The average 30-year fixed mortgage rate today spiked to 6.18%, from 5.85% on Friday, according to the daily index by Mortgage News Daily. Aside from the sheer magnitude of the spike, this was also the highest mortgage rate since collection of the daily data began in April 2009. This was lightning fast, with mortgage rates nearly doubling since the beginning of the year (chart via Mortgage News Daily):

Mortgage rates follow the 10-year Treasury yield, but there is a spread between them, and the spread varies. The 10-year Treasury yield spiked by 28 basis points today, to 3.43% at the close, a huge move, and the highest since April 2011:

But wait…

Back in the day, before QE and interest rate repression, 6% mortgages were considered low, I mean super-low, and I thought I got a great deal with my 15-year mortgage in 1989 at 8%! There are folks here that remember 15% mortgage rates. We didn’t even see 6% 30-year mortgages until 2002.

Freddie Mac’s data goes back to the early 1970s (though the June 9 release lags today’s daily measure by about a week). It shows just how fast mortgage rates have bounced off from record low levels, and how comparatively low they still are:

So let’s see. The Greenspan Fed ginned up the idea to cut interest rates following the dotcom bust to create a housing bubble in order to take over from the imploded stock market bubble. This worked, and we got a housing bubble, to which the Fed responded by raising interest rates again to over 5%, which worked and caused the housing bubble to implode, which triggered the mortgage crisis, which performed a rug-pull under the over-leveraged banks, upon which the Fed rolled out its new dual-weapon QE and 0% interest-rate policy, which worked, and it inflated all asset prices, bailed out the bondholders and stockholders of the banks, and soon it triggered the next housing bubble, but much more magnificent than anything before, etc. etc.

You know the drill. But this time, we got a new thingy: Raging consumer price inflation, like we haven’t seen in 40 years, and all bets are off. Raging inflation does a lot of long-term damage to the economy, to the currency, to businesses, and to the people, and it’s time to crack down.

Well, not really cracking down, just slowly raising short term policy rates from near 0% to still very low levels, and ending QE finally, and slowly starting QT.

So that’s not really a crackdown, but seeing how massively markets have reacted to this little bitty policy action shows just how overinflated all assets have become, thanks to 12 years of QE and interest rate repression – 12 years of Fed policy errors – and how hard it will be to unwind all this craziness back to some normalcy. But inflation is now raging, and all bets of a Fed put are off.

After 12 years of money printing and interest rate repression, home prices have ballooned to the point where higher mortgage rates have a very different impact than they had back in the day.

Each time mortgage rates rise just a little at current prices, they take a new layer of potential buyers out of the market. And transaction volume sags, and homes begin to sit on the market, and inventory is piling up. So it cannot happen here, they say, but it’s already happening, even in May before the current spike in mortgage rates, as inventories jumped in amid price reductions and sagging sales, because there is one way for sellers to nail down a deal: Cut the price enough to where the next buyers can afford the mortgage.

Wolf Street

••••

The Liberty Beacon Project is now expanding at a near exponential rate, and for this we are grateful and excited! But we must also be practical. For 7 years we have not asked for any donations, and have built this project with our own funds as we grew. We are now experiencing ever increasing growing pains due to the large number of websites and projects we represent. So we have just installed donation buttons on our websites and ask that you consider this when you visit them. Nothing is too small. We thank you for all your support and your considerations … (TLB)

••••

Comment Policy: As a privately owned web site, we reserve the right to remove comments that contain spam, advertising, vulgarity, threats of violence, racism, or personal/abusive attacks on other users. This also applies to trolling, the use of more than one alias, or just intentional mischief. Enforcement of this policy is at the discretion of this websites administrators. Repeat offenders may be blocked or permanently banned without prior warning.

••••

Disclaimer: TLB websites contain copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available to our readers under the provisions of “fair use” in an effort to advance a better understanding of political, health, economic and social issues. The material on this site is distributed without profit to those who have expressed a prior interest in receiving it for research and educational purposes. If you wish to use copyrighted material for purposes other than “fair use” you must request permission from the copyright owner.

••••

Disclaimer: The information and opinions shared are for informational purposes only including, but not limited to, text, graphics, images and other material are not intended as medical advice or instruction. Nothing mentioned is intended to be a substitute for professional medical advice, diagnosis or treatment.

Be the first to comment

Leave a Reply

Your email address will not be published.


*