By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at
4.73% now. 5% in a few weeks. Then 6%.
The average interest rate for 30-year fixed-rate mortgages with conforming loan balances – $453,000 or less – and a 20% down-payment jumped to 4.73% for the week ending April 20, from 4.66% in the prior week, according to the . This was the highest rate since September 2013. So far in 2018, this measure of the average mortgage rate has risen half a percentage point (chart via ):
And since mid-2016, mortgage rates have now risen a full percentage point.
Points – these pesky upfront fees, such as origination fees, that are usually plowed into the mortgage balance – rose 3 basis points during the week to 0.49% of the mortgage amount.
If the average mortgage rate rises to 4.81% — at the pace the average rate has been increasing, this might happen in a few weeks or less – it will be the highest since 2011 (chart via Trading Economics):
If the average mortgage rate rises to 5.2% — perhaps in the second half of this year — it will be the highest since 2010. And 5.5% would take mortgage rates back to levels not seen since 2008 (chart via Trading Economics):
But there is a difference between those higher mortgage rates now and the same rates back then: Home prices! Depending on the metro area, home prices have surged over those years, while incomes have not, and now the free lunch – the combination of rising home prices and falling mortgage rates – is over.
Since 2010, the last year when mortgage rates where at 5% for a significant amount of time, home prices as measured by the nationwide Case-Shiller home price index have surged 33%:
Fearing even higher mortgage rates in the future, home buyers are rushing to take out mortgages while they still can: the Mortgage Bankers Association’s Purchase Index, which tracks the number of purchase mortgages (as opposed to refis) that were originated during the week increased 11% compared to the same week a year ago.
The pain threshold for the US housing market is at 6% (average 30-year fixed-rate mortgage, as measured by the MBA, conforming, with 20% down). That’s my story, and I’m sticking to it. There may well be a cold-shower effect at around 5% that will sober up some home buyers. But pain will set in at around 6%. People have forgotten what a 6% mortgage feels like though that’s still a historically low rate. And they’ve never had to finance homes at these sky-high prices at 6%. That’ll be the new thing. And something will have to give.
And so everything spikes. Read…