The Dramatic Impact Of Surging Rates On Housing And Refis In One Chart

Tyler Durden's picture

To visualize the impact the recent spike in mortgage rates will have on the US housing market in general, and home refinancing activity in particular, look no further than this chart from the October Mortgage Monitor slidepack by Black Knight

The chart profiles the sudden collapse of the refi market using October and November rates. As Black Knight writes, it looks at the – quite dramatic – effect the mortgage rate rise has had on the population of borrowers who could both likely qualify for and have interest rate incentive to refinance. It finds it was cut in half in just one month.

Some more details from the source:

  • The results of the U.S. presidential election triggered a treasury bond selloff, resulting in a corresponding rise in both 10-year treasury and 30-year mortgage interest rates
  • Mortgage rates have jumped 49 BPS in the 3 weeks following the election, cutting the population of refinanceable borrowers from 8.3 million immediately prior to the election to a total of just 4 million, matching a 24-month low set back in July 2015
  • Though there are still 2M borrowers who could save $200+/month by refinancing and a cumulative $1B/month in potential savings, this is less than half of the $2.1B/ month available just four weeks ago
  • The last time the refinanceable population was this small, refi volumes were 37 percent below Q3 2016 levels

Which is bad news not only for homeowners, but also for the banks, whose refi pipeline - a steady source of income and easy profit - is about to vaporize.

It's not just refinancings, however, According to the report, as housing expert Mark Hanson notes, here is a summary of the adverse impact the spike in yields will also have on home purchases:

  • Overall purchase origination growth is slowing, from 23% in Q3'15 to 7% in Q3'16.
  • The highest degree of slowing - and currently the slowest growing segment of the market - is among high credit borrowers (740+ credit scores).
  • The 740+ segment has been mainly responsible for the overall recovery in purchase volumes and in fact, currently accounts for 2/3 of all purchase lending in the market today.
  • Since Q3'15 the growth rate in this segment has dropped from 27% annually to 5% in Q3'16. (NOTE, Q3/Q4'15 included TRID & interest rate volatility making it an easy comp).
  • This naturally raises the question of whether we are nearing full saturation of this market segment.
  • Low credit score growth is still relatively slow, and only accounts of 15% of all lending (as compared to 40% from 2000-2006), the lowest share of purchase originations for this group on record.
    ITEM 2) The "Refi Capital Conveyor Belt" has ground to a halt, which will be felt across consumer spend. AND Rates are much higher now than in October when this sampling was done.


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Bill of Rights's picture

Nice manipulation in the miners today, way to prevent the break out assholes...but we add on the dips and live and wait for another day.


The Merovingian's picture

The housing market will roll over, followed by the commercial RE market. The only question is whether the coming decline will be a cliff or just a short term correction. If rates hold, everyone better hold onto your socks, because the defaults are going to start piling up. Not just in housing, but CMBS, autos, and CC debt.

Never a borrower nor a lender be never had more relevance than it does today.

rccalhoun's picture

for each tick up in financing costs for buying a home...there should be an equal tick down in the selling price.

but, might as well let it crash on trumps dime and then institure NIRP as an emergency (permenant) measure.

and the fed might as well refinance the entire debt (plus fund a large current surplus) by selling ONLY zero coupon 100 years plus



flea's picture

And they've got just the guy to do it: Munchkin.

froze25's picture

Can't wait for the crash, I have been saving for 8 years now since the last one to buy my vacation home and future retirement home.

mosfet's picture

Me too but I can't help but feel the next sell-off and price bubble will occur faster.  When the current RE bubble pops, the Fed's gonna act like their back's against the wall and implement NIRP just to get 30 yr fixed mortgages down to 1% or 1.5%.  i.e. A housing crash will remove all doubt we're in a recession and allow Janet to do whatever she want's to pump the housing bubble back up ASAP.  When that happens foreign home buyers will pour back in just as fast as they left.  Not to mention kick off masive inflation as wages finally get pushed up to cover the cost of a much, much bigger housing bubble that's coming.  I'm personally aiming for somewhere round 2018 for the bottom but the Fed raising next week could very well accelerate a sell-off.

I personally don't think there's a chance in hell Janet hikes next week - Obama's gotta have a nice send off with the DOW hitting 20K, along with a nice Christmas rally.

Son of Loki's picture

The general rule is a 1% rise in rates = a 10% drop in house price.

However, my banker said houses are so overpriced that now a 1% rise in mortgage rates might = 15-20% drop in prices.

I guess ... unless the Fed + bankers somehow keep manipulating that market.

tarsubil's picture

If rates are maintained to the point that the market rolls over, right now with bubble prices and higher rates is the absolutely worst time to buy. Given bizarro land logic, housing will probably spike higher in one final blow off top.

pound the vix's picture

Less mortgage refi's Must be good for regional banks as they hit new highs (KRE)

Rainman's picture

Loan Application: Document which mysteriously causes amnesia to the
borrower concerning income, credit, bills, and ex-spouses

bornlastnight's picture

I'm so happy that only the tax assessor and I own my home.  Bankers need not apply.

unplugged's picture

you may own the house, but you just rent the land that its on from the county

try not paying your property tax and see what happens

Seasmoke's picture

That's what he just said.

PS. Fuck the property tax. The most regressive tax in the world

Snaffew's picture

why would anyone give this comment a thumbs down. Price in 50 years of school and property taxes on your home and see what number you come up with.  I bet it's more than the current value of your home.  Unplugged is right.

disc_golfer's picture

he got thumbs down b/c he didn't take time read the comment he was commenting on, and just repeated the original commenter's point. 

mary mary's picture

So, run for City Commissioner, and after you get elected, make a motion to terminate the City's ad valorem taxes.

Rich Monk's picture

Auto debt, student debt, home debt, government debt, is but a Fed ( Jewish organized crime syndicate) rate hike away from causing implosion.

Snaffew's picture

I bet that if the fed raises rates next week, the dollar drops.

Snaffew's picture

How fucking long can this market charade continue?  I've got to say, I'm getting pretty tired of green candles.

Legolas's picture

It's about to get a whole lot worse after the first of the year.  Most people who have jobs and a health care plan will face premium increases that are going to be hard to absorb. This will affect the primary mortgage market the most.  Now all we need is for gas to go up over $3.50 a gallon again and everything will come completely undone in less than 6 months.

mary mary's picture

It's nothing compared to the fact that almost everyone in America wants, or has already bought, a house two or three times the size he needs.

The American Dream was never owning your own house; it was always owning your own small business.