Mortgage Rates Explode Higher

Because last week’s election fell in the middle of FreddieMac survey week, it was impossible to determine how closely the mortgage rate would track the post-election sell-off in the Treasury market.  This week, however, the verdict is in: over the last two weeks the 30-year mortgage rate jumped by a whopping 40 basis points to 3.94 percent, almost identical to the 39 basis point increase in the 10-year Treasury yield, and sending the average 30 year mortgage to levels last seen at the start of the year.

Some details:

  • 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.

In its press release, FreddieMac had a favorable spin on the data: "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."

We disagree: as we showed yesterday, in the last few months, as The Fed has jawboned a rate hike into markets, mortgage applications in America have collapsed 30% to 10-month lows - plunging over 9% in the last week as mortgage rates approach 4.00%.


Unfortunately, the long-held dogma that spikes in rates force potential homebuyers to rush out and buy homes due to fears of even higher rates in the future, appears to be the latest economic theory that is in danger of being debunked. Unfortunately, if that is indeed the case, the recent surge in rates will lead to yet another crushing blow to the one asset that has traditionally been the backbone of US middle class wealth: housing. It also means that as many expected, the core premise behind the Fed's push for higher rates is to precipitate the next recession and/or financial crisis, one which will also pave the way for the next round of QE which will be critical to effectuate Donald Trump's proposed multi-trillion debt-funded stimulus.

Source: FreddieMac