Mortgage Refi Applications Plunge To 10 Year Lows As Fed Hikes Rates

On the heels of the 10Y treasury yield breaking out of its recent range to its highest since July 2011, this morning's mortgage applications data shows directly how Bill Gross may be right that the economy may not be able to handle The Fed's ongoing actions.

As Wolf Richter notes, the 10-year yield functions as benchmark for the mortgage market, and when it moves, mortgage rates move. And today’s surge of the 10-year yield meaningfully past 3% had consequences in the mortgage markets, as Mortgage News Daily explained:

Mortgage rates spiked in a big way today, bringing some lenders to the highest levels in nearly 7 years (you’d need to go back to July 2011 to see worse). That heavy-hitting headline is largely due to the fact that rates were already fairly close to 7-year highs, although today did cover quite a bit more distance than other recent “bad days.” 

The “most prevalent rates” for 30-year fixed rate mortgages today were between 4.75% and 4.875%, according to Mortgage News Daily.

And that is crushing demand for refinancing applications...

Despite easing standards - a net 9.7% of banks reported loosening lending standards for QM-Jumbo mortgages, respectively, compared to a net 1.6% in January, respectively. 

"Homebuyer demand has remained positive and shaken off the higher rate environment so far this year," said Sam Khater, chief economist at Freddie Mac.

"However, after years of very low mortgage rates, the symbolic risk of a 5 percent mortgage, on top of higher gas prices, may cause a slowdown in homebuyer demand, particularly in western states and exurbs that are affected more by gas prices than the typical consumer."

According to Wolf Richter over at Wolf Street, the good times in real estate are ending…

The big difference between 2010 and now, and between 2008 and now, is that home prices have skyrocketed since then in many markets – by over 50% in some markets, such as Denver, Dallas, or the five-county San Francisco Bay Area, for example, according to the Case-Shiller Home Price Index. In other markets, increases have been in the 25% to 40% range. This worked because mortgage rates zigzagged lower over those years, thus keeping mortgage payments on these higher priced homes within reach for enough people. But that ride is ending.

And as Peter Reagan writes at Birch Group, granted, even if rates go up over 6%, it won’t be close to rates in the 1980’s (when some mortgage rates soared over 12%). But this time, rising rates are being coupled with record-high home prices that, according to the Case-Shiller Home Price Index, show no signs of reversing (see chart below).

case-shiller home price index

So you have fast-rising mortgage rates and soaring home prices. What else is there?

It's not just home refinancing demand that is collapsing... as we noted yesterday, loan demand is tumbling everywhere, despite easing standards...

But seriously, who didn't see that coming?


Endgame Napoleon Cognitive Dissonance Wed, 05/16/2018 - 10:08 Permalink

They will not do anything that helps most underemployed US citizens. Mortgages (and rents) will never stabilize without better income-earning prospects—not just for the “median family”—in a country with a [majority] of single earners, a large percentage of whom cannot count on spousal income or pay from child support or government to cover the cost of housing and other major bills.

For “working families,” pay from part time & temporary work adds earned pocket money to the unearned income for womb productivity from spouses, ex spouses or Uncle Sam that pays their main household bills. That rigged system does not work for the single, childless earners.

They could convert a lot of big houses in safer areas of cities into duplexes, like the one in the illustration, to help the only group of humans that politicians serve: the voting & non-voting womb-productive citizens and the non-voting womb-productive noncitizens. 

In reply to by Cognitive Dissonance

bshirley1968 Cognitive Dissonance Wed, 05/16/2018 - 09:06 Permalink

Right. Maybe a lot of post are sarcasm or a call to see things melt down, but I believe many still don't understand that "normal" rates of 7-8% were at a time when Total Credit Market Debt was 25-30% of what it is today.

Interest payments suck the liquidity out of markets. Interest is like a sponge, but everyone seems to forget that as the entire body of debt goes up so does the size of the interest pool. Then as rates rise, the interest sucks up discretionary money.....real fast.

Debt is way different from money in many regards. Money can just sit there...minding it's own business. Debt must constantly be in motion or it starts eating itself. "Now I ax you! What's in yo wallet?"

In reply to by Cognitive Dissonance

Endgame Napoleon spastic_colon Wed, 05/16/2018 - 11:01 Permalink

Are you talking about the big investment firms that have been buying up the residential real estate for years, post housing collapse?

Acting like those were individual buyers, the MSM has presented the housing sales numbers for years, studiously ignoring that issue, just like they ignore the rise of homeless encampments and 50 to 95 million US citizens out of the workforce, depending on how you characterize “working age.”

They likewise ignore the massive vat of underemployed housing consumers, including all of the citizens, legal immigrants and illegal aliens getting their major household bills, like rent, paid by taxpayers for sex and reproduction, with piled-higher-and-deeper refundable child tax credits added on to spend on a bunch of expensive trips and other mom-pampering treats chronicled on social media.

At the $6,431 max, those refundable (EITC) child tax credits equal 3 to 4 months of wages for non-welfare-eligible citizens.

The reason the MSM ignores underemployment is their owners.

Comcast, Disney, etc. own them, and while they pay the MSMers a lot, those companies have tons of employees who cannot afford rent on the pay [alone]. Most of the jobs these companies offer have payscales ranging from the “good,” full-time, churn jobs at $12 per hour to the ouright temp jobs at $10 per hour.

Cotizens living on earned-only income—with no spousal income and no pay from governent for sex and reproduction out of wedlock—cannot afford rent on the wages (only).

Then there are the more [skilled] US employees. These Americans with technical skills, which are the only non-babyvacationing skills valued by American employers, are not as innately skilled as their foreign equivalents, but are tasked to train their foreign replacements. If someone is not skilled enough to do the job, s/he cannot train someone else to do it.

The “skilled” can afford housing, especially the dual-earner parents concentrating two of the few decent-paying jobs with benefits in fewer households, but in many cases, “skilled” is whatever the frequently babyvacationing crony-parents-in-charge say it is.

In many family-friendly workplaces, going on 11 two-week family vacations per year is “skilled.”

In many “voted-best-for-moms” workplaces, squealing with delight at the baby-mommy-look-alike-bulletin-board-decorating contest or the Halloween dress-up day at work is skilled, especially in conjunction with honed, sadistic bullying skills that help in the purging of non culture fits.

Meeting the sales-generation and account-retention numbers every month is only skilled until the momma manager’s bonus numbers are met, and she picks up her kids from their grandparents’ house after returning from her 9th vacation getaway for busy-working parents for the year to date.  

She is “skilled” at the strategic churning of hard workers and “skilled” at cutting labor costs by retaining the equally absentee, low-wage mom workers who watch her absentee back. She is skilled at hiring / retaining mostly staff whose low pay is boosted up by spousal income, child support or monthly welfare and refundable child tax credits that make low wages and part-time hours acceptable. She knows that moms and other single-earner households cannot even get welfare unless they work part time for low wages that keep them under the income limits for the programs.

She is skilled at what one employer described to me in an interview for a financial services job as hiring & retaining “women who have somethin’ comin’ in.”

The MSM discusses such topics under the guise of “paid family leave.” It is not enough for the dual-high-earner parents—and the welfare-supported parents—who are the only ones who can afford housing to be above firing when taking mornings, afternoons, days and weeks off beyond PTO and pregnancy leave, even when they do not meet quotas.

They also need to be paid by government for the crony absenteeism. 

THAT will solve the Real housing crisis.

In reply to by spastic_colon

KarlGDenninger Wed, 05/16/2018 - 08:32 Permalink

I dont see any panic yet or bubble. They have not even rolled out the liar loans/No Down loans en masse (a sure sign the end is near).


Market probably has a good 20-30 months roll left in it. Article is premature. The fed will defend mortgage rates if they get too high. They know home prices are a cornerstone to the economy.

bshirley1968 KarlGDenninger Wed, 05/16/2018 - 09:15 Permalink

You put too much weight on that single indicator. There are plenty of other land mines waiting to market for prices for another...

You reveal yourself with the "so long as the economy stays hot" bullshit. Must be one of those "true believers", popping blue pills and drinking Kool-aid. Energy demand is in the shitter, corporate profits are based on tax cuts, goobermint is borrowing more money than ever, housing is down, auto market is coming unraveled, more corporate bankruptcies this year than ever, the Trump bump in the job market is fading fast.....yeah, you are either a goobermint employee or work for a goobermint contractor.

In reply to by KarlGDenninger

BankSurfyMan Wed, 05/16/2018 - 08:37 Permalink

Auto loans, credit cards, consumables, travel, mortgages, health care, 3 percent won't last long. The FED is the funky cartel that pretends inflation is manageable. Debt is manageable too, 22 trillion is so manageable! Funky Cartel runs the rates! Beans and rice economy!

graspAU Wed, 05/16/2018 - 08:37 Permalink

In process of doing a recast. They like to not tell anyone about that option. If you have a decent rate, want to make a large principal payment, and reset your monthly payment lower (same rate, no extending of term, just re-amortize) to save interest, and have the option of maybe putting that monthly savings into more principal reduction, savings, or weathering a bad job situation. Cost = $100-500, no appraisal, not much paperwork, no credit check or other normal loan qualification steps. For Fannie and Freddie loans, i don't think FHA/VA qualifies. Also comes in handy if you have to purchase a new home before selling old. When you sell the old house, make that principle reductions, get your payment down to where it would have been if you were able to sell your old house first.

Endgame Napoleon graspAU Wed, 05/16/2018 - 11:28 Permalink

When I worked briefly at a credit-processing company, their one impressive hard worker beyond the technical staff was a woman who had worked many years for real estate companies. She was fast as greased lightning at turning out those things, and I noticed that she mostly recommended dropping a car payment and things like that to refi clients, rather than what you mentioned. It was her job to make sure that the company made money. What did she get for doing such a stellar job? She got a little head-patting praise in “meetings” and too little pay for a single woman with grown children——-a worker who is in just as bad a position as a single, childless worker——-to afford the rent on a modest apartment. She lived in dangerous areas of town and was basically homeless, going from friend’s house to friend’s house, with no way to even store her stuff. Disgusting. They were paying me $10 per hour, and her skills did not command much more. I have seen the same thing in sales jobs, where I excelled via hard work, many years of sales experience and every day / all day attendance, and it did me just as little good. 

In reply to by graspAU

gmak Wed, 05/16/2018 - 08:38 Permalink

Operative words... "FED Hikes rates".  You mean they stopped buying assets and stopped providing liquidity, which dropped demand like a pirate on the gallows. 

NEOSERF Wed, 05/16/2018 - 09:05 Permalink

Fed needs a chart on average mortgage payment being the cost of the houses sold in a month x average mortgage rate in the month...probably all time highs.   Then superimpose the wage line (flat)...that should tease out the issue.

3-fingered_chemist Wed, 05/16/2018 - 09:15 Permalink

Rates have been low for a long time. Anyone that wanted to refinance has. With rising rates, who is going to refinance out of a 3.5 % loan into a 5 % loan? The bankers in this country have no clue whatsoever. Complete morons.

What this effectively does is restrict supply on the market as well and keep prices sky high. People will be hesitant to sell if they are going to have to get a new mortgage at a higher rate than their current one. 

Thethingreenline Wed, 05/16/2018 - 10:04 Permalink

This dovetails with the Illinois pension ‘crises’. The Illinois pensions could better be shored up with a modest 2% sales tax within state of Illinois. This way, it would not be paid for by the homeowners only, but the pimps, druggies, mafia, rich tax dodgers would also pay for services they received from pensioners over the years. I don’t see any rich tax dodgers in Illinois fixing pot holes! This approach would also not affect Home values and MORTGAGES!