Mortgage Rates Are at the Highest Level Since Before Covid-19 Hit

January 31, 2022

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7:19 pm

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20 comments

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Economics

*Mortgage rate data from St. Louis Fed, chart by Mish*

Mortgage Rates – Weekly Ending Thursday Since 2007

Mortgage rates are inching higher and higher. The chart numbers are as of last Thursday.

Current Rates From Bankrate.com

“On Monday, January 31, 2022, the national average 30-year fixed mortgage APR is 3.780%.”
“The average 15-year fixed mortgage APR is 3.280%, according to Bankrate’s latest survey of the nation’s largest mortgage lenders.”

Huge Jumps

From 2.65% to 3.78% on 30-year rates
From 2.10% to 3.28% on 15-year rates

Rates are still low historically, but home prices sure aren’t.

Home Prices Jump Another Percent

Case-Shiller Home Prices from Case-Shiller via St. Louis Fed, Chart by Mish

For details please see Home Prices Jump Another Percent, Fed Extremely Behind the Inflation Curve.

Fed Support

The Fed has encouraged housing speculation by keeping interest rates low. Half of its monthly QE asset purchases have been mortgage-backed securities.

That support ends in February or early March.

What Can Go Wrong?

The Fed is hiking
Stimulus has worn out
The stock market is stumbling
Pending Homes Sales Unexpectedly Decline
Merchants are stockpiling and pre-ordering everything
Retail sales are falling.
Major deceleration in deficit spending.
Declining working age population will reduce productivity.

Refinancing Liquidity

Low rates also put money into people’s pockets via refinancing at a lower rate. We also had cash out refis.

That liquidity support ended as well. Anyone who could have profited by refinancing has already done so.

It would take new lower rates for another refi boom to happen.

Pending Homes Sales Unexpectedly Decline 3.8 Percent in December

Add it all up and the overall liquidity drain is massive. Housing rates to cool and there are signs of that already.

For discussion, please see Pending Homes Sales Unexpectedly Decline 3.8 Percent in December.

The Huge Stock Market Bubble Just Popped and the Fed Can’t Rescue It

The stock market and related euphoria also supported housing. 17 percent of recent purchases were made by people who already owned a home.

Also consider The Huge Stock Market Bubble Just Popped and the Fed Can’t Rescue It

The stock market highs supported all kinds of purchases, including autos, travel, dining, and real estate.

With Nearly Everyone Looking the Other Way, It’s Time to Discuss Recession

Liquidity is drying up on multiple fronts simultaneously.

That is why With Nearly Everyone Looking the Other Way, It’s Time to Discuss Recession.

This post originally appeared at MishTalk.Com.

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20 Comments

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Jmurr

2 years ago

We refinanced in 2020 at 2.5%/15 years. What a deal with inflation now at 7.0%.

1KoolKat

2 years ago

Also, oil is moving higher ($88/ barrel) which will produce an increase in prices thru out the economy.

Doug78

2 years ago

Real estate in my area and those where the various members of my family live report the same thing and that is there are no sellers of houses or condos. It’s a classic blocked market where buyers are no longer willing to pay up and sellers are not willing to sell at the prices offered. Needless to say blocked markets eventually unblock.

Six000mileyear

2 years ago

Clearly bond markets drive the FED, and not the other way around.

Christoball

2 years ago

600 Realtors chasing 58 listings in my town. I would say Realtors are already in recession.

Tony Bennett

2 years ago

9. China

China’s property (bubble) faltering. Since 2019 they could be counted on to be the world’s driver of growth. Now? Xi attempting to deflate (bubble) gradually. (Bubbles) burst. Not deflate slowly. Snowball picking up speed.

BowserB46

2 years ago

Reply to Tony Bennett

For at least ten years, Chinese have been buying residential properties all over our metropolitan area (Houston) as rentals. My RE agent friend tells me they have slowed due current high prices. His “best” Chinese client says he’s waiting for the next crash to start buying again.

davebarnes2

2 years ago

3.5%! OMG!
Call me when mortgage rates hit 13.5%.

Intelligentyetidiot

2 years ago

For perspective on the Fed’s influence over the housing market since it launched its emergency bond-buying program two years ago, consider this point by Richard Farr, chief market strategist at Merion Capital Group. Some 762,000 new homes were sold at an average price of $453,700 in 2021, meaning that the Fed—looking just at its $40 billion-a-month in mortgage-backed securities purchases—bought the equivalent of the entire new-home market last year, plus an extra 36%.

link to barrons.com

RunnerDan

2 years ago

Reply to Intelligentyetidiot

Consider also that the Fed has about $2 Trillion of MBS’s on their books which is equivalent to about 40 upper class cities worth of real estate. For example, let’s consider the City of Irvine:

Population: 250,000 people. Assume 1 in 4 own a home, so 62,500 homeowners

Average home price: $800,000

Total MBS value of all Irvine realestate: 62,500 x $800,000 = $5×10^10

2×10^12 (The $2 Trillion the Fed owns) / $5×10^10 (Average upper class city worth of real estate) = 40 Upper class cities!

The Fed was never meant to interfere in the market like this…

Eddie_T

2 years ago

I always look for things to cycle down from time to time. But demographics and jobs will help support RE here. Every time I check my net worth, it keeps getting higher.

Home values in Austin have increased by 39.4% over the last year.
Over the past five years home values in Austin have increased by nearly 90%.
Median sales price for a home in Austin is $470,000 based on the most recent report from the Austin Board of Realtors.
Sales prices for homes in Austin have increased by 29% year-over-year.
Average days on market for a home in Austin is 22.
Months of inventory in the Austin real estate market is just 0.8 months, which means there is less than a 30-day supply of homes for sale in the Austin metropolitan area.

Other interesting local stats in the link, including rental info that looks pretty accurate to me.

link to learn.roofstock.com

TexasTim65

2 years ago

Reply to Eddie_T

Crazy increases at 39% a year in value and 29% in sales prices. Wolf Richter on his site tracks the top markets (Austin doesn’t make the list from Case Schiller) every couple of months and no one went up that much though plenty of places went up in the mid 20’s range.

It just means there can’t be much more to go in any real estate market in the US because it’s impossible for salaries to rise that much or good jobs to come to any local market that pay that much above average.

I think most markets are topping out unless they have not risen much recently (ie middle of no where places or run down places like Detroit). The question will be which areas can hold on to the gains. Austin is well positioned due to crazy growth in jobs and a few other markets/areas are like that. But not many.

BowserB46

2 years ago

Reply to Eddie_T

And you know the appraisal districts, cities, counties, ISD’s, and the state are loving it. Watch for huge valuation increases by the appraisal districts this year, since their primary data of increasing is comparable sales. Luckily, there is a limit of 10% per year, however, they’ll build in 10% for the next five or so years for certain–unless a crash happens first.

Eddie_T

2 years ago

Reply to BowserB46

Absolutely right.

Intelligentyetidiot

2 years ago

Fed still buying billions in MBS through March. This is madness.

I suspect housing is being bought as an inflation protection by the working stiffs.

Its the only asset available to most of us with decent leverage and interest rates.

I dont buy the shortage in supply, our population hasnt increased, if anything with all covid deaths there should be more supply.

Eddie_T

2 years ago

Reply to Intelligentyetidiot

The shortage is very real.

Intelligentyetidiot

2 years ago

Reply to Eddie_T

Yes, because shortage is the next step following persistent inflation.

When prices keep going up at 20% a year and people see that the Fed/gov aren’t serious about bringing inflation under control they withdraw the product from the market.

No one wants to sell real stuff for pieces of paper that are thrown around by the trillions.

This is a very dangerous situation and if the Fed doesnt get things under control in a credible way, we might be approaching a situation where gradually then suddenly people start getting rid of dollars for whatever they can get.

Eddie_T

2 years ago

Reply to Intelligentyetidiot

I’ve been doing that since the early 2000’s.

Christoball

2 years ago

Reply to Intelligentyetidiot

With highly leveraged markets the scenario you present will probably not come to fruition. I see people suddenly get starved for dollars and suddenly get rid of stuff for whatever they can get to preserve their core assets. The Fed has not only a commission but also a necessity to have the dollar keep some value.

KidHorn

2 years ago

Seeing as how mortgage approvals are mostly based on ones ability to pay the monthly interest, there are going to be a lot fewer qualified buyers in the near future. We’ll soon find out if elevated prices are because of low inventory like the NAR claims.

Mortgage Rates Are at the Highest Level Since Before Covid-19 Hit

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