The Current Rise in Mortgage Rates Is Unlike Anything in History

June 21, 2022

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6:41 pm

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52 comments

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Economics

Mortgage rates from Freddie Mac via St. Louis Fed, chart by Mish

Largest Mortgage Rate Swings in History

In 18 months, the year-over-year percentage change in rates went from -27.8 percent to positive 80.4 percent, a swing of 108.2 percentage points.
The December 2020 decline of 27.8 percent is the largest decline in history.
The June 2022 year-over-year rise of 80.4% is the largest rise in history.

Monthly Average Mortgage Rate Percent

Highest Rate in 11 Years

5.37 percent is not a high rate historically, but it is the highest rate since 5.42 percent in June 2009.

Moreover, one cannot get anything close to that rate now. That’s a Freddie Mac weekly average rate from early June and it is very stale.

Mortgage News Daily Rates

Chart from Mortgage News Daily annotations by Mish.

As of June 21, the average mortgage rate is 6.07 percent, up from 3.26 percent a year ago.

According to Freddie Mac, the annual average commitment rate across all of 2021 was 2.96%. Rates have now doubled.

New Home Sales Plunge 22.5% In April, 16.6% From Deep Negative Revisions

On May 24, I reported New Home Sales Plunge 22.5% In April, 16.6% From Deep Negative Revisions

New home sales have peaked this cycle and the bottom is nowhere in sight.

Existing Home Sales

Existing Home Sales Skid Another 3.4 Percent in May

Existing home sales declined for the fourth month in May. Sales are down 16.8 percent since January.

Existing home sales are recorded at closing, new homes at signing. May sales reflect March and April’s mortgage rates, not June’s.

Expect sales to get worse, much worse.

For discussion, please see Existing Home Sales Skid Another 3.4 Percent in May, Down Fourth Month

Note that the Seventh Largest US Importer Cuts Shipments in Half, Shipping Rates Crash

With mortgage rates up 2.7 percentage points this year and doubling from the average for 2021, this bust is just getting started and with it the demand for goods.

This post originated at MishTalk.Com.

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Swengen

3 years ago

Can someone please explain the systemic derivative risk with interest rates rising at a record pace? Is that intrinsically hedged in the derivative? None of the experts and prognosticators ever talk about this so I guess it is a null point.

FromBrussels

3 years ago

some, below here, are still in denial; real estate prices are correlatively defined by INTEREST RATES ! So up, means prices down, down, means prices up …Life is so fn simple sometimes ….

RonJ

3 years ago

“The Current Rise in Mortgage Rates Is Unlike Anything in History”

We have yet another record. What are we up to, like a thousand record happenings since a never before lockdown of the global economy, for a treatable respiratory virus? What a way for governments to make an absolute mess out of things for billions of people.

Christoball

3 years ago

Reply to RonJ

An ounce of cure is better than a pound of prevention.

KidHorn

3 years ago

This is the same dilemma every CB is facing. Stop printing and interest rates go up. So the choice is death by inflation or death by debt defaults. Japan seems to be the only one choosing death by inflation.

Casual_Observer2020

3 years ago

This one probably could be updated for 2022.

Fingers of Instability

John Mauldin
|
Thoughts from the Frontline
|
April 7, 2006

https://www.mauldineconomics.com/frontlinethoughts/fingers-of-instability-mwo040706#:~:text=Everything%20is%20connected.,until%20the%20avalanche%20has%20started.

8dots

3 years ago

Reply to Casual_Observer2020

Thanks, according to the 2 charts gold is very expensive.

8dots

3 years ago

Mish, can u please produce the following charts : 1) RE prices/ wages ratio, 2) RE prices/ rent, 3) Gold prices/ Income, because that what really matter.

Scooot

3 years ago

Reply to 8dots

You can see various charts against Gold on here.

http://pricedingold.com/us-disposable-income/

http://pricedingold.com/us-wages/

MPO45

3 years ago

2nd re-post. Looking at hard data, the price of houses is right where it should be. In 1950, houses were 1000 sq ft, today they are 2000 sq ft with a whole lot of technological innovations that didn’t exist in 1950. Nixon also took US off gold standard in 1971 so the theory that gold offers price stability is shot down right off the bat.

Decade; Median House Cost; Inflation Adjusted; % Change;

1950; $7,354; $79,063

1960; $11,900; $104,166; 31.75%

1970; $17,000; $112,941; 8.42%

1980; $47,200; $147,879; 30.93%

1990; $79,100; $157,169; 6.28%

2000; $119,600; $179,331; 14.10%

2010; $221,800; $263,604; 46.99%

2020; $336,900; $336,900; 27.81%

Source: https://better.com/content/how-much-home-prices-have-risen-since-1950

Hard to see a “housing collapse” looking at data extrapolations over hyperbole. yes, some real estate is over priced in some areas, that’s always been the case.

Captain Ahab

3 years ago

Reply to MPO45

That increase from 1950 to 1970 is due to baby boomer babies and household formation after WW2, the vast increase in housing demand increasing REAL prices. Increasing wealth (INCOME) in later decades gave rise to the second home–so increased demand.

With relatively steady household demand, house prices should theoretically increase at the rate of inflation, subject to unique conditions such as limited waterfront land (supply), migration patterns (changing demand regionally), etc. The rest is a ‘bubble’ (2010 and 2020).

MPO45

3 years ago

Reply to Captain Ahab

Baby Boomers: 72 million born between 1946 and 1964. They’re currently between 57-75 years old
Gen X: 65 million born between 1965 and 1979/80 and is currently between 41-56 years old
Gen Y: 72 Gen Y, or Millennials, were born between 1981 and 1994/6. They are currently between 25 and 40 years old
- Gen Y.1 = 25-29 years old (around 31 million people in the U.S.)
- Gen Y.2 = 29-39 (around 42 million people in the U.S.)
Gen Z:  68 million born between 1997 and 2012. They are currently between 9 and 24 years old (nearly 68 million in the U.S.)

Source: https://www.kasasa.com/exchange/articles/generations/gen-x-gen-y-gen-z

There is a shortage of housing, there will be NO COLLAPSE. Yes, there will be pricing corrections in some areas that got way overpriced but overall, there is a massive shortage. Everyone can believe whatever they want, we’ll just have to wait and see but the data shows what it shows and conspiracy clowns continue with conspiracy theories. Those that use data for analytical investment decisions get rich, the others whine endlessly.

The numbers above do not include immigrants, foreign buyers and investors buying homes.

JackWebb

3 years ago

Reply to MPO45

I suggest cutting it out with the strawman stuff. Now, some fixed percentage of people are lunatics, so I’m sure someone, somewhere predicts that houses are going to zero. Except for Bigfoot’s house, because the same person knows him, and has seen the furry guy’s financials, and has been told that he’s in the market. If you’re going to set yourself up to argue with a “collapse” forecast, could you kindly mention Bigfoot so we can consider the source? Now, is there a “shortage” of housing? I don’t see evidence of that on any broad scale, but I do think there are shortages now in places that have adopted rent control either direct or de facto.

Those shortages will get worse, Oregon and Washington being good examples, at least west of the Cascades and a boutique town or three east of the Cascades. The “progressives” hate the middle class, so they are doing everything in their considerable power to turn Portland and Seattle into copies of San Francisco. In saner precincts, there isn’t much evidence of housing shortages that I can see.

Oh, one more thing. When there was no collapse in ’07-’08, I was watching closely. I was living in Seattle then, and that fool Cramer of CNBC declared that residential real estate there was in fine shape. Oops. I saw prices in my ‘hood (Magnolia, hardly a slum) get slashed by 25%, and quickly. Was it a collapse? Was headed that way until Bernanke rescued the mortgage bond market.

worleyeoe

3 years ago

Reply to JackWebb

There is no widespread housing shortage, rather only a lack of affordable housing. We now live in a MMT dominated economy managed by Congress & the Fed. If housing drops to a certain level, only known to JPowell & a few others, the Put will arrive, including rent & mortgage forbearance (again).

MPO45

3 years ago

Reply to JackWebb

I tend to look at things through the only lens that matters: demographics. The demographics, population and age wise, all point to the need for housing for the younger generations to start their families. Wages will continue to rise as boomers deplete the workforce so housing will remain robust and the demand will stay steady and rise, at least for the next decade or so. There may be other black swans that disrupt this: war, natural disaster, the west coast running out of water, etc but all things being equal, housing will be fine.

As for straw man arguments like, “The “progressives” hate the middle class” yeah we should all lighten up on the silly theories and conspiracies. If “progressives” really wanted to destroy the country, California could send 1 million blue voting residents to the red states and change the voting block overnight from red to blue. Imagine North Dakota, South Dakota, Montana, Louisiana and Ohio being shipped over 1 million blue voting Californians: Instant end of GOP power at the Federal and most state level. It’s that simple but it doesn’t happen because there is no conspiracy there is merely a difference of opinion that some people can’t come to grip with for some reason.

JackWebb

3 years ago

Reply to MPO45

Nice dodge. I’m sure you have persuaded yourself, which is all the “progressives” care about.

Mish

3 years ago

Reply to MPO45

A couple of people I consider smarter than me see a housing “oversupply”

Danielle DiMartino Booth and Ivy Zelman

https://twitter.com/DiMartinoBooth/status/1526944082907394049?s=20&t=fuR3SQoi9rgyxIznjmY_7A

MPO45

3 years ago

Reply to Mish

Well I actually hope you and your smarter guys are right. I have 800k sitting on the sidelines for more rental properties and I can’t find any that meet my rental cap rate. Maybe things will change over the next 18 months and if they do I will let you know but right now i don’t see oversupply. If there were, I’d be buying a few up.

Casual_Observer2020

3 years ago

Reply to MPO45

There is too much money chasing housing. Kill the money supply and you will see demand come back into line with supply. We are living through the biggest bubble in human history in all things.

Captain Ahab

3 years ago

Reply to MPO45

Please go to the attached link and look at the LONG TERM population growth 1950-2022.

https://www.macrotrends.net/countries/USA/united-states/population-growth-rate

Now, what is the annualized population growth in the USA (historical and projected)? Note the historic bumps. Why would housing demand exceed population growth?

Now, factor in new construction and replacements in supply. The historical and expected annual growth in housing is?????

Captain Ahab

3 years ago

Reply to Captain Ahab

Too late for editing…

If you ‘age’ population stats and include household formation to estimate housing demand, and factor in income, the Booth and Zelman tweets (posted by Mish) are 100% on the money. This is not to say there will not be regional variations in housing demand/supply conditions–recessions vary in impact regionally, and real estate is mostly FIXED in LOCATION.

The Fed (and Covid) has induced massive dislocations. Interest rate adjustment to NORMATIVE rates will be a game changer and will likely undo some of the regional migration.

Iver.az

3 years ago

Reply to MPO45

The fed has 2022 median price at 429,000, so plenty of room for a correction

jhrodd

3 years ago

Reply to MPO45

Are those building lot prices? You can’t get a serviced lot around here for that price.

KidHorn

3 years ago

Reply to MPO45

You’re only looking at what homes have sold for. For those who have to take out mortgages, there’s another part of the price. The interest rate on the loan. So prices are going up a lot for most buyers. Even though the sale price remains flat.

MPO45

3 years ago

Contrary to popular opinion here, if people actually look at hard data rather than hyperbole we can see that home prices are actually right where they should be.

Decade; Median House Cost; Inflation Adjusted; % Change

1950; $7,354; $79,063

1960; $11,900; $104,166; 31.75%

1970; $17,000; $112,941; 8.42%

1980; $47,200; $147,879; 30.93%

1990; $79,100; $157,169; 6.28%

2000; $119,600; $179,331; 14.10%

2010; $221,800; $263,604; 46.99%

2020; $336,900; $336,900; 27.81%

Source: https://better.com/content/how-much-home-prices-have-risen-since-1950

Keep in mind that houses were 1000 square feet in 1950 and jumped to 2000+ square feet in year 2000 so factoring that in, the price of a house is actually cheaper given all the technological advancements in homes these days too.

Nixon didn’t take the US off the gold standard until Aug 15, 1971 so the theory that a “gold” standard would keep prices stable is ridiculous but I’m sure people will chime in with conspiracy theories nonetheless.

I don’t see a “housing collapse” but we’ll see. Some real estate is overpriced in some areas but that’s always been the case..

Casual_Observer2020

3 years ago

The Fed now has to take money out of the money supply to combat inflation. To let everyone know they are serious the Fed should first remove all QE that has been done since 2011 before any more rate hikes are implemented. This will destroy inflation.

Captain Ahab

3 years ago

Reply to Casual_Observer2020

Let’s assume this is serious…

How high will interest rates/yields go (and high low will asset prices go) if the Fed was to do this? How about 20% with a massive implosion of financial assets?

Casual_Observer2020

3 years ago

Reply to Captain Ahab

Why is that a bad thing ? The savings rate will skyrocket if the Fed increases rates to double digits. If we could only get back to the regulation prior to the deregulation of the late 90s. Right now everything has been screwed up since then because they screwed up the banking system and allowed money to chase up asset prices instead being invested in the real economy.

worleyeoe

3 years ago

Reply to Casual_Observer2020

As of Today, there were $2.188T in the overnight reverse repo facility. And that’s up from $1.7T from the first of the year.

At $95B starting in September, it will take the Fed 20 months to absorb all this excess banking liquidity.

The entire enchilada (soft vs moderate vs hard recession) depends in large part on how successful the Fed is with reducing its balance sheet.

As Mish has pointed out, it’s VERY unlikely that the Fed will hit its MBS runoff in the coming months, which could force them to start selling MBS. You think 6% interest rates are high now? Goodness, what will investors demand, when they’re asked to start buying up even a modest ($500B) portion of $2.7T in MBS from Fed. Remember, MBS has a lifetime of usually 30 years. With housing slowing down, refi’s are going to zero and home sales dropping like a rock, means fewer sales to payoff mortgages the Fed owns, slowing down MBS runoff without outright selling.

At some point last year, it was reported that the Fed owned something like 60% of all government backed mortgages. Does ANYONE really take into account how crazy that sounds?

Casual_Observer2020

3 years ago

Reply to worleyeoe

More reason to stop all the extending and pretending and become Volcker. Right now we have the guy before Volcker who thought half measures would work.

Captain Ahab

3 years ago

Imagine all those 30-year fixed-rate mortgages written during the last few years at 3+/-% when interest rates nudge 10% or so. LMAO!

honestcreditguy

3 years ago

well, we have a offer at our place in the city near Inner sunset at full price…will update on close, that is when offers are reality.

2 wk listing, traffic not bad. Money still sloshing around. Everywhere was packed this week and $6.50 gas was being guzzled, traffic at noon on Sat thruout So Cal. I think PCE drops a bit on June 30th

8dots

3 years ago

Mortgage rates might rise to the 1972 congestion area, to 7% – 7.5% area.

The bear market rally #1 was sideways : 2018 high was higher than 2013 high.

The 30Y have reached 0.886 of 2008 high. It might be a lower peak, good enough, or part of zigzag up, a sharp : down from 5.8% to 2012 lo/ 2013 hi area, between 3.3% – 4.6% area, before zigzag up to the 7% – 7.5% area : (5.8%, now – 2.6%, 2020 low) + about 4% = 7.2%.

KyleW

3 years ago

I can’t believe these idiots created another housing bubble.

Doug78

3 years ago

If the aim was to pop the bubbles then it is well on the path to succeeding but there is more to go so we will see additional rate rises. Great time to be in cash.

PapaDave

3 years ago

Reply to Doug78

Yes. Though it is impossible to know the future exactly. If we had that ability, then we would know when to be 100% cash and when to be 100% invested.

Since I don’t have that ability, I tend to be a minimum 75% invested and up to 25% cash for trading. The last two years have been a traders dream.

Bungalow Bill

3 years ago

All that free COVID money totaling $6 trillion approved by both political parties was always going to have a huge cost in the end. Who knew?

michiganmoon

3 years ago

Reply to Bungalow Bill

When I mentioned this to family members, I was told I needed to be compassionate for suggesting that people like us who didn’t lose income during Covid shouldn’t get anything. Now they are complaining about how inflation is killing them.

LawrenceBird

3 years ago

Reply to Bungalow Bill

Seriously? So how much did the average person get? And what % of a down payment would that be? Please try some math before spouting talking points.

michiganmoon

3 years ago

Reply to LawrenceBird

Going from memory here – Stimulus my family of 4 got:

1, $3,400 for the 1st stimulus.

2, $2,400 for the 2nd stimulus.

3, $5,600 for the 3rd stimulus.

4, $500 for being a teacher in Michigan.

5, I commute and I got to remote teach for a long time saving probably a couple thousand on gas.

My family didn’t lose a penny in income, yet we got stuffed with free money. That is inflationary.

JackWebb

3 years ago

“Unlike anything in history” is factually accurate in the terms presented, but I think it misrepesents the reality to the point of “lying with statistics.” Yes, mortgage rates have nearly doubled in a short time period, but from an insanely low level. To present this as some kind of historic watershed is, to me, the flip side of Biden and his party presenting the jobs “recovery” as evidence of a strong economy.

I am in no way sanguine about the housing situation, and I think we are right now in recession. So don’t take my comment as some sign that I think things are anything but weak and getting more so. Still, Mish, there’s too much arm-waving and shouting in your post, figuratively speaking. Swing and a miss? Nope. Foul ball? Yep, absolutely. I’m old enough to remember the late 1970s. Most aspects of today’s economy are tracking that period, but not yet the residential financing side — the latest rise in mortgage rates notwithstanding.

Fish1

3 years ago

We’re off to the races! You will know we are at the nadir of this cycle when folks on these boards quit talking about all the money they are going to make on their oil stocks and cheap real estate they are going to buy. We’ll all be lucky if we can keep our homes from a forced property tax sale.

PapaDave

3 years ago

Reply to Fish1

Let me guess. All in cash and gold for the last 20 years as you wait for the big crash! What’s it like to always hope for catastrophe?

Fish1

3 years ago

Reply to PapaDave

And you read Mish’s blog?

PapaDave

3 years ago

Reply to Fish1

Lol! Excellent retort!

Mish keeps me grounded and prevents me from being overly optimistic. Plus he has some valuable insight in areas where I lack knowledge.

However, the comment section is also full of great info. It’s from the comments that I learned about the coming decade long bull market for oil companies around 2 years ago. Kudos to Realist, Eddie and others who enlightened me. I wish they were still here commenting. I would like to thank them for their stock recommendations which have made me wealthy.

Captain Ahab

3 years ago

Reply to PapaDave

History and basic economics teach how oil prices change with global economic conditions. In 2007-8, the ‘big’ factor was China subsidizing oil purchases–boosting demand. In 2022, it was Russia/Ukraine (and President Cluster Fudge) shrinking supply. It is difficult to find a better example of demand and supply interaction under changing conditions. Enough said.

PapaDave

3 years ago

Reply to Captain Ahab

There will be a supply problem for the rest of this decade because of a decade of underinvestment. Higher prices are unavoidable. Basic economics.

Casual_Observer2020

3 years ago

Reply to PapaDave

I think people were saying this in the 70s too. Then we got $3/barrel oil. Everything only exists in the context of the total environment in which it exists. The biggest problem oil hit was Covid. I wouldn’t underestimate the ability for commodity prices to cause a recession even if rate hikes stop not b/c of demand vs supply but because there is too much money in the system looking for a return. This is why I keep saying the best way to bring down inflation is to take money supply out the banking system and reregulate derivatives as it was prior the dereg of the late 1990s that caused the real estate bubble and crash. This time around we have derivatives bubble in commodities and very little to do with actual supply and demand. You can’t have a productive economy only based on high energy prices just as we couldn’t have a productive economy only based on the real estate bubble of the 2000s. Right now we have both to some degree and very little productivity.

PapaDave

3 years ago

Reply to Casual_Observer2020

That is a very possible scenario. Well stated.

Ultimately, commodity prices are determined by supply vs demand.

Though in the short run, as has been pointed out many times here, financial markets can cause prices to overshoot in either direction.

It is because of financial markets that I use my trading position to buy the dips and sell the rips. On Tuesday, I sold the rip, which I bought on the dip last Thursday and Friday.

But my core position is based on long term supply vs demand for an entire decade. We are just two years into this decade long scenario. A recession may temporarily reduce demand to balance with supply. But that is a 6-12 month chapter in a 10 year story.

And it will justify the position of oil companies in keeping capex spending low, while they have been eliminating their debt, and buying back shares at historically low prices. In addition they have committed to returning large amounts of FCF to shareholders.

I will be happy to sit back and collect 20+% returns from that FCF at $80 oil (30+% at $100 oil).

If financial markets bring share prices down further, it will provide an opportunity for investors to jump in to this incredibly undervalued sector.

But based on the comments I see here, most people will never commit to investing in it.

In the meantime, the inventory data that I follow shows no reversal in the declines. There has been no demand destruction yet.

Though financial markets may temporarily reduce oil and gas prices based on “expectations” of demand destruction, there is still no sign of that demand destruction.

On the supply side, OPEC+ has been promising more oil by adding 430k more barrels every month and 650k more barrels for both July and August. Yet they have not come close to these supply increases. April supply increase was 10k, and in May, supply actually dropped! Clearly, they have run out of supply.

Plus we are getting extra supply from SPR releases. But those will end in November, and we will need to start buying more oil to refill the SPR in 2023.

As far as I can see, demand is going to keep exceeding supply for a long time to come. A recession is not going to change that in a significant way.

PapaDave

3 years ago

Reply to Casual_Observer2020

Sweet! Bought the dip when the market opened today. Everything that I sold yesterday. As I keep saying, I love the volatility!

Zardoz

3 years ago

Not sure how accurate it is, but this is a fun source of housing data that’s somewhat up to date: https://www.redfin.com/news/data-center/

hmk

3 years ago

Reply to Zardoz

BTW I used Redfin when I sold my home. They have a 1.5% listing fee, we agreed to only pay a 2.5% buyers agent fee, and if you buy a home with Redfin they offer you a .5% rebate. Total sales commision then would be 3.5%. Way more reasonable than the usual 6% RE fee. I was very happy with them. Tried fsbo but no luck.

The Current Rise in Mortgage Rates Is Unlike Anything in History

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