U.S. 30-year mortgage rates top 5 percent and keep rising
U.S. mortgage rates for 30-year loans have quickly overrun the 5 percent mark in the last three days, planting a flag on territory they haven’t touched since before the 2008 financial crisis.
Many would-be borrowers, however, think they are still down around 4.7 percent. Some could be in for a rude shock to find that payments on the home they thought they could afford just slipped out of reach.
“Generally we are seeing mortgage rates above 5 percent,” said Jerry Kaplan, executive vice president of capital markets with Cherry Creek Mortgage, Colorado’s largest mortgage lender.
Rates for a conforming 30-year mortgage before noon Friday were at 5.25 percent, he said. As recently as Tuesday, they were closer to 4.75 percent. The move has been swift, furious and largely unreported.
Freddie Mac puts out a weekly mortgage rate survey on Thursdays that media outlets use as the benchmark. It showed that rates on 30-year loans had dropped from 4.72 to 4.71 percent, following a five-week run that took rates up from 4.51 percent.
Press reports talked about how mortgage rates were finally cooling. What mortgage rates were actually doing was catching fire again, with the flames burning hotter than they did in January.
Kaplan said that pattern isn’t unusual. Mortgage rates tend to make swift moves up and slow moves down. And they can hold stable for long stretches, which was the case from February to September.
“The bond market now understands that the Fed intends to keep going a quarter point on its federal funds rate every 90 days until the economy slows down,” said Lou Barnes, a senior loan officer with Premier Mortgage Group in Boulder.
Mortgage rates track the movements in the 10-year Treasury, and they adjust on a daily and even hourly basis. Treasury rates have risen sharply, and mortgage rates followed.
Driving the move higher is a more aggressive stance from the Federal Reserve and several strong economic reports, including one Friday that put the U.S. unemployment rate in September at 3.7 percent, its lowest reading since December 1969.
Historically, the housing market cracks when mortgage rates rise by 2 percentage points above the prior low in a cycle, Barnes said. The prior low was around 3.5 percent, which puts the threshold of worry at around 5.5 percent.
“A 2 percentage point increase in mortgage rates from the previous low has coincided with a recession. We are getting close to that,” Barnes said.
Working in the housing market’s favor this time around are ongoing shortages of available inventory. Residential home builders have avoided the excesses of the last decade, which means they won’t have to sharply discount homes to get them sold.
“Even though rates are up and prices are up, we have a chronic shortage of housing in every urban area,” Barnes said.
Also, underwriting standards have remained tight since the housing crash. Recent buyers have put larger sums down and are more likely to have the income stated in their applications.
Ruben Gonzalez, chief economist with Keller Williams in Austin, Texas, said markets like Seattle and Denver, where price gains have stretched buyers, are the most likely to feel the strain of higher mortgage rates.
“I don’t know if 5 percent will be a psychological barrier or not, but in terms of affordability, it will effect it,” he said. He is forecasting a drop in sales this year versus last and a higher inventory of homes for sale, but he doesn’t see a decline in prices.
Home and condo sales in metro Denver plunged 28.9 percent in September from August, a decline too large to be explained away as the usual seasonal slowdown. And while price gains are robust year-over-year, they have fallen month-over-month since June.
The median price of a single-family home sold in Denver last month was $502,034. At a 30-year rate of 4.75 percent, the monthly payment on a loan for that amount would run $2,619. At a rate of 5.25 percent, the payment would run $2,772. At a rate of 3.5 percent, the payment would be $2,254 a month.
The mortgage industry has been struggling with a big drop in loan activity after rates rose early in the year. JP Morgan said Friday it would cut 400 jobs in its mortgage lending business. In August, Wells Fargo said it would cut 638 mortgage employees.