US mortgage rates: They’re high. Or “high,” with scare quotes.
It depends on how old you are. If you meet some definition of young, loose or otherwise, rates probably seem high, bordering on punitive. If you’re Methuselah, and you were home shopping in the early 1980s, current financing costs probably seem fair — generous, even.
Whatever the case, MBA data released on Thursday showed the average conforming 30-year fixed rate rose within a whisker of 7% last week. At 6.97%, rates are now the highest since July.
Rates are up 30bps in just three weeks, commensurate with a selloff at the long-end of the Treasury curve, where fiscal worries are manifesting in another term premium rebuild.
One narrative says homebuyers have resigned themselves to high (“high”) rates, or at least to the long odds that financing costs are going to drop precipitously anytime soon, and therefore won’t sit on their hands hoping for relief that’s not in the offing. As NAR chief economist Lawrence Yun put it last week, Americans “appear to have recalibrated expectations.”
Another narrative says you can afford what you can afford or, more aptly, you can’t afford what you can’t afford, so even if you have indeed “recalibrated” your expectations for rates, you won’t necessarily go out and buy a house, because changing your mindset doesn’t change the math.
Purchase activity and refis as tallied by the MBA fell during the Christmas holiday, Thursday’s release showed. “Not surprisingly, [the] increase in rates at a time when housing activity typically grinds to a halt resulted in declines in both refinance and purchase applications,” MBA SVP Mike Fratantoni remarked.
Recall that NAR data released earlier this week showed pending home sales (i.e., contract activity) rose a fourth month in November. But rates are higher since then, and a lot of constructive (no pun intended) housing market takes for 2025 lean on the idea that resale supply will continue to improve.
Prices are generally still climbing, albeit at a slower rate, according to both Case-Shiller and FHFA. Redfin’s more timely price index showed US home prices rose 5.7% YoY in December, the slowest annual increase since October 2023, when rates were close to 8% — and, notably, the last time the Treasury term premium was as wide as it is today.
My first mortgage was indeed more than 40 years ago with said 11+ rate, and lost that home to the Houston oil price drop / housing crunch in 86; we managed to get our PMI company to accept a 40% haircut on what we owed, just because we had a willing buyer (alt was bankruptcy/foreclosure)… none of our friends in the same boat were so lucky. Now more frugal, own forever home outright (and not in Houston). 7% ain’t so bad, really. And refinancing someday will feel good.
I see estimates that mortgage rates could rise from 25-100bp, potentially more for borrowers with poorer credit, if Fannie and Freddie are removed from conservatorship. No sense how realistic that is, presumably depends on how it is done and if the implicit guarantee remains.
H-Man, homes are expensive creatures —they demand to be fed all the time, deny them a meal and it falls on you.