The 30-year fixed mortgage rate just hit 8% for the first time since 2000 as Treasury yields soar

[mahatmakanejeeves]

Source: CNBC

REAL ESTATE

The 30-year fixed mortgage rate just hit 8% for the first time since 2000 as Treasury yields soar

PUBLISHED WED, OCT 18 2023 * 1:02 PM EDT * UPDATED 2 HOURS AGO

Diana Olick
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KEY POINTS
• The average rate on the popular 30-year fixed mortgage rate hit 8% Wednesday morning.
• Yields on U.S. Treasurys are soaring.
• Higher mortgage rates have caused applications to plummet.

The average rate on the popular 30-year fixed mortgage rate hit 8% Wednesday morning, according to Mortgage News Daily. That is the highest level since mid-2000. ... The milestone came as bond yields soar to levels not seen since 2007. Mortgage rates follow loosely the yield on the 10-year U.S. Treasury

Rates rose sharply this week and last week, as investors digest more reads on the economy. On Wednesday, it was housing starts, which rose in September, though not as much as expected, according to the U.S. Census Bureau. ... Building permits, an indicator of future construction, fell, but by a less than the expected amount. Last week, retail sales came in far higher than expected, creating more uncertainty over the Federal Reserve’s long-term plan.

These higher rates have caused mortgage demand to plummet, as applications fell nearly 7% last week from the previous week, according to the Mortgage Bankers Association.

“Here’s another milestone that seemed extreme several short months ago,” said Matthew Graham, chief operating officer of Mortgage News Daily. “The fact is that many borrowers have already seen rates over 8%. That said, many borrowers are still seeing rates in the 7s due to buydowns and discount points.”

{snip}

Read more: https://www.cnbc.com/2023/10/18/30-year-fixed-mortgage-rate-just-hit-8percent-for-the-first-time-since-2000.html

[Fiendish Thingy]

1. Good news - that should help bring housing prices down. Nt

[Shermann]

2. Housing prices rarely come down significantly

That would take more than a small blip in rates.

[Fiendish Thingy]

5. Prices rarely come down significantly, except when they do

8% mortgages, while on the high end for average mortgage rates, have increased more than just a blip, considering just a couple of years ago, mortgages were in the low 2.x%.

The higher rates go, the less money buyers can qualify to borrow, eventually forcing sellers to lower prices or risk the entire market freezing up. Realtors won’t let that happen, as rates won’t come down for at least another 18-24 mos.

As boomers downsize or die off, properties will need to be sold.

[Shermann]

6. Population numbers rarely come down significantly as well

Hell, even Covid was no match for the birth rate. Barely an inconvenience.

[Fiendish Thingy]

8. Are you a realtor?

Those are usually the folks I hear claiming “prices never come down”.

While a crash like 2008 is unlikely, a correction of 15-25% off current prices, depending on region and housing type (condo, townhome, or SFD) over the next couple of years is not out of the question, assuming mortgage rates remain at current levels (which they are projected to).

[Shermann]

10. The realtors (and Dave Ramsey) are correct, it's a statistical fact that average home prices rarely drop

That can be true at the same time that anything can happen next year. I weigh what is probable more heavily than what is possible.

[Fiendish Thingy]

13. Take a look a this graph of the median home sales price:

https://fred.stlouisfed.org/series/MSPUS#

Since the end of 2022, the median sales price for a home has dropped from $479k to $416k, about 13%.

The median is a more stable and reliable statistic than using average home price.

[Shermann]

14. That is a median sales price of houses sold

So that reflects not only home values but any trend of what types of homes are selling. Even that shows a long-term trend that rises far more than it falls.

Zillow has a home values index which doesn't have that bias issue. It shows a small dip recently which we've already recovered from.

https://www.zillow.com/home-values/102001/united-states/

[Fiendish Thingy]

16. The "bias" you refer to is the reality of actual sales prices

Whereas Zillow’s stat is more of a “wishful thinking” stat of imagined values based on…?

Actual sales price beats projected Zestimate every time.

[Shermann]

18. Except for when appraising houses that haven't sold in a while nt

[roamer65]

32. They did during the Great Recession.

[cstanleytech]

4. Or people with existing low interest loans will to stay pat and not put their homes on the market

potentially then causing a worsening affordable housing shortage causing newer home prices to remain unaffordable.

[Fiendish Thingy]

7. There are always people who need to sell

Divorce, death, transfers, downsizing/moving to assisted living.

During COVID, many sellers sat on the sidelines, and low rates and low inventory drove prices up.

That’s changed now. Sales volume is dropping steadily (-15% yoy for August), and if that trend continues, prices will have to follow at some point.

It takes a while for the market to respond to rate increases, sometimes a year or more, but higher mortgage rates will have an impact, eventually shrinking the pool of qualified buyers at current prices.

[AllyCat]

28. That's us right now.

We wouldn’t be able to afford anything at these horrible interest rates.

Raising interest rates: making your wages do less than ever before. The Fed sucks.

[IbogaProject]

21. Not sure, as it will more lock the market up and have less sales

This is going to lock up the market and keep everyone where they are. The pain will be for those who have to sell.

[Fiendish Thingy]

27. Depends on how much equity they have

To A boomer with a paid off mortgage downsizing to a condo, selling for $400k vs $500k shouldn’t be a deal breaker. And if that boomer dies, their kids won’t likely care if the house that had a peak value of $500k in 2021 now sells for $350k…(speaking from personal experience), as in the end, it’s all free money.

[IbogaProject]

37. What about those who'd wish to relocate?

This will hamper those who need or want to move of both sides. Selling and buying will both be much more expensive if financing is needed. This isn't good, especially going into a Presidential election year.

[Fiendish Thingy]

43. It's far better than double digit inflation, which is the alternative. Nt

[hueymahl]

3. Not Good news

If anything will lose us the next election, it will be economic insecurity. Rightly or wrongly, most people vote with their wallet.

[Fiendish Thingy]

9. If more young people can afford to buy a home, that's good news.

Historically, higher mortgage rates lead to lower home prices.

Overall, that’s a good thing IMO. Folks with variable rate mortgages who over extended themselves when rates were around 2% May disagree and have to sell at a loss.

[TexasDem69]

11. If I save $20k on a home

Or whatever I might save with a lower price, it comes nowhere close to offsetting the difference between a 3% mortgage rate and an 8% mortgage rate on a $300k, or $400k, or whatever loan. The payment on a $350k loan with 20% down at 3% is $1,476 a month. The payment on a $300k loan with 20% down at 8% is $2,025, almost $600 a month more every single month, or $216k more over the life of the loan. Mortgage rates are a disaster right now, both politically and for home buyers, and we shouldn’t pretend otherwise. I’d like to move, but simply cannot afford to give up my 3% mortgage rate from 2 years ago.

Oh, and I don’t know anyone who gets variable rates anymore after the subprime mortgage disaster

[Fiendish Thingy]

15. Median price is down to $416k from $479k at end of 2022

That’s about 13%, and definitely more than the $20k in your example.

If someone had 20% down for a home at $479k, they’d need to borrow $383k, but that same down payment of $96k would mean they would only need to borrow $320k when the price on the $479k home drops to $416k.

If the decline in prices continues, that will offset the increase in borrowing costs and housing will indeed be more affordable, especially for first time buyers, but even for folks like yourself, assuming you have built up some equity.

In your example, if someone was maxed out at $1476/mo for the $350k mortgage, they wouldn’t qualify for the $2025/mo mortgage for $300k.

That’s why prices are coming down, and will continue to come down if rates (and incomes) remain at current levels (and rates are projected to stay high for another 18-24 mos.

[TexasDem69]

19. And none of that answers the fact

A home loan at 8% is a disaster and is absolutely causing people to abandon attempting to buy a house. In your example, someone who borrows $320k at 8% over 30 years pays $2,625 a month, and $945,000 over the life of the loan. Someone who borrows $383k at 3% pays $1,932 a month, and $695,520. That’s a saving of almost $700 a month, $8,400 a year, and $250,000 over 30 years, even though the original loan amount is $60k more.

I can’t imagine any world in which anyone wants to pay more money each month, year and over their lifetime to take a smaller loan.

[Fiendish Thingy]

22. You keep forgetting something

If high rates cause fewer buyers to qualify for loans, then prices will have to come down until they qualify.

Also, your calculations for increased costs over the life of the loan assume rates won’t drop, and the borrower never refinances, to very big assumptions.

My first mortgage in 1985 was at 9%; my second, in 1991, was around 8%, but was refinanced to 6% just a few years later.

[TexasDem69]

23. A decrease in home prices might be good for the buyer

But not the millions of sellers who view their homes as an investment. The concept that 8% mortgage rates are anything but awful is simply wrong. And what someone might pay in 5 years if they refinance isn’t going to help President Biden win reelection

[Fiendish Thingy]

25. Simple choice: 8% mortgages or 12% inflation

If the Fed hadn’t hiked rates as high as they had (we are just at 5%- historical average is between 5-7%), then inflation would be in double digits, at least 12%, likely higher.

As for political damage, I think double digit inflation, which affects every single household in the nation, is worse than 8% mortgages, especially with record low unemployment.

If rates had stayed low, housing prices would have continued to skyrocket.

[AllyCat]

39. More money going to the banks vs. the homeowners

Who most likely had their greatest investment in their home. Borrower may pay the same as in your argument but the MONEY is once again, going to the rich and the people get less.

Raising interest rates sends more money to the rich and makes the average person get less for their productivity and labor.

[Fiendish Thingy]

44. Your choice: 8% mortgages or 12+% inflation (currently at 3%) nt

[AllyCat]

45. You have sidestepped the my point.

As always, the wealth goes to the top. Never the average person.

[MichMan]

26. Would a 15 percent mortgage rate then be good news for home buyers?

[Fiendish Thingy]

30. Mortgage rates in the early 80's were that high or higher

I think they peaked around 18%.

Housing prices tumbled and a recession followed (persistent inflation since the late 70’s had skyrocketed into the teens, and the fed didn’t start hiking aggressively until Reagan was in office IIRC.

With inflation declining from 9% two years ago to around 3% now, I don’t see any indication that the Fed will continue hiking aggressively, although another one or two quarter point hikes may be forthcoming in the next few months, depending on inflation numbers.

A year ago, economists were projecting a 100% chance of a recession by now, but at present, they are projecting no recession on the horizon.

I’d say that’s a good thing.

[progressoid]

34. But the cost of a house in the 80's was a lot lower.

Average cost of a house in 1980 was $47,200. Adjusting for inflation that house should be $186,730. But today it's approx $301,000.

The median price per square foot for a single-family house has risen 310% since 1980. When adjusted for inflation, that’s an increase of 24.6%.

[TygrBright]

12. High mortgage rates greatly increase the cost of buying a home. Not good.

They also make it difficult for homeowners wanting to "right size" (buy larger or smaller) to move, keeping housing stock static and blocking market flow.

They also increase the cost of equity loans and re-financing, making it more difficult for people to pay for major maintenance costs like roofing, siding, etc., and degrading the condition of housing stock.

This will come around to bite "Bidenomics" in the campaign next year, so I'm really hoping there is a plan to turn around the rate trajectory.

worriedly,
Bright

[Fiendish Thingy]

17. Higher rates increase the cost only for an unchanged price

The pool of qualified buyers for a $500k home is larger for mortgages at 2% than at 8%. Depending on the median income in a particular region, there may be few, if any buyers who could qualify for a $500k mortgage at 8%, so, if the seller must sell, they will have to lower their asking price in order to attract buyers who can qualify for financing.

Higher rates put downward pressure on prices.

[TexasDem69]

20. Which is bad for the homeowner?

People buy a house to live in and thinking it’s an investment. They don’t want to sell it for less if they decide to move because the government has priced buyers out of the market.

[Fiendish Thingy]

24. That's the problem- thinking of your home as an investment

Over the life of a mortgage, home values generally increase, but the primary purpose of a home is shelter, not investment. (Putting all your cash in one asset class is foolish)

Strictly speaking, The Fed isn’t “the government “, and they aren’t “pricing buyers out of the market”; buyers are only priced out if sellers refuse to lower their prices to what the market will bear…

Again, except in extreme circumstances like the 2008 GFC, most people who have lived in their homes for even just a few years have some equity, and the value has appreciated. Unfortunately, many homeowners buy into the fantasy that their “Zestimate” will never go down, which is unrealistic.

So, the reality is current homeowners who wish to sell may have to settle for a price that is lower than the market value just a few years ago; even then, many homeowners stand to make a healthy profit compared to their purchase price (in some cases, 100,200, even 300% over original purchase price)

[LymphocyteLover]

40. You have a very strange view of this situation. Homes are an investment.

and higher mortgage interest rates are generally not good even if there may be some upside

[honest.abe]

29. This is going to have impact on voters if interest rates dont go down by election day.

Unfairly of course but Biden will get blamed.

[Fiendish Thingy]

36. It will have less impact on voters than if the fed had not raised rates

Because inflation, which affects everyone, would now be at 12+% instead of 3%.

That’s the choice the Fed made: 8% mortgages (for a year or two) vs. 12+% inflation (for many years).

[honest.abe]

41. Regardless, voters won't know that.

[pansypoo53219]

31. pfft. go back farther. my aunt bought a house in 84 i think, late 70's is a twin to now.

i have been reading secrets of the temple by greider, about the fed i just hit the start of reagan. i picked the perfect time to read it finally. last few years parallel.

[raising2moredems]

33. Gonna be a bit of a grinch and show my age...

Rates were 15-16% during the early raygun years. And of course new mortgages were no longer assumable during the raygun years too. I will admit housing prices were not quite as out of kilter (income to housing cost much less wages being depressed/union busting/middle class killing). But the Fed left the interest rate far, far, far, far too low for far, far, far, far too long. Allowed the rich to get richer and screwed most Americans.
Now time to back to Skinner mode LOL.

[Puppyjive]

35. Change the interest rate for primary homes

Lower the interest rate for first time and primary home buyers. This might slow investors from buying up all the inventory.

[C Moon]

38. Buy when interest rates are high and prices low.

Refi later.

[IronLionZion]

42. Date the rate, marry the price

Sure both are high now, but so is rent. At some point rates will come down again if you want to refinance. In the meantime it's important to remember that mortgage interest is tax deductible for those of us who itemize. Because official US policy is to encourage home ownership.

[SidneyR]

46. Just my luck

I thought I was reading that rates would slowly come down. So just as I finally saved up a respectable down payment, Covid came and wrecked the housing supply and rates went through the roof. I guess I'll have to get a senior apartment instead of a little ranch house in town.