Mortgage Rates Fly Higher

The national average for 30-year fixed mortgage rates has risen from a low of 5.62% on April 14th to 6.29% as of yesterday's close.  As shown in the first chart below, similar spikes occurred in the first half of 2006 and 2007 as well.  Anyone that wants the real estate crash to come to an end soon knows that a rise in rates like this is not going to help. 

And clearly the rate cuts from the Fed have done nothing to move mortgage rates lower.  The national average for 30-year fixed mortgage rates was at 6.24% when the Fed first cut the Discount Rate from 6.25% to 5.75% on August 17th last year.  Since then, the Fed Funds Rate has declined from 5.25% down to 2.00%, but mortgage rates are now up 5 bps to 6.29% over the same time period.

click to enlarge

Comments

[User 9759]

rates are up because treasurys are way up

[sorgmot]

Thanks for these graphs.

One could argue that long mortgage rates are up to force down the size of mortgages placed on homes which in turn forces down the home prices. Banks are looking at more and more mortgage defaults and want to make the loan back fast and force down its total value.

However, interest rates are exploding upward on 5 year US Government notes too. One could claim that US Government debt rates are pushing all US debt rates for all maturities up.

And what is pushing US Government debt interest rates up? Lots of people who own them want out of them and sell them at lower and lower prices to reach their goals. The world is awash in US Dollar denominated debt and the only way to sell it is to take lower and lower prices and that moves yields higher and higher.

If this latter explanation is correct,the USA has lost the ability to set its interest rates. Its creditors have taken that job over.

[DC HousingBear]

The two posts above are right. But add on top of that higher risk premiums. It's not about "wanting" rates to go down or "hoping" for the housing crash to end. The housing crash will end when home prices return to the fundamentals. Interest rates are one factor, but they are still at historic lows. The issue isn't that interest rates are too high, the issue is that homes are still way too expensive. They won't stop dropping until regular people can afford them at interest rates much higher than 6.25%. Let's not pretend there's anything anyone can do to stop that. Let's ask ourselves what we can do to mitigate the fall out and remind ourselves that millions of renters and first-time home-buyers will BENEFIT from lower home prices.