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30-Year Mortgage Rates increase to 5.85%.


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2022 Jun 10, 1:10pm   6,717 views  59 comments

by Al_Sharpton_for_President   ➕follow (5)   💰tip   ignore  

Goldman: "The median monthly payment of a 30-year mortgage is up 56% year-over-year".

In April, I wrote: How High will Mortgage Rates Rise? In that post, I included a simple method for estimating 30-year mortgage rates based on the 10-year Treasury yield.

Housing economist Tom Lawler explained that the relationship is more complicated in Lawler: Mortgage/Treasury Spreads, Part I and Lawler: Mortgage/Treasury Spreads Part II: “Decomposing” the Widening This Year.

Here are some updates to the questions I posed:

What are current rates?
How high will mortgage rates rise?
How do higher mortgage rates impact affordability?
What are current rates?

Mortgagenewsdaily.com reports that as of today, average 30-year fixed mortgage rates are at 5.85% for top tier scenarios. Rates increased today as a result of the inflation report released this morning. Here is a graph from Mortgagenewsdaily.com that shows the 30-year mortgage rate over the last 5 years.

It is the sharp increase in monthly payments - due to sharply higher mortgage rates - that is impacting the housing market.

The Mortgage Bankers Association’s (MBA) reported this week that as of June 3rd:

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 5.40 percent from 5.33 percent, with points increasing to 0.60 from 0.51 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.

And Freddie Mac reported this week:

Freddie Mac … released the results of its Primary Mortgage Market Survey® (PMMS®), showing that the 30-year fixed-rate mortgage (FRM) averaged 5.23 percent.

“After little movement the last few weeks, mortgage rates rose again on the back of increased economic activity and incoming inflation data,” said Sam Khater, Freddie Mac’s Chief Economist. “The housing market is incredibly rate-sensitive, so as mortgage rates increase suddenly, demand again is pulling back. The material decline in purchase activity, combined with the rising supply of homes for sale, will cause a deceleration in price growth to more normal levels, providing some relief for buyers still interested in purchasing a home.”

All of these measures move together over time (and the Freddie Mac PMMS is used for historical data), however when rates are moving quickly - like today -mortgagenewdaily.com is the most up-to-date.

How high will mortgage rates rise?

Goldman Sachs economists wrote yesterday:

In our view, the broad-based strength in core inflation tips the balance for the Fed to continue its 50bp-per-meeting pace of tightening through September. We continue to expect a terminal rate of 3.0-3.25%, which will now be reached in 1Q2023 under our forecast.

Based on the simple relationship between the 10-year Treasury yield and the 30-year mortgage rate, the 30-year mortgage rate will peak around the current level, although there is some variability in the relationship. The simple method suggests might see rates as high as the low 6% range.

However, as Lawler noted, the relationship is more complicated than the simple method of comparing to the 10-year Treasury yield, and it also depends on future inflation and the terminal Fed Funds rate. So, 30-year mortgage rates could move even higher.

How do higher mortgage rates impact affordability?

Based on today’s mortgage rates, affordability has declined significantly, see: Worst Housing Affordability" since 1991 excluding Bubble. However, it is important to understand that if mortgage rates double - say from 2.75% to 5.5%, monthly payments do not double - but they do increase significantly.

The following graph shows the year-over-year change in principal & interest (P&I) assuming a fixed loan amount since 1977. Currently P&I is up about 35% year-over-year for a fixed amount (this doesn’t take into account the change in house prices).

Add in the 20% increase in house prices over the last year, and the payment for purchasing the same home is up about 55% year-over-year.

Yesterday, Sam Ro tweeted some analysis from Goldman Sachs on the median monthly payment. This analysis was before the sharp jump in rates today.

"The median monthly payment of a 30-year mortgage is up 56% year-over-year" - Goldman

In summary:

Current 30-year mortgage rates are around 5.85%.

Mortgage rates are probably close to the peak for this cycle (depending on inflation) but might rise to the low 6% range.

Mortgage payments - for buying the same home - are up over 50% year-over-year.

https://calculatedrisk.substack.com/p/30-year-mortgage-rates-increase-to

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1   indc   2022 Jun 10, 3:42pm  

DooDahMan says

If someone can not afford a property because the interest rate goes up 1/4, 1/2, or even a full %, they really should not even be seriously considering becoming a property owner.



I dont think interest rates went up only 1/2 point. From 3% to 6% is double just for interest payments.
2   Blue   2022 Jun 10, 4:16pm  

Update the chart for 3 to 6 and one can see almost double the payments.
3   Blue   2022 Jun 10, 4:21pm  

Interest should go few points up to control inflation. It’s going to be hard on employment. The fake Covid QE money flow really sucks economy.
4   RedStar   2022 Jun 10, 4:40pm  

What I don't get is how many people seemingly don't consider property taxes either. I can't imagine paying property taxes on these 700-800k homes people are paying in Idaho.it may take a while but those taxes will skyrocket.My rental is increasing by 1800/yr and it was half the price of Boise.
My mortgage payments here in CA are less than the annual property taxes that all these Bay Area buyers are going to be paying for their 1.5 mil shack.
5   Blue   2022 Jun 10, 4:45pm  

DooDahMan says

Found one since I am not the IT type, There are definitely notable increase but not even close to doubling

Even I thought they were linear, I was wrong.
6   Blue   2022 Jun 10, 4:55pm  

DooDahMan says


They also get caught being in over their heads, over and over, let the property go to hell because they can not afford to maintain it and go into debt that can not afford to try and keep up with someone else in the hood or are told this is what your house needs to be comfortable and with it.

FOMO should be a driving factor triggered by price increases as a result of $Ts of fake Covid QE flowing to corporations.

Optimistic case: https://www.investingcube.com/next-housing-crash-prediction-will-it-happen-in-2022/ at least for now.
Pessimistic case: https://www.youtube.com/watch?v=OB8MZwRNNV0 (in his other videos covered FL, NC, IL, ID, TN, WA, CO, TX, UT, CA corrections, all north east states look not bad so far)
7   WookieMan   2022 Jun 10, 5:11pm  

DooDahMan says

People have lost touch with what a house should mean - shelter and not having to deal with a landlord. Same with cars/trucks. I do not consider either of them "statements" - they are a means to an end - getting from A to B and a place to sleep and eat in reasonable comfort.

Bingo. We can afford $1.2-$1.5M in our area. Those homes don't exist here. So we're building and should be all in around $400-500k with land. About 1.5X's income.

We'll spend more than we should, but can afford it easily. Live frugally. Happiness is a thing too as long as finances don't stress you out. The entire family will be happier for sure and we aren't overdoing our financial burden at all.

I agree with the car thing. Ours are big, so I'm being a bit hypocritical, but it really is an A to B thing. I drive an Armada but could have gotten the Infinity version for $15-20k more. I wouldn't. Never got the "luxury" car thing with Infinity, Lexus, Acura, etc. They make the same car as a Nissan, Toyota or Honda (I believe). Just without the shiny fake wood. My Armada is still kicking it with all the luxuries you get now at 210k miles. That was our biggest non-home purchase and has been worth every dollar.
8   AD   2022 Jun 10, 5:33pm  

Inflation was 8.3% for May 2022.
9   SunnyvaleCA   2022 Jun 10, 6:49pm  

It's true that doubling of interest rates don't quite double the monthly payment and so won't quite cut housing prices in half. For example: looking at the 3% to 6% chart, consider... A person who can afford a $3k/month payment can afford $700k house at 3% interest, but now only a $500k house at 6%.

But look at that $200k drop from homeowner's equity standpoint: Someone who had $250k equity in their house now has $50k value — losing 80% of their equity! Some more recent purchasers will be underwater. People wishing to trade in their (now) $500k home for a different $500k home won't be able to afford the selling and moving expenses. People won't be able to refinance to take the now non-existent equity out of their house; sure, they shouldn't use their house as an ATM, but it could be wise if it is to pay off high-interest loans elsewhere.

I see refinancing freezing up, a significant slowdown in new-home construction, and more consolidation into homes as investments by the rentier class and fewer people owning the homes they live in and creating stable communities.
10   B.A.C.A.H.   2022 Jun 10, 7:24pm  

SunnyvaleCA says

look at that $200k drop from homeowner's equity standpoint: Someone who had $250k equity in their house now has $50k value — losing 80% of their equity!

It doesn't mean a thing unless they sell. Till then it's Vapor Equity.
11   Hircus   2022 Jun 10, 7:43pm  

One thing the current economic climate has going for it is that 2008 is still in recent memory for lots of people. Most who sold during peak fear regret it deeply. Everyone knows someone who listened to smiling CNN man, and sold during peak fear and screwed themselves hard.

I think the "hold, it will come back up" mantra will persevere unless we reach a point where things look worse than 2008, or uniquely different so as to cause severe uncertainty fear. I'm betting the robber barrons will try to engineer that fear and panic as usual, but I'm not thinking they will have great success unless they unleash another big event / major turn for the worse. But well see. I wouldnt mind a 2023 asset sale.
12   mell   2022 Jun 10, 7:55pm  

SunnyvaleCA says

I see refinancing freezing up, a significant slowdown in new-home construction, and more consolidation into homes as investments by the rentier class and fewer people owning the homes they live in and creating stable communities

Agreed but the slowdown in building will reduce inventory and support prices as will general inflation. My prediction is prices will stay high mostly but fewer sales/transactions
13   WookieMan   2022 Jun 10, 8:55pm  

B.A.C.A.H. says

SunnyvaleCA says


look at that $200k drop from homeowner's equity standpoint: Someone who had $250k equity in their house now has $50k value — losing 80% of their equity!

It doesn't mean a thing unless they sell. Till then it's Vapor Equity.

This is true. I learned from my old man that it doesn't matter until you sold. He did and 1031'd into a bunch of other properties. Paper wealth was $3-4M at one point and would be $10M in todays dollars. He had to BK during the housing crash as all his assets were real estate besides a token IRA for his age.
15   AD   2022 Jun 10, 11:16pm  

Patrick says

https://notthebee.com/article/mortgage-demand-falls-to-22-year-low-as-fed-keeps-raising-interest-rates


Yep, when you buy a home, you are buying a monthly payment (mortgage, property tax, property insurance, HOA fee). That is what my local regional bank told me when I got my VA mortgage.

They said with 3% rate (back in August 2016) that my house price should be no more than 5 times my household income. I think that equates to the monthly payment not being more than 38% of household income.

Back in 2016 the banks seemed very tight with their standards. And I suspect that has been the case since 2010. I don't think we'll have a collapse of real estate due to amount of subprime mortgages.

My concern is the likelihood of massive job losses causing mortgage defaults, especially given inflation significantly dampening business earnings..

.
16   richwicks   2022 Jun 10, 11:48pm  

ad says

Back in 2016 the banks seemed very tight with their standards. And I suspect that has been the case since 2010.


I doubt it.

Banks take no risk on a mortgage. If a house is repossessed the bank simply sits on the property until they can sell it. There's no reason for the banks to be careful with lending standards because they can't lose.

Banks no longer report their earnings and loss properly. That's been in effect for over a decade. SEVERAL companies don't, it falls under "national security" now.

When the crash happens, and it will, it will be Depression 2.0.

I suspect the end of this is hyperinflation and a push for more state control to "control corrupt business". I.E. a new communism.
17   Blue   2022 Jun 11, 12:51am  

richwicks says

Banks take no risk on a mortgage. If a house is repossessed the bank simply sits on the property until they can sell it. There's no reason for the banks to be careful with lending standards because they can't lose.

I think most if not all banks sell mortgage to government under the fannie mae, freddie mac names.
19   exfatguy   2022 Jun 13, 11:54am  

Yet asking prices are still at all-time highs. Clearly, the folks buying homes are paying all cash and don't need peon mortgages. If you need to borrow, you can't afford it.
22   AmericanKulak   2022 Jun 13, 1:36pm  

YEEHAH! Crush dem prices - All actors buy the payment. It might appear that Wall Street is paying cash, but that was possible because they financed bigly at low rates to get that cash.
23   ForcedTQ   2022 Jun 13, 1:43pm  

So PMAs have reverted back to where they were pre 2019, when we had just a low level steady appreciation (devaluation of the dollar.) This correction seems agreeable and healthy for the stabilization of the market, no?
25   AD   2022 Jun 13, 2:12pm  

Amazon is near September 2018 levels. That means Amazon stock moved sideways for about 3 and 1/2 years.

Look at other stocks that have been through blood baths like Facebook, AMD, Disney, etc.

Disney is at the same stock price as it was in December 2014 ! ! !

.
26   Blue   2022 Jun 13, 2:27pm  

Stocks might further go down 0 to 40%, but buying at this level is not bad if one wants try dollar cost averaging. They should eventually go up in a year or two particularly in inflationary scenario.
27   zzyzzx   2022 Jun 14, 6:59am  

30 year mortgage rates up to 6.18%
28   zzyzzx   2022 Jun 14, 7:00am  

ad says

Amazon is near September 2018 levels. That means Amazon stock moved sideways for about 3 and 1/2 years.

Look at other stocks that have been through blood baths like Facebook, AMD, Disney, etc.

Disney is at the same stock price as it was in December 2014 ! ! !


Yet still another reason to only buy stocks that pay a dividend.
29   joshuatrio   2022 Jun 14, 7:13am  

zzyzzx says

ad says


Amazon is near September 2018 levels. That means Amazon stock moved sideways for about 3 and 1/2 years.

Look at other stocks that have been through blood baths like Facebook, AMD, Disney, etc.

Disney is at the same stock price as it was in December 2014 ! ! !


Yet still another reason to only buy stocks that pay a dividend.


What stocks do you recommend that pay dividends?
30   FuckTheMainstreamMedia   2022 Jun 14, 7:13am  

exfatguy says

Yet asking prices are still at all-time highs. Clearly, the folks buying homes are paying all cash and don't need peon mortgages. If you need to borrow, you can't afford it.


I think asking prices are the people who psychologically MUST sell at the highest possible point. Refusal to cash in their lotto ticket when they had a chance, now freaking out because the peak passed them but they still want peak money.
31   zzyzzx   2022 Jun 14, 8:13am  

joshuatrio says

What stocks do you recommend that pay dividends?


Personally, I recommend any that pay a dividend vs one that does not. Obviously that would be a mix of dividend aristocrats. But if you want higher yields, yeah a REIT or a covered call ETF would be better if you don't mind not getting any growth.
33   zzyzzx   2022 Jun 15, 7:48am  

Because buyers now are "well qualified"

https://www.advisorperspectives.com/articles/2022/06/14/americans-are-building-vacation-home-empires-with-easy-money-loans

A special kind of business loan is fueling the boom. It lets borrowers, including the self-employed, qualify based not on their salaries but on the projected future income of the property they’re buying. In industry jargon, they’re known as “debt service coverage ratio” loans, referring to the way that rents must be at least enough to cover monthly mortgage payments. Last year investment-property loans without taxpayer backing totaled $9.9 billion, an eightfold increase since 2018, according to industry publication Inside Mortgage Finance’s analysis of mortgage bond offerings. The vast majority qualified because of rental income.

Regular-paying tenants on long-term leases support most of these loans, industry executives and analysts say. But, over the past year, more lenders have started letting borrowers qualify based on what they expect to charge per night for stays booked on sites such as Airbnb and Vrbo, a unit of travel company Expedia Group Inc. Real estate buyers can generate much more income renting a property out for hundreds of dollars a night than they could through a lease to a long-term tenant, at least for now. So would-be owners, some of whom are young and just getting started, can afford increasingly expensive property.
34   zzyzzx   2022 Jun 15, 7:56am  

https://www.cnbc.com/2022/06/15/mortgage-demand-is-now-roughly-half-of-what-it-was-a-year-ago-as-interest-rates-move-even-higher.html

Mortgage demand is now roughly half of what it was a year ago, as interest rates move even higher
35   exfatguy   2022 Jun 15, 9:40am  

I don't care what the interest rate is as long as the house price and monthly payment reflect my ability to pay. So if rates go up and monthly payments go up, the price of the house would need to go down. But that's not going to happen because people aren't buying houses with mortgage money. It's all cash. So F me.
36   B.A.C.A.H.   2022 Jun 16, 8:02am  

I described this sh*tbox near where I live that I sometimes drive past. It was clearly a ®ealtor's "pocket listing" because the sign only appeared in front of the home after it sold. In spite of how butt-ugly the home appears, the photo on the ®eal Estate Website does not do justice to what an awful property it is. Note the sale date: May 5.
https://www.zillow.com/homedetails/1785-Hopkins-Dr-San-Jose-CA-95122/19727040_zpid/

Here is another one I drive past that had a sign recently appear, only one month later. This time, not a pocket listing. Much less "undesirable" listing than the other in different aspects. I drive past this one frequently, including a few times during weekend "open houses". I saw no "traffic" during those open house hours.
https://www.zillow.com/homedetails/2681-Pixanne-Ct-San-Jose-CA-95148/19730892_zpid/

It's only been a month. Times are changing!
39   1337irr   2022 Jun 16, 10:37am  

What's interesting is the hard money loan guys...

I have a friend that did a flip and is trying to sell the house for $925K in Austin.
40   porkchopXpress   2022 Jun 16, 6:07pm  

1337irr says

I have a friend that did a flip and is trying to sell the house for $925K in Austin.

He fooked

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