In the past few days, US 30-year fixed-rate mortgage has seen a sharp increase, reaching the highest level since October 2000 on Thursday. It comes after US 30-Year Treasury yields rose further as the market struggled to absorb a new wave of issuance.
*This article was written by Christophe Barraud and was republished with consent.
According to Bankrate.com‘s data, US 30-Year fixed-rate mortgage reached 7.46% on Thursday, the highest rate since October 2000. This increase was driven by a spike in 30-Year Treasury yields, which serve as a reference for mortgage rates. The spike in yields was triggered after a $23 billion auction of 30-year bonds pointed to weak demand. Bloomberg reported “even with the bonds sold for a yield of 4.189%, the highest since 2011, the amount allotted to primary dealers was the largest since February, a sign of weak demand. Afterward, 30-year yields jumped as high as 4.26% late in New York.“
In the meantime, Freddie Mac reported the 30-year fixed-rate mortgage averaged 6.96 percent as of Aug. 10, rising for the third straight week. A year ago at this time, the 30-year FRM averaged 5.22 percent. In the meantime, 15-year fixed-rate mortgage averaged 6.34 percent, up from last week when it averaged 6.25 percent. A year ago at this time, the 15-year FRM averaged 4.59 percent. However, it’s important to keep in mind that Freddie Mac’s weekly rate number is a lagging indicator. It’s a 5 day average through Wednesday. Therefore, next week’s report should probably show another spike.
The impact on sales’ transactions has been already evident. According to the Mortgage Bankers Association (MBA), for the week ending August 4, 2023, mortgage purchase applications decreased by 2.7% on a seasonally adjusted basis from the previous week (v -3.2% prior). The index dropped for a fourth straight week and was down 12% over the past six weeks. It reached the lowest level since February. This situation is expected to have a significant effect on closed sales from August to October. This could potentially lead to existing home sales reaching a 13-year low.
About the Author:
Christophe Barraud is Chief Economist and Strategist at Market Securities. He has been awarded by Bloomberg the title of Top Forecaster of the U.S. Economy (from 2012 to 2020 and in 2022), Eurozone Economy (from 2015 to 2019 and in 2022) and Chinese Economy (from 2017 to 2020). He also won the latest Forecaster of the Year contest organized by MarketWatch in 2020. Since 2021, he has been Adjunct Lecturer at ESCP in the MSc Finance, which has been ranked first worldwide in the 2023 Financial Times Masters in Finance ranking.